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ACG2021 Financial Accounting. Processing Accounting Information. The Accounting Information System. Income Statement Balance Sheet Cash Flow. Inputs. Process. Outputs. Business Transaction. Accounts Journal General Ledger Trial Balance. Learning Objective 1.

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acg2021 financial accounting

ACG2021Financial Accounting

Processing Accounting Information

the accounting information system
The Accounting Information System
  • Income Statement
  • Balance Sheet
  • Cash Flow

Inputs

Process

Outputs

Business

Transaction

  • Accounts
  • Journal
  • General Ledger
  • Trial Balance
learning objective 1
Learning Objective 1

Analyze business transactions.

accounting for business transactions
Accounting for Business Transactions

Transaction - any event that both affects the financial position of the business entity and can be reliably recorded

  • Reliably Recorded (2 accounting principles, what are they?)
transactions are recorded in the account
Transactions are Recorded inThe Account
  • Basic summary device
    • Paper based
    • Computer based
    • ???? based
  • Accounts - grouped into three broad categories
    • Assets
    • Liabilities
    • Stockholders’ Equity
  • Used to Accumulate $’s of every business transaction
    • How much cash did we receive/spend?
    • How much revenue did we earn?
    • How much was spent on rent for the year?
chart of accounts
Chart of Accounts
  • The chart of accounts lists all accounts and their account numbers.
  • Accounts can be grouped under the financial statement headings:
    • Balance Sheet: Assets, Liabilities, and Stockholders’ Equity
    • Income Statement: Revenues and Expenses
recording transactions processing
Recording Transactions (Processing)
  • Journalizing process:
    • Specify each account affected by the transaction
    • Classify each account as either asset, liability, stockholders’ equity, revenue, or expense
    • Determine whether each account is increased or decreased (use rules of debit and credit)
    • Record the transaction in a journal with a brief explanation.
the account
The Account

Assets - economic resources that benefit the business now and in the future

  • Cash
  • Accounts receivable
  • Inventory
  • Notes receivable
  • Prepaid expenses
  • Land
  • Buildings
  • Equipment, furniture, and fixtures
the account1
The Account

Liabilities - debts of the company

  • Notes payable
  • Accounts payable
  • Accrued liabilities
  • Long-term liabilities (bonds)
the account2
The Account

Stockholders’ (owners’ or shareholders’) equity - owners’ claims against the assets of a corporation

  • Common Stock
  • Retained Earnings
  • Revenues
  • Expenses
accounting for business transactions1
Accounting for Business Transactions

1. The Lyons invest $50,000 to begin the business, and Air & Sea Travel issues common stock.

(1) 50,000 50,000

accounting for business transactions2
Accounting for Business Transactions

2. Air & Sea purchases land for an office location, paying $40,000 in cash

  • (40,000) 40,000

Bal 10,000 40,000 50,000

accounting for business transactions3
Accounting for Business Transactions

3. The business buys office supplies, agreeing to pay $500 to the office-supply store within 30 days.

(3) 500 500

Bal 10,000 500 40,000 500 50,000

accounting for business transactions4
Accounting for Business Transactions

4. Air & Sea Travel earns service revenue of $5,500 and collects this amount in cash.

(4) 5,500 5,500

Bal 15,500 500 40,000 500 50,000 5,500

accounting for business transactions5
Accounting for Business Transactions

5. Air & Sea Travel performs services for customers on account for $3,000.

(5) 3,000 3,000

Bal 15,500 3,000 500 40,000 500 50,000 8,500

accounting for business transactions6
Accounting for Business Transactions

6. Air & Sea Travel pays $2,700 for cash expenses: office rent $1,100, employee salary $1,200, and utilities $400.

(6) (2,700) (2,700)

Bal 12,800 3,000 500 40,000 500 50,000 5,800

Bal 12,800 3,000 500 40,000 500 50,000 5,800

accounting for business transactions7
Accounting for Business Transactions

7. Air & Sea Travel pays $400 to the store from which it purchased office supplies in Transaction 3.

(7) (400) (400)

Bal 12,400 3,000 500 40,000 100 50,000 5,800

accounting for business transactions8
Accounting for Business Transactions

8. The owners remodel their home at a cost of $30,000, paying cash from personal funds.

This is a personal transaction, not a business transaction!

accounting for business transactions9
Accounting for Business Transactions
  • The business collects $1,000 from a customer on account.

(9) 1,000 (1,000)

Bal 13,400 2,000 500 40,000 100 50,000 5,800

accounting for business transactions10
Accounting for Business Transactions

10. Air & Sea Travel sells land for a price of $22,000, which is equal to the amount it paid for the land.

(10) 22,000 (22,000)

Bal 35,400 2,000 500 18,000 100 50,000 5,800

accounting for business transactions11
Accounting for Business Transactions

11. The corporation declares a dividend and pays $2,100 cash to the stockholders.

(11) (2,100) (2,100)

Bal 33,300 2,000 500 18,000 100 50,000 3,700

air sea travel statement of cash flows month ended april 30 20x3
Air & Sea TravelStatement of Cash FlowsMonth Ended April 30, 20x3

Cash flows from operating activities:

Collections from customers ($5,500 + $1,000) $ 6,500

Cash payments to suppliers and employees

($2,700 + $400) (3,100)

Net cash inflow from operating activities $ 3,400

Cash flows from investing activities:

Acquisition of land $(40,000)

Sale of land 22,000

Net cash outflow from investing activities (18,000)

Cash flows from financing activities:

Issuance (sale) of stock $50,000

Payment of dividends (2,100)

Net cash inflows from financing activities $47,900

Net increase (decrease) in cash $33,300

Cash balance, April 1, 20x5 0

Cash balance, April 30, 20x5 $33,300

learning objective 2
Learning Objective 2

Understand how accounting works.

acg2021 financial accounting1

ACG2021Financial Accounting

Double-Entry Accounting

Understanding Debits/Credits

double entry accounting
Double-Entry Accounting

Record the dual effects of each business transaction.

double entry accounting1

Cash

(Left Side)

(Right Side)

Debit

Credit

Double Entry Accounting
  • Each accounting transaction affects at least two accounts.
  • T-accounts can be used to represent accounts and their increases and decreases.
  • Every business transactions involves both a debit and a credit
using t accounts

Common

Stock

Cash

Credit for

increase,

$50,000

Debit for

Increase,

$50,000

Using T-Accounts

Assets = Liabilities + Stockholders Equity

Stockholders’

Equity

Assets

Liabilities

=

Debit

+

Credit

-

Debit

-

Credit

+

Debit

-

Credit

+

stockholders equity accounts

Common Stock

+

Retained

Earnings

-

Dividends

+

Revenues

-

Expenses

Stockholders’ Equity Accounts

Expanded Accounting Equation

Assets

Liabilities

=

Stockholders’

Equity

using t accounts expanded

Assets

Debit

+

Credit

-

Dividends

Expenses

Debit

+

Credit

-

Debit

+

Credit

-

Using T-Accounts Expanded

Accounts that are increased with debits and have normal debit balances

using t accounts expanded1

Stockholders’

Equity

Liabilities

Debit

-

Credit

+

Debit

-

Credit

+

Retained

Earnings

Revenue

Debit

-

Credit

+

Debit

-

Credit

+

Using T-Accounts Expanded

Accounts that are increased with credits and have normal credit balances

using t accounts1

Cash

Common Stock

50,000

Bal. 50,000

Land

Using T-Accounts

Credit for decrease,

40,000

The balance in an account is the difference between the sum of the debits and the sum of the credits.

Bal. 10,000

Debit for

Increase,

40,000

Bal. 40,000

recording transactions
Recording Transactions
  • Accounting transactions are entered in chronological order in the journal
  • Lists the Sequence of Business Events
    • What happened
    • What Accounts were effected
    • What $’s were exchanged
recording transactions1
Recording Transactions
  • Journalizing process:
    • Specify each account affected by the transaction
    • Classify each account as either asset, liability, stockholders’ equity, revenue, or expense
    • Determine whether each account is increased or decreased (use rules of debit and credit)
    • Record the transaction in a journal with a brief explanation. Debits are at the left margin and credits are indented
posting from journal to accounts general ledger
Posting from Journal to Accounts / General Ledger

DATE

ACCOUNTS AND EXPLANATION

DEBIT

CREDIT

Apr 2 Cash ………………………………. 50,000

Common Stock ………...….... 50,000

Issued common stock

Common Stock

Cash

50,000

50,000

posting to accounts general ledger
Posting to Accounts / General Ledger
  • Journal does not sort Business Events by Account
  • Thus, journal entries are periodically Posted to their respective Accounts
    • The Ledger
flow of accounting data
Flow of Accounting Data
  • Transaction occurs
  • Transaction analyzed
  • Transaction entered in journal
  • Amounts posted to the ledger accounts
trial balance
Trial Balance
  • A trial balance lists all accounts with their balances
  • Accounts are listed with assets first, then liabilities, then stockholders’ equity, revenues, and finally expenses
  • The trial balance
    • summarizes account balances
    • shows whether total debits equal total credits
finding errors
Finding Errors
  • Find the difference between total debits and total credits.
    • Search for a missing account with that balance.
    • Divide the difference by 2 and search for a debit recorded as a credit or vice-versa.
    • Divide the difference by 9. If you get an even amount, you may have either a slide or a transposition.