1. © 2009 The McGraw-Hill Companies, Inc., All Rights Reserved ANALYZING AND RECORDING TRANSACTIONS Chapter 2

2. McGraw-Hill/Irwin Slide 2 McGraw-Hill/Irwin Slide 2 Analyze each transaction and event from source documents A NALYZING AND R ECORDING P ROCESS Record relevant transactions and events in a journal Post journal information to ledger accounts Prepare and analyze the trial balance C1

3. McGraw-Hill/Irwin Slide 3 McGraw-Hill/Irwin Slide 3 Sales Tickets Bank Statements Purchase Orders Checks S OURCE D OCUMENTS Bills from Suppliers Employee Earnings Records C2

4. McGraw-Hill/Irwin Slide 4 McGraw-Hill/Irwin Slide 4 An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item. T HE A CCOUNT AND ITS A NALYSIS The general ledger is a record containing all accounts used by the company. C3

5. McGraw-Hill/Irwin Slide 5 McGraw-Hill/Irwin Slide 5 Land Equipment Buildings Cash Notes Receivable Supplies Prepaid Accounts Accounts Receivable Asset Accounts A SSET A CCOUNTS C3

6. McGraw-Hill/Irwin Slide 6 McGraw-Hill/Irwin Slide 6 Accrued Liabilities Unearned Revenue Notes Payable Accounts Payable Liability Accounts L IABILITY A CCOUNTS C3

7. McGraw-Hill/Irwin Slide 7 McGraw-Hill/Irwin Slide 7 Equity Accounts Revenues Owner’s Equity Owner’s Withdrawals Expenses E QUITY A CCOUNTS Owner’s Capital Owner’s Capital C3

8. McGraw-Hill/Irwin Slide 8 McGraw-Hill/Irwin Slide 8 Liabilities Equity Assets =+ T HE A CCOUNT AND ITS A NALYSIS Owner’s Capital Owner’s Capital Owner's Withdrawals Revenues Expenses ++ –– C3

9. McGraw-Hill/Irwin Slide 9 McGraw-Hill/Irwin Slide 9 L EDGER AND C HART OF A CCOUNTS The ledger is a collection of all accounts for an information system. A company’s size and diversity of operations affect the number of accounts needed. The chart of accounts is a list of all accounts and includes an identifying number for each account. C4

10. McGraw-Hill/Irwin Slide 10 McGraw-Hill/Irwin Slide 10 D EBITS AND C REDITS A T-account represents a ledger account and is a tool used to understand the effects of one or more transactions. C5

11. McGraw-Hill/Irwin Slide 11 McGraw-Hill/Irwin Slide 11 Liabilities Equity Assets =+ D OUBLE -E NTRY A CCOUNTING Debit Credit ASSETS + - LIABILITIES - + EQUITIES - + C5

12. McGraw-Hill/Irwin Slide 12 McGraw-Hill/Irwin Slide 12 RevenuesRevenuesExpensesExpenses Owner’sCapitalOwner’sCapital Owner's Withdrawals _ _ + + _ _ Debit Credit Owner’s Capital - + Debit Credit Owner's Withdrawals + - Debit Credit Expenses + - Debit Credit Revenues - + D OUBLE -E NTRY A CCOUNTING EquityEquity C5

13. McGraw-Hill/Irwin Slide 13 McGraw-Hill/Irwin Slide 13 D OUBLE -E NTRY A CCOUNTING An account balance is the difference between the increases and decreases in an account. Notice the T-Account. C5

14. McGraw-Hill/Irwin Slide 14 McGraw-Hill/Irwin Slide 14 J OURNALIZING & P OSTING T RANSACTIONS Step 1: Analyze transactions and source documents. Liabilities Equity Assets =+ Step 2: Apply double- entry accounting Step 4: Post entry to ledger Step 3: Record journal entry P1

15. McGraw-Hill/Irwin Slide 15 McGraw-Hill/Irwin Slide 15 B ALANCE C OLUMN A CCOUNT T-accounts are useful illustrations, but balance column ledger accounts are used in practice. P1

16. McGraw-Hill/Irwin Slide 16 McGraw-Hill/Irwin Slide 16 A NALYZING T RANSACTIONS Analysis: Double entry: 101 301 Posting: A1

17. McGraw-Hill/Irwin Slide 17 McGraw-Hill/Irwin Slide 17 A NALYZING T RANSACTIONS Analysis: Double entry: 126 101 Posting: A1

18. McGraw-Hill/Irwin Slide 18 McGraw-Hill/Irwin Slide 18 A NALYZING T RANSACTIONS Analysis: Double entry: 167 101 Posting: A1

19. McGraw-Hill/Irwin Slide 19 McGraw-Hill/Irwin Slide 19 After processing its remaining transactions for December, FastForward’s Trial Balance is prepared. DebitsCredits Cash4,350$ Accounts receivable- Supplies9,720 Prepaid Insurance2,400 Equipment26,000 Accounts payable6,200$ Unearned consulting revenue3,000 C. Taylor, Capital30,000 Owner's Withdrawals200 Consulting revenue5,800 Rental revenue300 Salaries expense1,400 Rent expense1,000 Utilities expense230 Total45,300$ $ FastForward Trial Balance December 31, 2009 The trial balance lists all account balances in the general ledger. If the books are in balance, the total debits will equal the total credits. P2

20. McGraw-Hill/Irwin Slide 20 McGraw-Hill/Irwin Slide 20 P REPARING A T RIAL B ALANCE Preparing a trail balance involves three steps: 1.List each account title and its amount (from ledger) in the trial balance. If an account has a zero balance, list it with a zero in the normal balance column (or omit it entirely). 2.Compute the total of debit balances and the total of credit balances. 3.Verify (prove) total debit balances equal total credit balances. Preparing a trail balance involves three steps: 1.List each account title and its amount (from ledger) in the trial balance. If an account has a zero balance, list it with a zero in the normal balance column (or omit it entirely). 2.Compute the total of debit balances and the total of credit balances. 3.Verify (prove) total debit balances equal total credit balances. P2

21. McGraw-Hill/Irwin Slide 21 McGraw-Hill/Irwin Slide 21 END OF CHAPTER 2