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Acct 310 Accounting Review Part I. Rick Hayes, Ph.D., CPA California State University L.A. Accounting Analysis. Analyze the effect of business transactions on the basic accounting equation:. Assets = Liabilities + Stockholders’ Equity. Must always balance. Transaction Analysis.

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Acct 310 Accounting Review Part I

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Acct 310 Accounting ReviewPart I

Rick Hayes, Ph.D., CPA

California State University L.A.


Accounting Analysis...

Analyze the effect of business transactions on the basic accounting equation:

Assets = Liabilities + Stockholders’ Equity

Must always balance.


Transaction Analysis

  • 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


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


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.


Event 3 – Purchase of Office Equipment for Cash

Oct. 2 – Sierra acquired office equipment by paying $5,000 cash to Superior Sales Co.


Event 4 – Receipt of Cash in Advance from Customer

Oct. 2 – Sierra received a $1,200 cash advance from R. Knox, a client.


Event 5 – Services Rendered for Cash

Oct. 3 – Sierra received $10,000 in cash from Copa Co. for advertising services performed


Event 5 –Services Rendered, WHAT IF these were performed “on account”?

Later, when $10,000 is collected from customer…


Examples


Total the Entries to Each Side

TITLE

Debit

Credit

Total Debits

Total Credits

If the greater sum is on the left, the account has a Debit Balance


TITLE

Debit

Credit

Total Debits

Total Credits

Total the Entries to Each Side

If the greater sum is on the right, the account has a Credit Balance


Summary of Transactions

Assets =

Liabilities + Equity


Normal Balancesfor Assets and Liabilities


Normal Balances for Stockholders’ Equity


Normal Balances for Expenses and Revenues


Expansion of Basic Equation


Review

What is the normal balance for the following accounts?

Cash

Debit

Credit

Accounts Payable

Accounts Receivable

Debit

Service Revenue

Credit

Common Stock

Credit

Salaries Expense

Debit


Review

What is the normal balance for the following accounts?

Dividends

Debit

Debit

Building

Taxes Payable

Credit

Unearned Revenus

Credit

Prepaid Insurance

Debit

Rent Expense

Debit


GENERAL JOURNAL

Account Titles and Explanations

2007 Oct. 1 Cash 10,000 Common Stock 10,000(Invested cash in business)

Date

Debit Credit

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)


The General Ledger


The General Ledger


AccountCASH

Acct 1010

Date

Posting Entries

GENERAL JOURNAL

Account Titles and Explanations

2007 Oct. 1 Cash 10,000 Common Stock 10,000

Balance

ref

debit

credit

debit

credit

AccountCOMMON STOCK

Acct 3010

Date

Balance

ref

debit

credit

debit

credit


AccountCASH

Acct 1010

Date

Posting Entries

GENERAL JOURNAL

Account Titles and Explanations

2007 Oct. 1 Cash 10,000 Common Stock 10,000

Balance

ref

debit

credit

debit

credit

gj 1

Oct 1

10,000

10,000

AccountCOMMON STOCK

Acct 3010

Date

Balance

ref

debit

credit

debit

credit

Oct 1

gj 1

10,000

10,000


AccountCASH

Acct 1010

Date

Posting Entries

GENERAL JOURNAL

Account Titles and Explanations

2007 Oct. 1 Cash 10,000 Common Stock 10,000

Balance

ref

debit

credit

debit

credit

gj 1

Oct 1

10,000

10,000

AccountCOMMON STOCK

Acct 3010

Date

Balance

ref

debit

credit

debit

credit

Oct 1

gj 1

10,000

10,000


11

8

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.


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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