Presentation Transcript

1. Recording BusinessTransactions

   Chapter 2
2. The Accounting Process Record transactions in the journal Copy (post) to the ledger Prepare the trial balance
3. The Account Basic summary device Detailed record of all changes that have occurred in a particular asset, liability, or owner’s equity Covers a specific period of time Grouped in three broad categories Assets Liabilities Owner’s Equity
4. The Journal and The Ledger Journal Chronological record of transactions Organized by date Ledger The book holding all the accounts and their balances Organized by account
5. Trial Balance Listing of all accounts and their balances
6. The Accounting Equation ASSETS LIABILITIES EQUITY Economic Resources Claims to Economic Resources
7. Assets Economic resources that will benefit the business in the future: Cash Accounts receivable Notes receivable Prepaid expenses Land Building Equipment, Furniture, Fixtures
8. Liabilities A debt (something owed): Accounts payable Notes payable Accrued liabilities
9. Owner's Equity Owner’s claim to the assets: Capital Drawing Revenues Expenses
10. Ledger Asset, Liability, and Owner’s Equity Accounts
11. Chart of Accounts List of all accounts used by a company
12. 2 Define debits, credits, and normal account balances and use double-entry accounting and T-accounts
13. Double Entry System Record dual effects of each transaction Each transaction has a: Receiving side Giving side Examples: Company purchases supplies (receiving) with cash (giving) Company issues stock (giving) and receives cash (receiving)
14. Tool for analyzing and determining the balance in a given account Account Name (Left Side) (Right Side) T-Account Dr Debit Cr Credit
15. Increases and Decreases in Accounts Whether an account is increased by debit or a credit is determined by the account type Asset, liability, or equity Debits are not good or bad Neither are credits
16. Rules of Debit and Credit The account category governs the increase side or decrease side Increases are recorded on one side Decreases are recorded on the opposite side Rules of debits and credits
17. Illustrate Debits and Credits The first transaction involves receiving $30,000 cash and issuing Capital The second transaction is a $20,000 purchase of land for cash
18. Steps in the Transaction Recording Process Use the rules of debit and credit
19. Illustrating a Journal Entry Journalize the first transaction of Smart Touch—the receipt of $30,000 cash and issuance of Capital. The accounts affected are Cash and Capital. Cash is an asset. Capital is equity. Both accounts increase by $30,000. Assets increase with debits. Equity increases with credits.
20. General Journal Transaction date Accounts affected Explanation of transaction Dollar amounts of debits and credits
21. Posting from the Journal to the Ledger Copying amounts from the journal to the ledger
22. Expanding Debit/Credit Rules to include Revenues and Expenses
23. Complete Rules of Debit and Credit
24. Normal Balance of an Account
25. Flow of Accounting Data from the Journal to the Ledger
26. Capital Cash Practice Journalizing: Transaction 1 30,000 30,000
27. Capital Cash Practice Journalizing and Posting: Transaction 2 Land 20,000 30,000 20,000 30,000 10,000
28. Accounts payable Cash Cash Practice Journalizing and Posting: Transaction 3 Office supplies 20,000 20,000 30,000 30,000 500 500 10,000
29. Service revenue Cash Cash Practice Journalizing and Posting :Transaction 4 20,000 20,000 30,000 30,000 5,500 5,500
30. The Ledger Accounts After Posting Transaction 5 Performed services on account
31. The Ledger Accounts After Posting Transaction 6 paid cash expenses
32. The Ledger Accounts After Posting Transaction 7 Paid $300 on A/P
33. The Ledger Accounts After Posting Transaction 9 Collect $2,000 from Client
34. The Ledger Accounts After Posting Transaction 10 Sold land $9,000
35. The Ledger Accounts After Posting Transaction 11 Received Phone bill to be paid next month $100
36. The Ledger Accounts After Posting Transaction 12 Bright withdraws cash $2,000
37. The Ledger Accounts After Posting
38. Trial Balance Summary of the ledger Lists all accounts with their balances Accuracy check Debits should equal credits NOT a balance sheet
39. Trial Balance
40. Detecting Trial Balance Errors Search for missing account Divide the difference between total debits and total credits by two Is there a debit/credit balance for this amount posted in the wrong column? Divide out-of-balance amount by nine Slide–Adding or dropping a zero ($100 instead of $1,000) Transposition–Reversing two digits ($2,100 instead of $1,200)
41. Details of the Journal