1. 3 Introduction to Financial Accounting Information, 7/e Processing
PowerPoint Author: Catherine Lumbattis
COPYRIGHT © 2011 South-Western/Cengage Learning

2. External and Internal Events
External events: interaction between entity
and outside environment
Internal events:
Event occurs entirely
within the entity
LO1

3. Source Documents Evidence needed in an accounting system to record
Purchase
Invoice
Sales
Invoice
Evidence needed
in an accounting
system to record
transactions
Checks
Cash
Register
Tape
Receiving
Document
Shipping
Document
Payroll
Records
LO2

4. Issue Capital Stock for Cash
1/2010 Transactions for Glengarry Health Club
The accounting equation must always remain in balance
LO3 3

5. Purchase of Property in Exchange for Note Payable
Increase on left has corresponding increase on right 4

6. Cost Principle
requires assets such as equipment be recorded at cost to acquire and continue to report this amount until asset is sold
these assets are not carried at market value (only few exceptions) 10

7. Effect of Revenue and Expenses
on Retained Earnings
Statement of
Retained Earnings
Income Statement
Beg. R/E
+ Net Income
OR ( – Net Loss)
– Dividends
= End. R/E
Revenue
– Expenses
= Net Income
or (Net Loss) 7

8. Identify and Analyze What type of activity?
operating, financing or investing
What accounts are affected and are the
accounts increased or decreased?
at least two accounts are always affected
Which financial statements are affected?
just the balance sheet or balance sheet
and income statement

9. Sell Monthly Memberships on Account6

10. Payment of Wages and Salaries
Payment of Wages and Salaries: Operating activity
Two accounts are affected: Cash is decreased and Wage and Salary Expense is increased
This transaction affects both the Balance Sheet and the Income Statement 6

11. Payment of Wages and Salaries8

12. Appendix: The T Account
Account Name
Debits are
entered on left
Credits are
entered on right
Representation of one account in the general ledger
LO5 17

13. The T Account Account Name 400 dr. 900 cr. 500 cr. Debits and credits
are netted to obtain
balance in account
500 cr. 17

14. Debits/Credits and the Accounting Equation
STOCKHOLDERS’
EQUITY
Dr.
Cr. + – +
LIABILITIES
Dr.
Cr. – =
ASSETS
Dr.
Cr. + –
Opposite sides of the accounting equation are
increased/decreased in an opposite way

15. Link Between Revenues and Retained Earnings
Cr.
Both accounts
are increased
with credits + –
Revenues increase
retained earnings
(part of owners’ equity)
REVENUES
Dr.
Cr. – +

16. Link Between Expenses and Dividends and Retained Earnings
Retained earnings is
decreased with debits
DR.
CR. – +
Expenses and dividends
decrease retained earnings
DR.
CR.
EXPENSES AND
DIVIDENDS + –
Use debits to record(increase)
expenses and dividends

17. Normal Account Balances
Debit
Credit
Assets
Expenses
Dividends
Liabilities
Stockholders’ Equity
Revenues
all increased with debits
all increased with credits 22 21

18. Determine the Balance of the T Accounts
Cash
Accounts Receivable
4,000 (8)
10,000 (6)
3,000 (7)
(4) 15,000
(1) 100,000
(5) 5,000
2,000 (9)
(8) 4,000
94,000
11,000 3 26

19. The Journal: Chronological Record of Transactions
Book of Original Entry
Transactions recorded in the journal
first and then posted to the ledger
LO6

20. Posting from Journal Transactions are entered in: And then posted to:
Ledger Accounts
Cash
Capital Stock
And then posted to:
Journal
(via journal entries):
Dr Cr.
Cash ,000
Capital Stock ,000
To record the issuance of 10,000 shares

21. Glengarry Health Club Trial Balance
January 31, 2010
Debits Credits
Cash
Accounts Receivable
Equipment
Building
Land
Accounts Payable
Notes Payable
Capital Stock
Membership Revenue
Court Fee Revenue
Wage Expense
Utility Expense
Dividends
Totals
$ 94,000
11,000
20,000
150,000
50,000
$ 20,000
200,000
100,000
15,000
5,000
10,000
3,000
2,000
$340, $340,000
LO7

22. End of Chapter 3