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Recording Business Transactions

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Recording Business Transactions

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    1. Recording Business Transactions Chapter 2

    2. Define and use key accounting terms. Objective 1

    3. Accounting Terms

    4. Accounting Terms

    5. Classification of Accounts What are some asset accounts? Cash Notes Receivable Accounts Receivable Prepaid Expenses Land Building Equipment

    6. Classification of Accounts What are some liability accounts? Notes Payable Accounts Payable Accrued Liabilities (for expenses incurred but not paid) Long-term Liabilities (bonds)

    7. Classification of Accounts What are some owner’s equity accounts? Capital or owner’s interest in the business Withdrawals Revenues Expenses

    8. John’s Gas Station Example Assume that the business sold $5,000 worth of gasoline on a given day and performed $3,000 of repair services. How much revenue did the business earn that day? $8,000

    9. John’s Gas Station Example Revenues increase John’s equity in the business. The business had to pay mechanics and vendors $3,750 for the work performed that day.

    10. John’s Gas Station Example Expenses decrease John’s equity in the business. How much was the net increase in John’s equity that day? $4,250

    11. Classification of Accounts In a corporation, the owner’s equity account is called Stockholders’ Equity.

    12. Double-Entry Accounting Double entry bookkeeping means to record the dual effects of each business transaction. Assets = Liabilities + Owner’s Equity Assets are on the left (debit) side. Liabilities and Equity are on the right (credit) side.

    13. The T-Account

    14. The T-Account

    15. Apply the rules of debit and credit. Objective 2

    16. Rules of Debit and Credit

    17. The Double-Entry System

    18. John’s Gas Station Example On July 1, John invested $500,000 in cash and obtained a $300,000 loan to open a gas station. How much was the initial increase in cash? $800,000 Which accounts were affected?

    19. John’s Gas Station Example

    20. John’s Gas Station Example

    21. Record transactions in the journal. Objective 3

    22. Journals What is a journal? It is a list in chronological order of all the transactions for a business. Identify transaction from source documents. Specify accounts affected. Apply debit/credit rules. Record transaction with description.

    23. Journals What does a journal entry include? date of the transaction title of the account debited title of the account credited amount of the debit and credit description of the transaction dollar signs are omitted

    24. Recording Transactions On April 2, Gay Gillen invested $30,000 in Gay Gillen eTravel. What is the journal entry? April 2 Cash 30,000 Gay Gillen, Capital 30,000 Received initial investment from owner

    25. Post from the journal to the ledger. Objective 4

    26. Ledger What is a ledger? It is a digest of all accounts utilized by an entity during an accounting period.

    27. Posting What is posting? It is the transfer of information from the journal to the appropriate accounts in the ledger.

    28. Asset Accounts After Posting

    29. Liabilities and Owner’s Equity Accounts After Posting

    30. Details of Journals and Ledgers

    31. Details of Journals and Ledgers

    32. Details of Journals and Ledgers

    33. The Four-Column Account Format

    34. Prepare and use a trial balance. Objective 5

    35. Trial Balance What is a trial balance? It is an internal document. It is a listing of all the accounts with their related balances. Before computers, it provided a check on accuracy by showing whether total debits equal total credits.

    36. Locating Trial Balance Errors What if it doesn’t balance ? Is the addition correct? Are all accounts listed? Are the balances listed correctly?

    37. Locating Trial Balance Errors Divide the difference by two. Is there a debit/credit balance for this amount posted in the wrong column? Check journal postings. Review accounts for reasonableness. Computerized accounting programs usually prohibit out-of-balance entries.

    38. Set up a chart of accounts for a business. Objective 6

    39. Chart of Accounts in the Ledger This is a listing of all the accounts and related account numbers used by a business. Each account should have its own assigned number. The numbering system should allow flexibility for changing business needs.

    40. Gay Gillen eTravel Chart of Accounts

    41. Gay Gillen eTravel Chart of Accounts

    42. Gay Gillen eTravel Chart of Accounts

    43. Normal Account Balances Assets = Liabilities + Owner’s Equity Debits = Credits The side where we expect increases to be recorded is the normal balance side.

    44. Analyze transactions without a journal. Objective 7

    45. John’s Gas Station John is considering either purchasing a garage for $600,000 or renting one for $60,000 per year. John does not need to record in the journal all of the transactions that would affect his decision. Why?

    46. John’s Gas Station John has not completed a transaction yet. However, John can visualize how the ledger accounts will be affected.

    47. John’s Gas Station

    48. End of Chapter 2

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