Student Version Repetition is an important component, a key part of learning. In memory, the more times patterns of thought are repeated, the more likely you will be able to recall information. These PowerPoint slides have been modified from the lecture decks by making them fill-in-the-blank. Why? So that you get an opportunity to repeat a visual cue (from the lecture or the book) via completing text here. In addition, most text book exhibits have been removed as they are available in your text directly.

Analyzing Transactions Chapter 2

Learning Objective 1 Describe the characteristics of an account and a chart of accounts.

Using Accounts to Record Transactions Accounting ___________ are designed to show the ___________ and ___________ in each accounting equation element as a separate ___________ . This ___________ is called an ___________ .

The T account has a ___________

The left side of the account is called the _________ side. The T Account Title The left side of the account is called the _________ side.

The right side of the account is called the _________ side. The T Account Title _____ _____ The right side of the account is called the _________ side.

Cash (a) 25,000 (b) 20,000 (d) 7,500 (e) 3,650 (f) 950 (h) 2,000 The T Account Cash (a) 25,000 (b) 20,000 (d) 7,500 (e) 3,650 _____ Side of Account _____ Side of Account (f) 950 (h) 2,000 Balance 5,900 Balance of the account

__________ of ___________ A group of accounts for a business entity is called a _________. A list of the accounts in the _________is called a __________ of _________.

Chart of Accounts ________ are resources owned by the business. Some examples of assets follow: ________________ __________ ________

Chart of Accounts _________ are _________ owed to outsiders (_________). Some examples of _________ follow: _____________________

Chart of Accounts _________ _________ is the stockholders’ right to the assets of the business after ____ _________ have been paid. Stockholders’ equity is represented by the balance of the _________ _________ and _________ _________ accounts. A _________ account represents _________ of earnings to stockholders.

Chart of Accounts _________ are increases in stockholders’ _________ as a result of _________ services or products to _________. Some examples of _________ accounts are: ____________________________

Chart of Accounts The using up of assets or _________ services in the process of generating _________ results in _________ . Some examples of _________ follow: ____________________________

Learning Objective 2 Describe and illustrate journalizing transactions using the double-entry accounting system.

Double-Entry Accounting System All businesses use what is called the _________ accounting system. This system is based on the _________ _________ and requires: Every business _________ to be recorded in at least _________ accounts. The total _________ recorded for each transaction to be _________ to the total _________ recorded.

_________ _________ Accounts The _________ and _________ rules for _________ _________ accounts are as follows:

_________ _________ Accounts The _________ and _________ rules for _________ _________ accounts are based on their relationship with _________ _________ .

Dividends The _____ and ______ rules for recording dividends are based on the effect of ________ on ________ ________ (________ ________).

______ Balances The ______ of the _________ in an account is usually equal to or _________ than the sum of the _________ in the account. Thus, the _________ balance of __ ______ is either a ______ or a ______ depending on whether ______ in the account are recorded as ______ or ______ .

Rules of Debit and Credit – Normal Balances of Accounts

Normal Balances Increases (Normal Bal.) Decreases Balance sheet accounts: Asset Debit Credit Liability Credit Debit Stockholders’ Equity: Capital stock Credit Debit Retained earnings Credit Debit Income statement accounts: Revenue Credit Debit Expense Debit Credit

Transaction A On November 1, Chris Clark deposited $25,000 in a bank account in the name of NetSolutions in exchange for capital stock.

Accounting Equation Impact Transaction A Step 2 Step 1 Step 3 Step 5 Step 4 Accounting Equation Impact Assets = Liabilities + Stockholders’ Equity (investment) _________ __________

Journalizing Journalizing requires the following steps: Step 1. The date of the transaction is entered in the Date column. Step 2. The title of the account to be debited is recorded at the left-hand margin under the Description column, and the amount to be debited is entered in the Debit column. Step 3. The title of the account to be credited is listed below and to the right of the debited account title, and the amount to be credited is entered in the Credit column.

Journalizing Step 4. A brief description may be entered below the credited account. Step 5. The Post. Ref. (Posting Reference) column is left blank when the journal entry is initially recorded. This column is used later when the journal entry amounts are transferred to the accounts in the ledger.

Journalizing A transaction is initially entered in a record called a ________. The process of recording a transaction in the journal is called ____________. The entry in the journal is called a _______ _________.

Transaction B On November 5, NetSolutions paid $20,000 for the purchase of land as a future building site.

Accounting Equation Impact Transaction B Accounting Equation Impact Assets = Liabilities + Stockholders’ Equity ________ ________

Transaction C On November 10, NetSolutions purchased supplies on account for $1,350.

Accounting Equation Impact Transaction C Accounting Equation Impact Assets = Liabilities + Stockholders’ Equity ________ ________

Transaction D On November 18, NetSolutions received cash of $7,500 from customers for services provided.

Accounting Equation Impact Transaction D Accounting Equation Impact Assets = Liabilities + Stockholders’ Equity (Revenue) ________ ________

Transaction E On November 30, NetSolutions incurred the following expenses: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275.

Accounting Equation Impact Transaction E Accounting Equation Impact Assets = Liabilities + Stockholders’ Equity (Expense) ________ ________

Transaction F On November 30, NetSolutions paid creditors on account, $950.

Accounting Equation Impact Transaction F Accounting Equation Impact Assets = Liabilities + Stockholders’ Equity ________ ________

Transaction G NetSolutions purchased $1,350 of supplies on November 10. Chris Clark determined that the cost of supplies on hand on November 30 was $550 or, stated another way, $800 in supplies had been used.

Accounting Equation Impact Transaction G Accounting Equation Impact Assets = Liabilities + Stockholders’ Equity (Expense) ________ ________

Transaction H On November 30, NetSolutions paid $2,000 to stockholders (Chris Clark) as dividends.

Accounting Equation Impact Transaction H Accounting Equation Impact Assets = Liabilities + Stockholders’ Equity (Dividends) ________ ________

Learning Objective 3 Describe and illustrate journalizing and posting of transactions to accounts.

_________ _________ _________ to Accounts The process of _________ the debits and credits from the _________ _________ to the _________ is called _________.

Posting Journal Entries to Accounts On December 1, NetSolutions paid a premium of $2,400 for an insurance policy for liability, theft, and fire. The policy covers a one-year period.

Posting Journal Entries to Accounts Posting Journal Entries to Accounts Accounting Equation Impact Assets = Liabilities + Stockholders’ Equity decrease increase

Steps in Posting Step 1. The date of the transaction is entered in the Date column of Prepaid Insurance.

Steps in Posting Step 2. The amount ($2,400) is entered in the Debit column of Prepaid Insurance.

Steps in Posting Step 3. The journal page number (2) is entered in the account’s Post. Ref. column.

Steps in Posting Step 4. The ledger account number (15) is entered in the journal’s Post. Ref. column.

December Transactions The ___________ created by receiving the _____ in ___________ of providing the service is called ___________ ______________.

Learning Objective 4 Prepare an unadjusted trial balance and explain how it can be used to discover errors.

_________ Balance The _________ of debits and credits in the _________ should be _________ at the end of _________ accounting period by preparing a _________ _________ .

Unadjusted Trial Balance

Trial Balance Errors - _________ A _________ occurs when the order of the digits is _________ by _________ , such as writing $542 as $452 or $524.

Trial Balance Errors - _________ In a _________ , the entire number is moved _________ or _________ spaces to the right or the left by _________ , such as writing $542.00 as $54.20 or $97.50 as $975.00.

Errors ______ Affecting the Trial Balance If an error has already been _________ and _________ to the _________ , a _________ _________ entry is normally prepared.

Errors Not Affecting the Trial Balance Another type of error is a _________ error. Assume that on May 5 a $12,500 purchase of office equipment on account was incorrectly journalized and posted as a debit to Supplies and a credit to Accounts Payable for $12,500. The entry to _________ the error is:

Learning Objective 5 Describe and illustrate the use of horizontal analysis in evaluating a company’s performance and financial condition.

_________ Analysis In _________ analysis, the amount of each item on a _________ financial statement is _________ with the _________ item on an _________ statement. When _________ _________ are being compared, the _________ statement is used as the base for _________ the amount and the _________ of change.

Horizontal Analysis $ $ = %

Analyzing Transactions The End