Acct 310 Accounting Review Part I Rick Hayes, Ph.D., CPA California State University L.A.

2 Accounting Analysis... Analyze the effect of business transactions on the basic accounting equation: Assets = Liabilities + Stockholders’ Equity Must always balance.

3 Transaction Analysis Two or more items can be affected Two or more items can be affected Example: purchase computer for $10,000 by paying $6,000 in cash and signing a note for $4,000 Example: purchase computer for $10,000 by paying $6,000 in cash and signing a note for $4,000

4 Event 1 – Investment of Cash by Stockholders Oct. 1 - Owner invested $10,000 Cash in business in exchange for $10,000 of Sierra Corporation Common Stock

5 Event 2 – Note Issued in Exchange for Cash Oct. 1 – Sierra issued a 3-month, 12%, $5,000 Note Payable to Castle Bank in exchange for cash.

6 Event 3 – Purchase of Office Equipment for Cash Oct. 2 – Sierra acquired office equipment by paying $5,000 cash to Superior Sales Co.

7 Event 4 – Receipt of Cash in Advance from Customer Oct. 2 – Sierra received a $1,200 cash advance from R. Knox, a client.

8 Event 5 – Services Rendered for Cash Oct. 3 – Sierra received $10,000 in cash from Copa Co. for advertising services performed

9 Event 5 – Services Rendered, WHAT IF these were performed “on account”? Later, when $10,000 is collected from customer…

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11 Examples

12 Total the Entries to Each Side If the greater sum is on the left, the account has a Debit Balance Total DebitsTotal Credits TITLE DebitCredit

13 Total the Entries to Each Side If the greater sum is on the right, the account has a Credit Balance Total DebitsTotal Credits TITLE DebitCredit

14 Summary of Transactions Assets = Liabilities + Equity

15 Normal for Assets and Liabilities Normal Balances for Assets and Liabilities

16 Normal Balances for Stockholders’ Equity

17 Normal Balances for Expenses and Revenues

18 Expansion of Basic Equation

19 Review What is the normal balance for the following accounts? Cash Service Revenue Accounts Receivable Accounts Payable Common Stock Salaries Expense Debit Credit Debit Credit Credit Debit

20 Review What is the normal balance for the following accounts? Dividends Unearned Revenus Taxes Payable Building Prepaid Insurance Rent Expense Debit Debit Credit Credit Debit Debit

DateDebit Credit GENERAL JOURNAL Account Titles and Explanations 2007 Oct. 1 Cash 10,000 Common Stock 10,000 (Invested cash in business) 1 Cash 5,000 Notes Payable 5,000 (Issued 3-month, 12% note payable for cash) 2 Office Equipment 5,000 Cash 5,000 (Purchased office equipment for cash)

22 The General Ledger

23 The General Ledger

GENERAL JOURNAL Account Titles and Explanations 2007 Oct. 1 Cash 10,000 Common Stock 10,000 Balance Acct 1010 Account CASH Date Acct 3010 Account COMMON STOCK DateBalance debit credit debit credit ref Posting Entries

GENERAL JOURNAL Account Titles and Explanations 2007 Oct. 1 Cash 10,000 Common Stock 10,000 Balance Acct 1010 Account CASH Date Acct 3010 Account COMMON STOCK DateBalance debit credit debit credit ref Oct 1 gj 1 10,000 Posting Entries

GENERAL JOURNAL Account Titles and Explanations 2007 Oct. 1 Cash 10,000 Common Stock 10,000 Balance Acct 1010 Account CASH Date Acct 3010 Account COMMON STOCK DateBalance debit credit debit credit ref Oct 1 gj 1 10,000

27 Trial Balance A list of all the accounts and their balances at a given time. It serves to prove the mathematical equality of debits and credits after posting. It aids in the preparation of financial statements. 11 8

Sierra Corporation Trial Balance October 31, 2007 Debit Credit Cash $15,200 Advertising Supplies 2,500 Prepaid Insurance 600 Office Equipment 5,000 Notes Payable $ 5,000 Accounts Payable 2,500 Unearned Service Revenue 1,200 Common Stock 10,000 Dividends 500 Service Revenue 10,000 Salaries Expense 4,000 Rent Expense 900 $28,700 $28,700