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Acct 310 Accounting Review Part I Rick Hayes, Ph.D., CPA California State University L.A.
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2 Accounting Analysis... Analyze the effect of business transactions on the basic accounting equation: Assets = Liabilities + Stockholders’ Equity Must always balance.
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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
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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
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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.
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6 Event 3 – Purchase of Office Equipment for Cash Oct. 2 – Sierra acquired office equipment by paying $5,000 cash to Superior Sales Co.
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7 Event 4 – Receipt of Cash in Advance from Customer Oct. 2 – Sierra received a $1,200 cash advance from R. Knox, a client.
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8 Event 5 – Services Rendered for Cash Oct. 3 – Sierra received $10,000 in cash from Copa Co. for advertising services performed
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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
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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
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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
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14 Summary of Transactions Assets = Liabilities + Equity
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15 Normal for Assets and Liabilities Normal Balances for Assets and Liabilities
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16 Normal Balances for Stockholders’ Equity
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17 Normal Balances for Expenses and Revenues
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18 Expansion of Basic Equation
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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
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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
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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)
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22 The General Ledger
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23 The General Ledger
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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
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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
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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
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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
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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
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