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Power Notes. Chapter F2. Analyzing Transactions. 1.Usefulness of an Account 2.Characteristics of an Account 3.Analyzing and Summarizing Transactions 4.Illustration of Analyzing and Summarizing 5.Trial Balance 6.Discovery and Correction of Errors

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Learning objectives

Power Notes

Chapter F2

Analyzing Transactions

1.Usefulness of an Account

2.Characteristics of an Account

3.Analyzing and Summarizing Transactions

4.Illustration of Analyzing and Summarizing

5.Trial Balance

6.Discovery and Correction of Errors

7.Financial Analysis and Interpretation

Learning Objectives

C2


Learning objectives

Note: To select a topic, type the slide # and press Enter.

Power Notes

ChapterF2

Analyzing Transactions

Slide #Power Note Topics

  • 3

  • 11

  • 36

  • 40

  • 43

  • 50

  • 57

  • Double-Entry Accounting

  • Analyzing and Recording Transactions

  • Chart of Accounts, Trial Balance

  • Journal, Ledger, and Trial Balance

  • Recording and Posting an Entry

  • Correcting Errors

  • Horizontal Analysis


Learning objectives

Double-Entry Accounting

“ Double-entry accounting is based on a simple concept: each party in a business transaction will receive something and give something in return. In bookkeeping terms, what is received is a debit and what is given is a credit. The T account is a representation of a scale or balance.”

Scale or Balance

T account

Right Side

Give

CREDIT

Left Side

Receive

DEBIT

Luca Pacioli

Developer of

Double-Entry

Accounting

Give

CREDIT

Receive

DEBIT


Learning objectives

Expanded Accounting Equation

“ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.”

DEBITS

received

CREDITS

given

=


Learning objectives

receive

Debit

Business Transactions

Land Owner (seller)

Entry B.

NetSolutions buys land for $20,000.

Land

Cash

give

Credit

NetSolutions

(buyer)

give

Credit

General Journal

DateDescriptionDebitCredit

11/5Land 20,000

Cash 20,000


Learning objectives

receive

Debit

Business Transactions

Supplier (seller)

Entry C.

NetSolutions buys supplies for $1,350, agreeing to pay in the near future.

Supplies

A promise

to pay later

give

Credit

NetSolutions

(buyer)

give

Credit

General Journal

DateDescriptionDebitCredit

11/10Supplies 1,350

Accounts Payable 1,350


Learning objectives

receive

Debit

Business Transactions

Customer (buyer)

Entry D.

NetSolutions earns fees of $7,500, receiving cash.

Cash

Services

give

Credit

NetSolutions

(seller)

give

Credit

General Journal

DateDescriptionDebitCredit

11/18Cash 7,500

Fees Earned 7,500


Learning objectives

receive

Debit

Business Transactions

Various suppliers

Entry E.

NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275.

Services,

benefits

Cash

give

Credit

NetSolutions

(buyer)

give

Credit

General Journal

DateDescriptionDebitCredit

11/18 Wages Expense2,125

Rent Expense800

Utilities Expense450

Misc. Expense275

Cash 3,650


Learning objectives

receive

Debit

Business Transactions

Supplier (payee)

Entry F.

NetSolutions pays $950 to creditors on account.

Reduction in obligation

Cash

give

Credit

NetSolutions

(payor)

give

Credit

General Journal

DateDescriptionDebitCredit

11/30Accounts Payable 950

Cash 950


Learning objectives

receive

Debit

Balance of Supplies account $1,350 less $550 on hand = $800 used

Business Transactions

Entry G.

Internal Transaction

(no external entity)

At the end of the month, the cost of supplies on hand is $550.

Use of supplies

Supplies

give

Credit

NetSolutions

(user)

give

Credit

General Journal

DateDescriptionDebitCredit

11/30Supplies Expense 800

Supplies 800


Learning objectives

receive

Debit

Business Transactions

Entry H.

Chris Clark (stockholder)

NetSolutions paid dividends of $2,000.

Reduction in obligation

Cash

give

Credit

NetSolutions

(payor)

give

Credit

General Journal

DateDescriptionDebitCredit

11/30Dividends 2,000

Cash 2,000


Learning objectives

NetSolutions

Chart of Accounts

Balance Sheet

Income Statement

1.Assets

11Cash

12Accounts Receivable

14Supplies

15Prepaid Insurance

17Land

18Office Equipment

2.Liabilities

21Accounts Payable

23Unearned Rent

3.Owner’s Equity

31Capital Stock

32Retained Earnings

33Dividends

4.Revenue

41Fees Earned

5.Expenses

51Wages Expense

52Rent Expense

54Utilities Expense

55Supplies Expense

59Miscellaneous Expense


Learning objectives

NetSolutions

Trial Balance

November 30, 2002

11Cash5,900

14Supplies550

17Land20,000

21Accounts Payable400

31Capital Stock25,000

33Dividends2,000

41Fees Earned7,500

51Wages Expense2,125

52Rent Expense800

54Utilities Expense450

55Supplies Expense800

59Miscellaneous Expense275

32,90032,900


Learning objectives

Expanded Accounting Equation

“ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.”

DEBITS

received

CREDITS

given

=

Assets


Learning objectives

Expanded Accounting Equation

“ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.”

DEBITS

received

CREDITS

given

=

Assets

Expenses


Learning objectives

Expanded Accounting Equation

“ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.”

DEBITS

received

CREDITS

given

=

Liabilities

Assets

Expenses


Learning objectives

Expanded Accounting Equation

“ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.”

DEBITS

received

CREDITS

given

=

Liabilities

Assets

Owner’s Equity

Expenses


Learning objectives

Expanded Accounting Equation

“ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.”

DEBITS

received

CREDITS

given

=

Liabilities

Assets

Owner’s Equity

Revenues

Expenses


Comparative balance sheet december 31 2003 and 2002

Financial Analysis and Interpretation

Comparative Balance SheetDecember 31, 2003 and 2002

Objective:Use horizontal analysis to compare financial statements from different periods.

Assets

Current assets$ 550,000$ 533,000$ 17,000 3.2%

Long-term investments95,000177,500(82,500)(46.5%)

Plant assets (net)444,500470,000(25,500)(5.4%)

Intangible assets50,00050,000—

$1,139,500$1,230,500$ (91,000)(7.4%)

Increase (Decrease)

20032002AmountPercent

Horizontal Analysis:

Current year (2003)$550,000

Base year (1999)$533,000

= 103.2%

Increase amount$17,000

Base year (2002)$533,000

= 3.2%


Comparative income statement december 31 2003 and 2002

Financial Analysis and Interpretation

Comparative Income StatementDecember 31, 2003 and 2002

Objective:Use horizontal analysis to compare financial statements from different periods.

Sales$1,530,500$1,234,000$296,500 24.0%

Sales returns32,50034,000(1,500)(4.4%)

Net sales$1,498,000$1,200,000$298,000)24.8%

Cost of goods sold1,043,000820,000223,000 27.2%

Gross profit $ 455,000$ 380,000$ 75,000 19.7%

Increase (Decrease)

20032002AmountPercent

Horizontal Analysis:

Current year (2003)$1,498,000

Base year (2002)$1,200,000

= 124.8%

Increase amount$298,000

Base year (2002)$1,200,000

= 24.8%


Learning objectives

Expanded Accounting Equation

“ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.”

DEBITS

received

CREDITS

given

=

Liabilities

Assets

Owner’s Equity

Net

Income

Revenues

Expenses


Learning objectives

NetSolutions

“ On November 1, 2002, I started a business called NetSolutions. I plan to use my knowledge of microcomputers and offer computer consulting services for a fee. The following double-entry transactions show how amounts received (debits) always equal amounts given (credits).”

Chris Clark, Owner


Learning objectives

receive

Debit

Business Transactions

Chris Clark (investor)

Entry A.

Chris Clark deposits $25,000 in a bank account for NetSolutions in exchange for capital stock.

give

Credit

NetSolutions

(investee)

give

Credit

General Journal

DateDescriptionDebitCredit

11/1


Learning objectives

receive

Debit

Business Transactions

Chris Clark (investor)

Entry A.

Chris Clark deposits $25,000 in a bank account for NetSolutions in exchange for capital stock.

Cash

give

Credit

NetSolutions

(investee)

give

Credit

General Journal

DateDescriptionDebitCredit

11/1Cash 25,000


Learning objectives

receive

Debit

Business Transactions

Chris Clark (investor)

Entry A.

Chris Clark deposits $25,000 in a bank account for NetSolutions in exchange for capital stock.

Capital

Stock

Cash

give

Credit

NetSolutions

(investee)

give

Credit

General Journal

DateDescriptionDebitCredit

11/1Cash 25,000

Capital Stock 25,000


Learning objectives

receive

Debit

Business Transactions

Land Owner (seller)

Entry B.

NetSolutions buys land for $20,000.

give

Credit

NetSolutions

(buyer)

give

Credit

General Journal

DateDescriptionDebitCredit

11/5


Learning objectives

receive

Debit

Business Transactions

Land Owner (seller)

Entry B.

NetSolutions buys land for $20,000.

Land

give

Credit

NetSolutions

(buyer)

give

Credit

General Journal

DateDescriptionDebitCredit

11/5Land 20,000


Learning objectives

receive

Debit

Business Transactions

Supplier (seller)

Entry C.

NetSolutions buys supplies for $1,350, agreeing to pay in the near future.

give

Credit

NetSolutions

(buyer)

give

Credit

General Journal

DateDescriptionDebitCredit

11/10


Learning objectives

receive

Debit

Business Transactions

Supplier (seller)

Entry C.

NetSolutions buys supplies for $1,350, agreeing to pay in the near future.

Supplies

give

Credit

NetSolutions

(buyer)

give

Credit

General Journal

DateDescriptionDebitCredit

11/10Supplies 1,350


Learning objectives

receive

Debit

Business Transactions

Customer (buyer)

Entry D.

NetSolutions earns fees of $7,500, receiving cash.

give

Credit

NetSolutions

(seller)

give

Credit

General Journal

DateDescriptionDebitCredit

11/18


Learning objectives

receive

Debit

Business Transactions

Customer (buyer)

Entry D.

NetSolutions earns fees of $7,500, receiving cash.

Cash

give

Credit

NetSolutions

(seller)

give

Credit

General Journal

DateDescriptionDebitCredit

11/18Cash 7,500


Learning objectives

receive

Debit

Business Transactions

Various suppliers

Entry E.

NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275.

give

Credit

NetSolutions

(buyer)

give

Credit

General Journal

DateDescriptionDebitCredit


Learning objectives

receive

Debit

Business Transactions

Various suppliers

Entry E.

NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275.

Services,

benefits

give

Credit

NetSolutions

(buyer)

give

Credit

General Journal

DateDescriptionDebitCredit

11/18 Wages Expense2,125

Rent Expense800

Utilities Expense450

Misc. Expense275


Learning objectives

receive

Debit

Business Transactions

Supplier (payee)

Entry F.

NetSolutions pays $950 to creditors on account.

give

Credit

NetSolutions

(payor)

give

Credit

General Journal

DateDescriptionDebitCredit

11/30


Learning objectives

receive

Debit

Business Transactions

Supplier (payee)

Entry F.

NetSolutions pays $950 to creditors on account.

Reduction in obligation

give

Credit

NetSolutions

(payor)

give

Credit

General Journal

DateDescriptionDebitCredit

11/30Accounts Payable 950


Learning objectives

receive

Debit

Business Transactions

Entry G.

Internal Transaction

(no external entity)

At the end of the month, the cost of supplies on hand is $550.

give

Credit

NetSolutions

(user)

give

Credit

General Journal

DateDescriptionDebitCredit

11/30


Learning objectives

receive

Debit

Balance of Supplies account $1,350 less $550 on hand = $800 used

Business Transactions

Entry G.

Internal Transaction

(no external entity)

At the end of the month, the cost of supplies on hand is $550.

Use of supplies

give

Credit

NetSolutions

(user)

give

Credit

General Journal

DateDescriptionDebitCredit

11/30Supplies Expense 800


Learning objectives

receive

Debit

Business Transactions

Entry H.

Chris Clark (stockholder)

NetSolutions paid dividends of $2,000.

give

Credit

NetSolutions

(payor)

give

Credit

General Journal

DateDescriptionDebitCredit

11/30


Learning objectives

receive

Debit

Business Transactions

Entry H.

Chris Clark (stockholder)

NetSolutions paid dividends of $2,000.

Reduction in equity

give

Credit

NetSolutions

(payor)

give

Credit

General Journal

DateDescriptionDebitCredit

11/30Dividends 2,000


Learning objectives

NetSolutions

Trial Balance

November 30, 2002

11Cash5,900

14Supplies550

17Land20,000

21Accounts Payable400

31Capital Stock25,000

33Dividends2,000

41Fees Earned7,500

51Wages Expense2,125

52Rent Expense800

54Utilities Expense450

55Supplies Expense800

59Miscellaneous Expense275

32,90032,900

Balance

Sheet


Learning objectives

NetSolutions

Trial Balance

November 30, 2002

11Cash5,900

14Supplies550

17Land20,000

21Accounts Payable400

31Capital Stock25,000

33Dividends2,000

41Fees Earned7,500

51Wages Expense2,125

52Rent Expense800

54Utilities Expense450

55Supplies Expense800

59Miscellaneous Expense275

32,90032,900

Income

Statement


Learning objectives

Journal, Ledger, Trial Balance

1.Transactions are analyzed

and recorded in journal.

Documents

Journal


Learning objectives

Journal, Ledger, Trial Balance

1.Transactions are analyzed

and recorded in journal.

Documents

Journal

2.Transactions are posted

from journal to ledger.

Journal

Ledger


Learning objectives

Trial Balance

Journal, Ledger, Trial Balance

1.Transactions are analyzed

and recorded in journal.

Documents

Journal

2.Transactions are posted

from journal to ledger.

Journal

Ledger

3.Trial balance is prepared.


Learning objectives

Recording and Posting an Entry

General Journal

Page 1

Post.

DateDescriptionRef.DebitCredit

12/1Prepaid Insurance 2,400

Cash 2,400

1. Analyze and record the transaction as shown.

2. Post the debit side of the transaction.

3. Post the credit side of the transaction.


Learning objectives

1

1

Recording and Posting an Entry

General Journal

Page 1

Post.

DateDescriptionRef.DebitCredit

12/1Prepaid Insurance 2,400

Cash 2,400

GeneralLedger

Account: Prepaid InsuranceAccount No. 15

Post. Balance

DateItemRef.DebitCredit DebitCredit

12/1

Enter the transaction date in the ledger account.


Learning objectives

2

2

Recording and Posting an Entry

General Journal

Page 1

Post.

DateDescriptionRef.DebitCredit

12/1Prepaid Insurance 2,400

Cash 2,400

GeneralLedger

Account: Prepaid Insurance Account No. 15

Post. Balance

DateItemRef.DebitCredit DebitCredit

12/11 2,400

Enter the debit amount in the ledger debit column.


Learning objectives

3

3

Recording and Posting an Entry

General Journal

Page 1

Post.

DateDescriptionRef.DebitCredit

12/1Prepaid Insurance 2,400

Cash 2,400

GeneralLedger

Account: Prepaid InsuranceAccount No. 15

Post. Balance

DateItemRef.DebitCredit DebitCredit

12/11 2,4002,400

Update the ledger account balance.


Learning objectives

4

Recording and Posting an Entry

General Journal

Page 1

Post.

DateDescriptionRef.DebitCredit

12/1Prepaid Insurance 2,400

Cash 2,400

4

GeneralLedger

Account: Prepaid InsuranceAccount No. 15

Post. Balance

DateItemRef.DebitCredit DebitCredit

12/11

Enter the journal page in the ledger account.


Learning objectives

5

5

Recording and Posting an Entry

General Journal

Page 1

Post.

DateDescriptionRef.DebitCredit

12/1Prepaid Insurance152,400

Cash 2,400

GeneralLedger

Account: Prepaid InsuranceAccount No. 15

Post. Balance

DateItemRef.DebitCredit DebitCredit

12/112,4002,400

Enter the ledger account number in the journal.


Learning objectives

2

1

5

4

3

Recording and Posting an Entry

General Journal

Page 1

Post.

DateDescriptionRef.DebitCredit

12/1Prepaid Insurance152,400

Cash112,400

GeneralLedger

Account: CashAccount No. 11

Post. Balance

DateItemRef.DebitCredit DebitCredit

11/30Balance5,900

12/112,4003,500

All five parts of the credit posting are shown.


Learning objectives

Correcting Errors

Three Types of Errors

Journal Entry

Ledger Posting

Correction Procedure

1.incorrectnot postedcorrect Journal


Learning objectives

Correcting Errors

Three Types of Errors

Journal Entry

Ledger Posting

Correction Procedure

1.incorrectnot postedcorrect Journal

2.correctincorrectly postedcorrect Ledger


Learning objectives

Correcting Errors

Three Types of Errors

Journal Entry

Ledger Posting

Correction Procedure

1.incorrectnot postedcorrect Journal

2.correctincorrectly postedcorrect Ledger

3.incorrectalready postedrecord and post

a correcting entry

Error 3 requires a correcting journal entry.


Learning objectives

Correcting Errors – An Example

On May 5 a purchase of office equipment on account was incorrectly journalized and posted as shown.

General Journal – As recorded and posted

DateDescriptionDebitCredit

5/5Supplies 12,500

Accounts Payable 12,500

What part of this entry is incorrect?

What correcting entry would you make?


Learning objectives

Correcting Errors – An Example

On May 5 a purchase of office equipment on account was incorrectly journalized and posted as shown.

General Journal – As recorded and posted

DateDescriptionDebitCredit

5/5Supplies 12,500

Accounts Payable 12,500

General Journal – A correcting entry

DateDescriptionDebitCredit

5/5


Learning objectives

Correcting Errors – An Example

On May 5 a purchase of office equipment on account was incorrectly journalized and posted as shown.

General Journal – As recorded and posted

DateDescriptionDebitCredit

5/5Supplies 12,500

Accounts Payable 12,500

General Journal – A correcting entry

DateDescriptionDebitCredit

5/5Office Equipment 12,500


Learning objectives

Correcting Errors – An Example

On May 5 a purchase of office equipment on account was incorrectly journalized and posted as shown.

General Journal – As recorded and posted

DateDescriptionDebitCredit

5/5Supplies 12,500

Accounts Payable 12,500

General Journal – A correcting entry

DateDescriptionDebitCredit

5/5Office Equipment 12,500

Supplies 12,500


Comparative balance sheet december 31 2003 and 20021

Financial Analysis and Interpretation

Comparative Balance SheetDecember 31, 2003 and 2002

Objective:Use horizontal analysis to compare financial statements from different periods.

Assets

Current assets$ 550,000$ 533,000

Long-term investments95,000177,500

Plant assets (net)444,500470,000

Intangible assets50,00050,000

$1,139,500$1,230,500

Increase (Decrease)

20032002AmountPercent


Comparative income statement december 31 2003 and 20021

Financial Analysis and Interpretation

Comparative Income StatementDecember 31, 2003 and 2002

Objective:Use horizontal analysis to compare financial statements from different periods.

Sales$1,530,500$1,234,000

Sales returns32,50034,000

Net sales$1,498,000$1,200,000

Cost of goods sold1,043,000820,000

Gross profit $ 455,000$ 380,000

Increase (Decrease)

20032002AmountPercent


Learning objectives

Note: To see the topic slide, type 2 and press Enter.

Power Notes

ChapterF2

Analyzing Transactions

This is the last slide in Chapter F2.


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