1. Certified General Accountants
Module 1
Certified General Accountants
Financial Accounting Fundamentals (FA1) Module 2 Recording Transactions
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2. C H A P T E R 3 Analyzing and Recording Transactions Slides Content
1-4 Learning objectives and the accounting cycle
5-8 Accounts and the ledger
9-20 Double entry accounting
21 Chart of accounts
22-37 Transaction analysis
38-40 General journal and posting
Trial balance
43-44 Review and end of chapter
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3. © 2010 McGraw-Hill Ryerson Limited.
Learning Objectives
Explain the transactions recorded in accounting systems and the importance of source documents in these systems. (Level 1)
Record the effects of transactions in accounts and explain the chart of accounts and ledger. (Level 1)
Analyze transactions using debits and credits and record their effects in accounts. (Level 1)
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4. © 2010 McGraw-Hill Ryerson Limited.
Learning Objectives
4. Record transactions in a general journal and post entries from the journal to the ledger using the balance column format. (Level 1) 5. Prepare a trial balance and explain its usefulness. (Level 1)
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5. © 2010 McGraw-Hill Ryerson Limited.
The Accounting Cycle
Analyze
transactions
Prepare
post-closing
trial balance 1 9
Journalize 2 2
Close 8
Post 3
Prepare
statements 7
Prepare
unadjusted
trial balance 4
Adjust
Prepare
adjusted
trial balance 5 6
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6. © 2010 McGraw-Hill Ryerson Limited.
The Account
A detailed record of increases and decreases in a specific asset, liability, or equity item.
Liabilities
Equity
Assets = +
Examples:
Cash
Accounts Payable
V.Climb, Capital
Accounts Receivable
Notes Payable
V.Climb, Withdrawals
Supplies
Service Revenue
Furniture
Salaries Expense
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The Ledger
A record containing all accounts used by a business.
May be computerized or maintained manually.
Each company has its own unique set of accounts.
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The T Account
Represents an account in the ledger.
Used as a learning tool.
The difference between the debit side and credit side is the balance.
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9. Calculating the Account Balance
Example: 1 2 3
Steps:
Add the amounts on the debit side.
Add the amounts on the credit side.
Calculate the difference between the debits and credits.
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10. Double-Entry Accounting
Transactions are recorded using debits and credits.
Every transaction affects at least two accounts.
Equal debits and credits will keep the accounting equation in balance.
Debits = Credits
Always !
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11. = + Double-Entry Accounting Assets Assets Liabilities Liabilities
Equity
Equity
Assets
Liabilities
Equity
Debit for increases
Credit for decreases
Debit for decreases
Credit for increases
Debit for decreases
Credit for increases
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12. Double-Entry Accounting
Equity Accounts
Capital
Withdrawals
Revenues
Expenses
Debit for decreases
Credit for increases
Debit for increases
Credit for decreases
Debit for decreases
Credit for increases
Debit for increases
Credit for decreases
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13. © 2010 McGraw-Hill Ryerson Limited.
Normal Balances
An account’s normal balance is the debit or credit side where increases are recorded.
Liabilities
Equity
Assets = +
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14. Remembering Debits and Credits
Account Type
Normal Balance
To ↑
Balance
To ↓
Assets Dr Cr
Liabilities
Capital
Revenue
Expenses
Withdrawals
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15. © 2010 McGraw-Hill Ryerson Limited.
Mini-Quiz
Indicate whether a debit or credit is needed to:
Increase Rent Expense
Decrease Accounts Payable
Decrease Accounts Receivable
Decrease Cash
Increase Withdrawals
Debit
Debit
Credit
Credit
Debit
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16. © 2010 McGraw-Hill Ryerson Limited.
Chart of Accounts
A list of all accounts used in the ledger by a company.
Unique for each company.
Accounts are usually numbered.
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17. Analyzing Transactions
Steps:
Determine which accounts are being affected.
Determine if account balances are increasing or decreasing.
Apply rules of debits and credits.
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18. Analyzing Transactions
Example #1: The owner invests $10,000 in the business.
Accounts affected
Increase/ Decrease
Debit/
Credit
Cash
Increase
Debit
V.Klimb, capital 1 2 3
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19. Analyzing Transactions
Example #1:
The owner invests $10,000 in the business.
Debit cash for $10,000
Credit V.Klimb, capital for $10,000
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20. Analyzing Transactions
Example #2: The company purchases supplies by paying $2,500 cash.
Accounts affected
Increase/ Decrease
Debit/
Credit
Supplies
Increase
Debit
Cash
Decrease 1 2 3
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21. Analyzing Transactions
Example #2:
The company purchases supplies by paying $2,500 cash.
Debit supplies for $2,500
Credit cash for $2,500
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22. Analyzing Transactions
Example #3: The company purchases supplies for $1,100 on credit.
Accounts affected
Increase/ Decrease
Debit/
Credit
Supplies
Increase
Debit
Accounts Payable 1 2 3
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23. Analyzing Transactions
Example #3:
The company purchases supplies for $1,100 on credit.
Debit supplies for $1,100
Credit accounts payable for $1,100
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24. © 2010 McGraw-Hill Ryerson Limited.
The General Journal
Entries are originally recorded in the General Journal. This process is called journalizing.
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25. Posting Journal Entries
General Journal information is transferred to the General Ledger.
Account balances are updated.
This process is called posting.
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26. © 2010 McGraw-Hill Ryerson Limited.
Posting
The Posting Process
LO 6
General journal information is transferred to the general ledger 1 3 2 5 5 4
Steps:
Identify the account.
Enter date
Enter amount
Calculate new account balance
Enter posting references
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27. © 2010 McGraw-Hill Ryerson Limited.
Trial Balance
A list of accounts and their balances at a point in time.
Used to determine if total debits equals total credits.
Also used to prepare financial statements.
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28. © 2010 McGraw-Hill Ryerson Limited.
Trial Balance
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29. Appendix 4A Correcting Errors © 2010 McGraw-Hill Ryerson Limited.
Errors found before posting
Draw a line through the incorrect information.
Insert correct information above the original entry.
Errors found after posting
Two alternatives:
Prepare a single correcting entry.
Reverse the original entry and record the correct entry.
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30. Correcting Errors — Example
A payment of $1,200 for Salaries Expense is erroneously posted to Interest Expense.
The original entry was recorded as:
Interest Expense , Cash ,200
The original should have been recorded as:
Salaries Expense , Cash ,200
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31. Correcting Errors — Example
Alternative 1 -Prepare a single correcting entry.
The original entry was recorded as:
Interest Expense , Cash ,200
The correcting entry would be:
Salaries Expense , Interest Expense ,200
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32. Correcting Errors — Example
Alternative 2 -Reverse the original entry and enter the correct entry.
The original entry was recorded as:
Interest Expense , Cash ,200
The entry to reverse this would be:
Cash , Interest Expense ,200
The correct entry would be:
Salaries Expense , Cash ,200
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33. © 2010 McGraw-Hill Ryerson Limited.
End of chapter
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