1. Chapter 2-1 Financial Accounting & Information System (2) Session Objectives: Last Session Recap Last Session Recap Debits and Credits in Accounting Debits and Credits in Accounting Ledger Accounts Ledger Accounts General Journal & General Ledger General Journal & General Ledger Case Study: C2_Managing Books for your business Case Study: C2_Managing Books for your business Session Objectives: Last Session Recap Last Session Recap Debits and Credits in Accounting Debits and Credits in Accounting Ledger Accounts Ledger Accounts General Journal & General Ledger General Journal & General Ledger Case Study: C2_Managing Books for your business Case Study: C2_Managing Books for your business 1 Accounting Information System with SAP: By M Asif Jaffer Accounting Information System with SAP: By M Asif Jaffer

2. Chapter 2-2 Financial Accounting & Information System Recap (Session-1): Why Accounting: Gradually more negative motivations Why Accounting: Gradually more negative motivations Introduction: New comers please introduce Introduction: New comers please introduce Course Objective & Conduct : To apply accounting concepts in decision making; to be able to study and understand corporate annual reports Course Objective & Conduct : To apply accounting concepts in decision making; to be able to study and understand corporate annual reports Course Outline: New participants please collect from me Course Outline: New participants please collect from me What’s Accounting, What it isn’t: Identifying, Recording, Communicating of economic events of an organization What’s Accounting, What it isn’t: Identifying, Recording, Communicating of economic events of an organization Accounting Foundations (Chapter_1): Accounting Foundations (Chapter_1): Resources = Sources Assets = Liabilities + Owners’ Equity Assets = Liabilities + Capital – Drawings + Revenue - Expenses Recap (Session-1): Why Accounting: Gradually more negative motivations Why Accounting: Gradually more negative motivations Introduction: New comers please introduce Introduction: New comers please introduce Course Objective & Conduct : To apply accounting concepts in decision making; to be able to study and understand corporate annual reports Course Objective & Conduct : To apply accounting concepts in decision making; to be able to study and understand corporate annual reports Course Outline: New participants please collect from me Course Outline: New participants please collect from me What’s Accounting, What it isn’t: Identifying, Recording, Communicating of economic events of an organization What’s Accounting, What it isn’t: Identifying, Recording, Communicating of economic events of an organization Accounting Foundations (Chapter_1): Accounting Foundations (Chapter_1): Resources = Sources Assets = Liabilities + Owners’ Equity Assets = Liabilities + Capital – Drawings + Revenue - Expenses 2 By M Asif Jaffer

3. Chapter 2-3 The rest of the slides are taken from the following accounting resource

4. Chapter 2-4 Chapter 2 The Recording Process Accounting Principles, Ninth Edition

5. Chapter 2-5 1. 1.Explain what an account is and how it helps in the recording process. 2. 2.Define debits and credits and explain their use in recording business transactions. 3. 3.Identify the basic steps in the recording process. 4. 4.Explain what a journal is and how it helps in the recording process. 5. 5.Explain what a ledger is and how it helps in the recording process. 6. 6.Explain what posting is and how it helps in the recording process. 7. 7.Prepare a trial balance and explain its purposes. Study Objectives

6. Chapter 2-6 The Account Debits and credits Expansion of basic equation Limitations of a trial balance Locating errors Use of dollar signs Summary illustration of journalizing and posting JournalLedger Steps in the Recording Process The Recording Process Illustrated The Trial Balance The Recording Process

7. Chapter 2-7 Record of increases and decreases in a specific asset, liability, equity, revenue, or expense item. Debit = “Left” Credit = “Right” Account An Account can be illustrated in a T-Account form. SO 1 Explain what an account is and how it helps in the recording process. The Account

8. Chapter 2-8 Double-entry Double-entry accounting system Each transaction must affect two or more accounts to keep the basic accounting equation in balance. Recording done by debiting at least one account and crediting another. must equal DEBITS must equal CREDITS. SO 2 Define debits and credits and explain their use in recording business transactions. Debits and Credits

9. Chapter 2-9 Assets = Liabilities + Capital – Drawings + Revenue - Expenses + +/- Capital – Drawings Profit / Loss + (updated) Owners’ Equity Assets = Liabilities Balance Sheet (Statement of Financial Position Statement of Owners’ Equity Revenue – Expenses Income Statement

10. Chapter 2-10 = Asset + Expenses+ Drawings Debit Credit Debits and Credits Summary SO 2 Define debits and credits and explain their use in recording business transactions. Liability + Capital + Revenue

11. Chapter 2-11 Debits: a. increase both assets and liabilities. b. decrease both assets and liabilities. c. increase assets and decrease liabilities. d. decrease assets and increase liabilities. Review Question Debits and Credits Summary SO 2 Define debits and credits and explain their use in recording business transactions.

12. Chapter 2-12 Discussion Question Q2-4: Maria Alvarez, a beginning accounting student, believes debit balances are favorable and credit balances are unfavorable. Is Maria correct? Discuss. See notes page for discussion Debits and Credits Summary SO 2 Define debits and credits and explain their use in recording business transactions.

13. Chapter 2-13 Expansion of the Basic Equation Relationship among the assets, liabilities and owner’s equity of a business: The equation must be in balance after every transaction. For every Debit there must be a Credit. AssetsLiabilities = Owner’s Equity Basic Equation Expanded Basic Equation SO 2 Define debits and credits and explain their use in recording business transactions. + Illustration 2-11

14. Chapter 2-14 Transaction (1). Investment By Owner. Transaction (1). Investment By Owner. Ray Neal decides to open a computer programming service which he names Softbyte. On September 1, 2010, he invests $15,000 cash in the. The effect of this transaction on the basic equation is: Transactions Analysis SO 7 Analyze the effects of business transactions on the accounting equation.

15. Chapter 2-15 Transaction (2). Purchase of Equipment for Cash. Transaction (2). Purchase of Equipment for Cash. Softbyte purchases computer equipment for $7,000 cash. Transactions Analysis SO 7 Analyze the effects of business transactions on the accounting equation.

16. Chapter 2-16 Transactions Analysis SO 7 Analyze the effects of business transactions on the accounting equation. Transaction (3). Purchase of Supplies on Credit. Transaction (3). Purchase of Supplies on Credit. Softbyte purchases for $1,600 from Acme Supply Company computer paper and other supplies expected to last several months.

17. Chapter 2-17 Transactions Analysis SO 7 Analyze the effects of business transactions on the accounting equation. Transaction (4). Services Provided for Cash. Transaction (4). Services Provided for Cash. Softbyte receives $1,200 cash from customers for programming services it has provided.

18. Chapter 2-18 Transactions Analysis SO 7 Analyze the effects of business transactions on the accounting equation. Transaction (5). Purchase of Advertising on Credit. Transaction (5). Purchase of Advertising on Credit. Softbyte receives a bill for $250 from the Daily News for advertising but postpones payment until a later date.

19. Chapter 2-19 Transactions Analysis SO 7 Analyze the effects of business transactions on the accounting equation. Transaction (6). Services Provided for Cash and Credit. Transaction (6). Services Provided for Cash and Credit. Softbyte provides $3,500 of programming services for customers. The company receives cash of $1,500 from customers, and it bills the balance of $2,000 on account.

20. Chapter 2-20 Transactions Analysis SO 7 Analyze the effects of business transactions on the accounting equation. Transaction (7). Payment of Expenses. Transaction (7). Payment of Expenses. Softbyte pays the following Expenses in cash for September: store rent $600, salaries of employees $900, and utilities $200.

21. Chapter 2-21 Transactions Analysis SO 7 Analyze the effects of business transactions on the accounting equation. Transaction (8). Payment of Accounts Payable. Transaction (8). Payment of Accounts Payable. Softbyte pays its $250 Daily News bill in cash.

22. Chapter 2-22 Transactions Analysis SO 7 Analyze the effects of business transactions on the accounting equation. Transaction (9). Receipt of Cash on Account. Transaction (9). Receipt of Cash on Account. Softbyte receives $600 in cash from customers who had been billed for services [in Transaction (6)].

23. Chapter 2-23 Transactions Analysis SO 7 Analyze the effects of business transactions on the accounting equation. Transaction (10). Withdrawal of Cash by Owner. Transaction (10). Withdrawal of Cash by Owner. Ray Neal withdraws $1,300 in cash from the business for his personal use.

24. Chapter 2-24 Transactions Analysis SO 7 Analyze the effects of business transactions on the accounting equation. Summary of Transactions Illustration 1-8 Tabular summary of Softbyte transactions

25. Chapter 2-25 AccountsDr.Cr. Cash Accounts Receivables Supplies Equipment Accounts Payable Capital Drawings Service Revenue Advertising Expense Rent Expense Salary Expense Utility Expense Totals Paula King Trial Balance As on 28 th Feb 2010 Complete it!

26. Chapter 2-26 greater than If Debits are greater than Credits, the account will have a debit balance. $10,000Transaction #2$3,000 $15,000 8,000Transaction #3 Balance Transaction #1 Debits and Credits SO 2 Define debits and credits and explain their use in recording business transactions.

27. Chapter 2-27 greater than If Credits are greater than Debits, the account will have a credit balance. $10,000Transaction #2$3,000 Balance Transaction #1 Debits and Credits SO 2 Define debits and credits and explain their use in recording business transactions. $1,000 8,000Transaction #3

28. Chapter 2-28 Normal Balance Credit Normal Balance Debit Debits and Credits Summary SO 2

29. Chapter 2-29 Assets - Debits should exceed credits. Liabilities – Credits should exceed debits. The normal balance is on the increase side. SO 2 Define debits and credits and explain their use in recording business transactions. Assets and Liabilities

30. Chapter 2-30 Owner’s investments and revenues increase owner’s equity (credit). Owner’s drawings and expenses decrease owner’s equity (debit). SO 2 Define debits and credits and explain their use in recording business transactions. Owners’ Equity

31. Chapter 2-31 The purpose of earning revenues is to benefit the owner(s). The effect of debits and credits on revenue accounts is the same as their effect on Owner’s Capital. Expenses have the opposite effect: expenses decrease owner’s equity. SO 2 Define debits and credits and explain their use in recording business transactions. Revenue and Expense

32. Chapter 2-32 Accounts that normally have debit balances are: a. assets, expenses, and revenues. b. assets, expenses, and owner’s capital. c. assets, liabilities, and owner’s drawings. d. assets, owner’s drawings, and expenses. Review Question Debits and Credits Summary SO 2 Define debits and credits and explain their use in recording business transactions.

33. Chapter 2-33 Business documents, such as a sales slip, a check, a bill, or a cash register tape, provide evidence of the transaction. Steps in the Recording Process SO 3 Identify the basic steps in the recording process. Analyze each transactionEnter transaction in a journal Transfer journal information to ledger accounts Illustration 2-12

34. Chapter 2-34 Book of original entry. Transactions recorded in chronological order. Contributions to the recording process: 1. Discloses the complete effects of a transaction. 2. Provides a chronological record of transactions. 3. Helps to prevent or locate errors because the debit and credit amounts can be easily compared. The Journal SO 4 Explain what a journal is and how it helps in the recording process.

35. Chapter 2-35 Journalizing - Entering transaction data in the journal. JournalizingJournalizing SO 4 Explain what a journal is and how it helps in the recording process. Illustration: On September 1, Ray Neal invested $15,000 cash in the business, and Softbyte purchased computer equipment for $7,000 cash. Cash R. Neal, Capital Sept. 1 15,000 General Journal Computer equipment Cash 7,000 Illustration 2-13

36. Chapter 2-36 Simple and Compound Entries JournalizingJournalizing SO 4 Explain what a journal is and how it helps in the recording process. Illustration: Assume that on July 1, Butler Company purchases a delivery truck costing $14,000. It pays $8,000 cash now and agrees to pay the remaining $6,000 on account. Delivery equipment Cash Sept. 1 14,000 8,000 General Journal 6,000 Accounts payable Illustration 2-14

37. Chapter 2-37 A General Ledger contains the entire group of accounts maintained by a company. The General Ledger includes all the asset, liability, owner’s equity, revenue and expense accounts. The Ledger SO 5 Explain what a ledger is and how it helps in the recording process. Illustration 2-15

38. Chapter 2-38 SO 5 Explain what a ledger is and how it helps in the recording process.

39. Chapter 2-39 T-account form used in accounting textbooks. In practice, the account forms used in ledgers are much more structured. Standard Form of Account SO 5 Explain what a ledger is and how it helps in the recording process. Illustration 2-16

40. Chapter 2-40 Posting Posting – the process of transferring amounts from the journal to the ledger accounts. PostingPosting Illustration 2-17 SO 6 Explain what posting is and how it helps in the recording process.

41. Chapter 2-41 Posting: a. normally occurs before journalizing. b. transfers ledger transaction data to the journal. c. is an optional step in the recording process. d. transfers journal entries to ledger accounts. Review Question PostingPosting SO 6 Explain what posting is and how it helps in the recording process.

42. Chapter 2-42 Accounts and account numbers arranged in sequence in which they are presented in the financial statements. Chart of Accounts SO 6 Explain what posting is and how it helps in the recording process. Illustration 2-18

43. Chapter 2-43 The Recording Process Illustrated LO 6 Explain what posting is and how it helps in the recording process. Follow these steps: 1. Determine what type of account is involved. 2. Determine what items increased or decreased and by how much. 3. Translate the increases and decreases into debits and credits. Illustration 2-19

44. Chapter 2-44 The Recording Process Illustrated LO 6 Explain what posting is and how it helps in the recording process. Illustration 2-20

45. Chapter 2-45 The Recording Process Illustrated Illustration 2-21

46. Chapter 2-46 The Recording Process Illustrated Illustration 2-22

47. Chapter 2-47 The Recording Process Illustrated Illustration 2-23

48. Chapter 2-48 The Recording Process Illustrated Illustration 2-24

49. Chapter 2-49 The Recording Process Illustrated Illustration 2-25

50. Chapter 2-50 The Recording Process Illustrated Illustration 2-26

51. Chapter 2-51 The Recording Process Illustrated Illustration 2-27

52. Chapter 2-52 The Recording Process Illustrated Illustration 2-28

53. Chapter 2-53 A list of accounts and their balances at a given time. Purpose is to prove that debits equal credits. The Trial Balance LO 7 Prepare a trial balance and explain its purposes. Illustration 2-31

54. Chapter 2-54 The trial balance may balance even when 1. a transaction is not journalized, 2. a correct journal entry is not posted, 3. a journal entry is posted twice, 4. incorrect accounts are used in journalizing or posting, or 5. offsetting errors are made in recording the amount of a transaction. The Trial Balance LO 7 Prepare a trial balance and explain its purposes. Limitations of a Trial Balance

55. Chapter 2-55 A trial balance will not balance if: a. a correct journal entry is posted twice. b. the purchase of supplies on account is debited to Supplies and credited to Cash. c. a $100 cash drawing by the owner is debited to Owner’s Drawing for $1,000 and credited to Cash for $100. d. a $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45. Review Question The Trial Balance LO 7 Prepare a trial balance and explain its purposes.

56. Chapter 2-56 Q2-19. Jim Benes is confused about how accounting information flows through the accounting system. He believes the flow of information is as follows. a. 3 Debits and credits posted to the ledger. b. 1 Business transaction occurs. c. 2 Information entered in the journal. d. 5 Financial statements are prepared. e. 4 Trial balance is prepared. Is Jim correct? If not, indicate to Jim the proper flow of the information. See notes page for discussion Recording Process Discussion Question LO 7 Prepare a trial balance and explain its purposes.

57. Chapter 2-57 LO 7 Prepare a trial balance and explain its purposes. Case Study

58. Chapter 2-58 Copyright © 2009 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein. CopyrightCopyright