© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Beginning the Accounting Cycle Chapter 3

Learning Objective 1 Journalizing: analyzing and recording business transactions into a journal- Steps 1 & 2 of the Accounting Cycle © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-1

Accounting Cycle Normal accounting procedures that are performed over a period of time Takes place over an accounting period © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-1

Accounting Period Period of time covered by the income statement Monthly Quarterly Annually ◦ Calendar year ◦ Fiscal year © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Semi-annual Reports LO-1

Accounting Period Calendar year - covers January 1 st - December 31 st Fiscal year - Covers any 12-month period Natural Business Year - A business’s fiscal year that ends at the same time as a slow seasonal period begins © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-1

General Journal Book of original entry Simplest form of a journal Records information from transactions in chronological order as they occur Information is then transferred to the ledger © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-1

Journalizing A Transaction General Journal Page 1 DateAccount Titles and DescriptionPRDr.Cr. 200x 2. The debit is always recorded first. Jan 1 Cash 10, The credit is indented & below the debit portion. J. Sims, Capital10, The explanation follows after the credit. Initial investment by owner 5. Skip a line between entries. 1. Debits must equal credits in each entry. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-1

Problem 3B-3 We will use Problem 3B-3 to apply the concepts presented in the chapter. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-1

© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Chart of Accounts for A. French’s Placement Agency Balance Sheet Accounts AssetsLiabilities 111Cash211Accounts Payable 112 Accounts Receivable Owner’s Equity 131Supplies311A. French, Capital 141Equipment312A. French, Withdrawals Income Statement Accounts RevenueExpenses 411Placement Fees511Wages Expense Earned521Telephone Expense 531Advertising Expense The Chart of Accounts

June 1: A. French invested $6,000 in the new placement agency. General Journal Page 1 DateAccount Titles and DescriptionPRDr.Cr. 200x © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Jun1 Cash 6,000 A. French, Capital 6,000 Initial investment of cash by owner LO-1

June 2: Bought equipment for cash, $350. General Journal Page 1 DateAccount Titles and DescriptionPRDr.Cr. 200x © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Jun2Equipment 350 Cash350 Purchased equipment LO-1

June 3: Earned placement fee commission of $2,100, but payment from Avon Co. will not be received until July. General Journal Page 1 DateAccount Titles and DescriptionPRDr.Cr. 200x © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Jun3 Accounts Receivable 2100 Placement Fees Earned 2100 LO-1 Billed Avon Co. for fees earned

June 5: Paid wages expense, $400. General Journal Page 1 DateAccount Titles and DescriptionPRDr.Cr. 200x © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Jun5 Wages Expense 400 Cash 400 LO-1 Paid Wages

June 7: A. French paid his home utility bill from the company checkbook, $69. General Journal Page 1 DateAccount Titles and DescriptionPRDr.Cr. 200x © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Jun7 A. French, Withdrawals 69 Cash 69 LO-1 Paid owner’s personal bill

June 9: Placed Jay Diamond on a national TV show, receiving $900 cash. General Journal Page 1 DateAccount Titles and DescriptionPRDr.Cr. 200x © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Jun9 Cash 900 Placement Fees Earned 900 LO-1 Placed J. Diamond

June 15: Paid cash for supplies, $350. General Journal Page 1 DateAccount Titles and DescriptionPRDr.Cr. 200x © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Jun 15 Supplies 350 Cash 350 LO-1 Purchased Supplies

June 28: Telephone bill received but not paid, $185. General Journal Page 1 DateAccount Titles and DescriptionPRDr.Cr. 200x © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Jun 28 Telephone Expense 185 Accounts Payable 185 LO-1 Telephone bill in, but not paid

June 29: Advertising bill received but not paid, $200. General Journal Page 1 DateAccount Titles and DescriptionPRDr.Cr. 200x © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Jun 29 Advertising Expense 200 Accounts Payable 200 LO-1 Advertising bill in, but not yet paid

Learning Objective 2 Posting: transferring information from a journal to a ledger © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-2

Ledger Account © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Account Title Account # xx Balance DateExplanationPRDebitCreditDebitCredit LO-2 4 Column Account- A running balance account that records debits and credits and has a column for an ending balance (debit and credit).

© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-2

Cross-Referencing Adding to the post reference column of the journal the account number of the ledger account that was updated from the journal. Users can refer to journal and ledger transactions by referring to account numbers or general journal pages. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

Cash Account # 111 Balance DateExplanationPRDebitCreditDebitCredit Jun 1 GJ16,000 2 GJ ,650 5GJ14005,250 7GJ1695,181 9GJ19006,081 15GJ13505,731 Ledger Account

Sample Chart of Accounts © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Account NameAccount Number Accounts Receivable112 Supplies131 Equipment141 Accounts Payable211 A. French Capital311 A. French Withdrawals312 Placement Fees Earned411 Wage Expense511 Advertising Expense531 LO-2

Learning Objective 3 Preparing a trial balance © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-3

Trial Balance List of individual accounts with their balances Taken from the ledger Certain errors can come to light if total debits are not equal to total credits ◦ Computational errors ◦ Transposition or slide errors ◦ Posting errors © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-3

© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater A. French’s Placement Agency Trial Balance June 30, 200X DebitCredit Cash 5,731 Accounts Receivable 2,100 Supplies 350 Equipment 350 Accounts Payable 385 A. French, Capital 6,000 A. French, Withdrawals 69 Placement Fees Earned 3,000 Wage Expense 400 Telephone Expense 185 Advertising Expense 200 Totals 9,385 Trial Balance

Making Corrections Before Posting ◦ Draw a line through the incorrect entry ◦ Write correct information above the line ◦ Write your initials near the change After Posting ◦ Draw a line through the error and write correct figure above the line ◦ Change the running balance to reflect the corrected posting ◦ Initial both changes © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-3

Making Corrections Correcting an entry posted to the wrong account ◦ The journal must include a correction accompanied by an explanation. ◦ The correct information must also be posted to the appropriate ledgers. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-3

Making Corrections © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-3 1. Wages expense was debited. Error was made on June The error was discovered and corrected on June 8. To correct error in which Wages Exp was debited for charges to Phone Co.

Making Corrections © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-2 Correcting Entry 1. The wages expense ledger account is corrected. 2. The telephone expense ledger account is corrected.

First Steps in Accounting Cycle © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Business transactions occur Analyze and record transactions in journal Post information from journal to ledger Prepare a trial balance LO-3

© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater End of Chapter 3