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AGRICULUTURAL TECHNICAL INSTITUTE BUS TEC T101 ACCOUNTING Recording Business Transactions Chapter 2 CH 1: ACCT & THE BUS ENVIRONMENT REVIEW The Account Equation (A=L+C) is the basis for all accounting FINANCIAL BUSINESS TRANSCTIONS FINANCIAL STATEMENTS ACCOUNTING

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review

CH 1: ACCT & THE BUS ENVIRONMENT

REVIEW

The Account Equation (A=L+C) is the basis for all accounting

FINANCIAL

BUSINESSTRANSCTIONS

FINANCIALSTATEMENTS

ACCOUNTING

review3

CH 1: ACCT & THE BUS ENVIRONMENT

REVIEW

1. Termsa. Assetsb. Liabilitiesc. Equityd. Revenuee. Expenses f. Acct Principles

2. Procedures a. Transactionsb. Prepare Financial St 1. Income St 2. Equity St. 3. Balance Sh. 4. Cash Flow St

accounting concepts
ACCOUNTING CONCEPTS

CH 1: ACCT & THE BUS ENVIRONMENT

CH 2: RECORDING TRANSACTIONS

CH 3: MEASURING INCOME; ADJUSTMENTS

CH 4: COMPLETING THE ACCTING CYCLE

CH 5: MERCHANDISE OPERATIONS

CH 6: SPECIAL JOURNALS

CH 7: CONTROLLING CASH

CH 8: RECEIVABLES

CH 9: MERCHANDISE INVENTORY

CH 10: PAYROLL

CH 17 CASH FLOW

APPENDIX C: INCOME TAX

learning objectives

CH 2: RECORDING BUS TRANSACTIONS

LEARNING OBJECTIVES

AFTER COMPLETING THIS CHAPTER, THE STUDENT SHOULD BE ABLE TO:

1. Define & Use Key Accounting Terms

2. Apply the Rules of Debits and Credits

3. Record Transactions in the Journal

4. Post from the Journal to the Ledger

5. Prepare & Use a Trial Balance

slide6

46

1

Define & Use Key Accounting Terms

OBJ

Ledger

Accounts

Individual asset accounts

All individual

accounts

combined

make up

the ledger.

Cash

Accounts

Payable

Ledger

Individual liability accounts

Gay Gillen,

Capital

Individual owner’s equity accounts

chart of accounts in the ledger

55

1

Define & Use Key Accounting Terms

Chart of Accounts in the Ledger

OBJ

  • This is a listing of all accounts & related account numbers used by a business.
  • Each account should have its own number.
  • The numbering system should allow flexibility for changing business needs.

Typically for a small business

100’s = Assets Accts

400’s = Revenue

200’s = Liability Accts

500’s = Expenses

300’s = Equity Accts

slide8

45

1

Define & Use Key Accounting Terms

OBJ

Assets

  • What are some asset accounts?
  • Cash (Checking Acct)
  • Accts Receivable (Unwritten Promises to Pay)
  • Notes Receivable (Written Promises to Pay)
  • Prepaid Expenses (Expense Paid in Advance)
  • Equipment
  • Building
  • Land

In Order by Liquidity: Time to Convert to Cash

slide9

45

1

Define & Use Key Accounting Terms

OBJ

Assets

Liabilities

  • What are some liability accounts?
  • Accounts Payable (Things bought on short term credit)
  • Notes Payable (Loans longer than 1 yr)
  • Accrued Liabilities (for expenses incurred but not paid)
  • Long-term Liabilities (bonds)
slide10

46

1

Define & Use Key Accounting Terms

OBJ

Assets

Liabilities

Owner’s Equity

  • What are some owner’s equity accounts?
  • Capital or owner’s interest in the business
  • Withdrawals by the owner
  • Revenues from business activities
  • Expenses related to business activities
  • In a corporation, the owner’s equity account is called Stockholders’ Equity.

Contributed Capital

Retained Earnings

double entry accounting

47

1

Define & Use Key Accounting Terms

Double-Entry Accounting

OBJ

  • Double entry bookkeeping means to record the multiple 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.
the t account

47

1

Define & Use Key Accounting Terms

The T-Account

OBJ

Account Title

Debit

Credit

LEFT SIDE

RIGHT SIDE

Debits are always on the left, and Credits on the right

But their effects differs based on what account is changed

rules of debit and credit

48

Apply the rules of debit & credit.

2

Rules of Debit and Credit

OBJ

Assets

Liabilities

+

Owner’s Equity

=

Debit

+

Credit

-

Debit

-

Credit

+

Debit

-

Credit

+

$Debits = $Credits

NB

NB

NB

Normal Account Balances

The side where we expect increases (+) to be recorded is the normal balance side.

rules of debit and credit14

48

Apply the rules of debit & credit.

2

Rules of Debit and Credit

OBJ

A

=

L

+

E

+

D

C

+

EXPENSES: D+

REVENUE: C+

the double entry system

48

Apply the rules of debit & credit.

2

The Double-Entry System

OBJ

Each transaction is recorded with at least:

One debit

One credit

Total debits must equal total credits.

1. For any one transaction

DEBITS

CREDITS

2. For any account in Ledger

3. For the Ledger as a whole

4. For the Balance Sheet

journals

50

3

Record Transactions in Journal.

Journals

OBJ

  • What is a journal?
  • It is a list in CHRONOLOGICAL order of all the transactions for a business.
  • Identify transaction from source documents (sales slip, invoice, etc.)
  • Specify accounts affected.
  • Apply debit/credit rules.
  • Record transaction with description.
journal entry rules

50

Record Transactions in Journal.

3

Journal Entry Rules

OBJ

  • date of the transaction
  • What does a journal entry include?
  • title of the account debited (First)
  • title of the account credited (Second)
  • description of the transaction

-amount of the debit and credit

-dollar signs are omitted

Date Accounts & Explanation Debit Credit

Aug 2

Supplies

500

Acct Payable

500

Bought Supplies on Acct

slide18

Record Transactions in Journal.

3

OBJ

  • When should a transaction be recorded?

a. Must effect the entity’s financial position

b. Must be reliable

2. Where should the transaction be recorded?

-- In the Journal

3. What to record for each transaction?

-- Incr / Decr for all accounts affected

4. How should the transaction be recorded?

-- Follow the rules of debits and credits

slide19

52

Record Transactions in Journal.

3

OBJ

1. SHAY GILLIAN FORMS A BUSINESS BY TRANSFERRING $30,000 FROM A SAVING ACCT TO A BUSINESS CHECKING ACCT ON APR 2

ASSETS

LIAB

CAPITAL

=

ACCT

REC

=

CK

SUPP

EQP

BLD

INV

REC/EXP

LD

ACTS

NOTES

+30000

+30000

General Journal Page 1

Date Accounts & Explanation Debit Credit

April 2

Cash

30,000

Gay Gillen, Capital

30,000

Received initial investment from owner

slide20

52

Record Transactions in Journal.

3

OBJ

2. PAID $20,000 CASH ON 4/3 FOR LD TO BUILD AN OFFICE.

ASSETS

LIAB

CAPITAL

ACCT

REC

=

CK

SUPP

EQP

BLD

ACTS

NOTES

INV

REC/EXP

LD

+30000

+30000

+20000

-20000

General Journal Page 1

Date Accounts & Explanation Debit Credit

Cash

April 2

30,000

Gay Gillen, Capital

30,000

20,000

April 3

Land

20,000

Cash

Buy land for office building

slide21

53

Record Transactions in G Journal

3

OBJ

3. BOUGHT OFFICE SUPPLIES FOR $500 ON ACCOUNT ON APR 6

ASSETS

LIAB

CAPITAL

ACCT

REC

=

CK

SUPP

EQP

BLD

ACTS

NOTES

INV

REC/EXP

LD

+30000

+30000

+20000

-20000

+500

+500

General Journal Page 1

Date Accounts & Explanation Debit Credit

Cash

April 2

30,000

Gay Gillen, Capital

30,000

20,000

April 3

Land

20,000

Cash

April 6

Supplies

500

Accounts Payable

500

ledger

51

Posting from Gen Journal

4

Ledger

OBJ

Journals

It is a list in chronological order of all the transactions for a business.

It is a digest of all accounts utilized by an entity during an accounting period. It is a listing of transactions for an entity .

Loose leaf

pages

Bound

books

Computer

printout

Cards

Posting

is the process of transferring of data from the journal to appropriate ledger accounts.

slide23

46

Post from Journal to T Accts

4

OBJ

General Journal Page 1

Date Accounts & Explanation Ref Debit Credit

Cash

April 2

30,000

Gay Gillen, Capital

30,000

1

Capital

Assets

Liabilities

Cash

Gillian

Equip

Acct Payable

30,000

30,000

Revenue

Bldg

Acct Rec

Notes Payable

Expenses

Supplies

Land

slide24

47

Post from Journal to T Accts

4

OBJ

General Journal Page 1

Date Accounts & Explanation Ref Debit Credit

Land

April 2

20,000

20,000

Cash

2

Capital

Assets

Liabilities

Cash

Gillian

Equip

Acct Payable

20,000

30,000

30,000

Revenue

Bldg

Acct Rec

Notes Payable

Expenses

Supplies

Land

20,000

slide25

47

Post from Journal to T Accts

4

OBJ

General Journal Page 1

Date Accounts & Explanation Ref Debit Credit

Supplies

April 2

500

500

Acct Payable

3

Capital

Assets

Liabilities

Cash

Gillian

Equip

Acct Payable

20,000

30,000

30,000

500

Revenue

Bldg

Acct Rec

Notes Payable

Expenses

Supplies

Land

500

20,000

slide26

47

Post from Journal to T Accts

4

OBJ

General Journal Page 1

Date Accounts & Explanation Ref Debit Credit

April 4

300

Acct Payable

300

Cash

April 6

2,000

Gillian, Withdraws

2,000

Cash

slide27

48

Post from Journal to T Accts

4

OBJ

General Journal Page 1

Date Accounts & Explanation Ref Debit Credit

Capital

Assets

Liabilities

Cash

Gillian

Equip

Acct Payable

20,000

30,000

30,000

300

500

300

30,000

Bal 200

2,100

Bldg

Revenue

Bal 7,600

Notes Payable

Acct Rec

Withdraw

Expenses

Supplies

Land

500

2,100

20,000

Bal 500

Bal 2,000

Bal 20000

trial balance

54

Prepare & use a trial balance.

5

Trial Balance

OBJ

  • 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.
trial balance29

Prepare & use a trial balance.

55

5

Trial Balance

OBJ

Gillian Travel

As of _____ 20xx

Debit

Account

Credit

7, 700

Cash

Acct Rec

0

500

Supplies

0

Equip

0

Buildings

20,000

Land

Acct Payable

200

Notes Payable

0

Gillian, Capital

30,000

Gillian, Withdraw

2,000

Revenue

0

0

Expense

TOTAL

30,200

30,200

locating trial balance errors

65

Prepare & use a trial balance.

5

Locating Trial Balance Errors

OBJ

  • What if it doesn’t balance ?
  • Is the addition correct?
  • Are all accounts listed?
  • Are the balances listed correctly?

DEBITS CREDITS

locating trial balance errors31

65

Prepare & use a trial balance.

5

Locating Trial Balance Errors

OBJ

  • 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.
the four column account format

Post Fr Journal to 4 Col Ledger

4

The Four-Column Account Format

OBJ

Account: Cash Account No. 101

Balance

Date Item Ref. Debit Credit Debit Credit

April 2

30,000

30,000

GJ

Why this format instead of T accounts?

1. Has room for reference information

2. Has a running balance, so information is easier to give

slide33

53

Post Fr Journal to 4 Col Ledger

4

OBJ

General Journal Page 1

Date Accounts & Explanation Ref Debit Credit

Cash

April 2

30,000

Gay Gillen, Capital

30,000

slide34

54

Post Fr Journal to 4 Col Ledger

4

OBJ

Posting Steps

1. Copy (post) transaction date from journal to the appropriate ledger account

slide35

53

Post Fr Journal to 4 Col Ledger

4

OBJ

General Journal Page 1

Date Accounts & Explanation Ref Debit Credit

Cash

April 2

30,000

Gay Gillen, Capital

30,000

Account: Cash Account No. 101

Balance

Date Item Ref. Debit Credit Debit Credit

April 2

1

Enter the date from the journal

slide36

54

Post Fr Journal to 4 Col Ledger

4

OBJ

Posting Steps

1. Copy (post) transaction date from journal to the appropriate ledger account

2. Copy (post) journal name & page from journal to the appropriate ledger account

slide37

53

Post Fr Journal to 4 Col Ledger

4

OBJ

General Journal Page 1

Date Accounts & Explanation Ref Debit Credit

Cash

April 2

30,000

Gay Gillen, Capital

30,000

Account: Cash Account No. 101

Balance

Date Item Ref. Debit Credit Debit Credit

April 2

GJ-1

1

2

Enter the date

Enter journalpg&no

slide38

54

Post Fr Journal to 4 Col Ledger

4

OBJ

Posting Steps

1. Copy (post) transaction date from journal to the appropriate ledger account

2. Copy (post) journal name & page from journal to the appropriate ledger account

3. Copy (post) debit from journal to the appropriate ledger account

slide39

53

Post Fr Journal to 4 Col Ledger

4

OBJ

General Journal Page 1

Date Accounts & Explanation Ref Debit Credit

Cash

April 2

30,000

Gay Gillen, Capital

30,000

Account: Cash Account No. 101

Balance

Date Item Ref. Debit Credit Debit Credit

April 2

GJ-1

30,000

1

3

3

2

Enter debit orcredit

Enter the date

Enter journalpg&no

slide40

54

Post Fr Journal to 4 Col Ledger

4

OBJ

Posting Steps

1. Copy (post) transaction date from journal to the appropriate ledger account

2. Copy (post) journal name & page from journal to the appropriate ledger account

3. Copy (post) debit from journal to the appropriate ledger account

4. Calculate running balance

slide41

53

Post Fr Journal to 4 Col Ledger

4

OBJ

General Journal Page 1

Date Accounts & Explanation Ref Debit Credit

Cash

April 2

30,000

Gay Gillen, Capital

30,000

Account: Cash Account No. 101

Balance

Date Item Ref. Debit Credit Debit Credit

April 2

GJ-1

30,000

30,000

1

3

3

2

4

Enter debit orcredit

Enter the date

Enter journalpg&no

Cal

RunBal

slide42

54

Post Fr Journal to 4 Col Ledger

4

OBJ

Posting Steps

1. Copy (post) transaction date from journal to the appropriate ledger account

2. Copy (post) journal name & page from journal to the appropriate ledger account

3. Copy (post) debit from journal to the appropriate ledger account

4. Calculate running balance

5. Copy (post) ledger account number back to the Post Ref col in the journal

slide43

53

Post Fr Journal to 4 Col Ledger

4

OBJ

General Journal Page 1

Date Accounts & Explanation Ref Debit Credit

Cash

April 2

30,000

101

Gay Gillen, Capital

30,000

Account: Cash Account No. 101

Balance

Date Item Ref. Debit Credit Debit Credit

April 2

GJ-1

30,000

30,000

1

3

3

2

4

5

Enter debit orcredit

Enter the date

Enter journalpg&no

Cal

RunBal

Put acct no in Post Ref col

slide44

54

Post Fr Journal to 4 Col Ledger

4

OBJ

Posting Steps

1. Copy (post) transaction date from journal to the appropriate ledger account

2. Copy (post) journal name & page from journal to the appropriate ledger account

3. Copy (post) debit from journal to the appropriate ledger account

4. Calculate running balance

5. Copy (post) ledger account number back to the Post Ref col in the journal

6. Repeat steps 1-4 for the credit entry

summary

CH 2: RECORDING BUS TRANSACTIONS

SUMMARY

2. New Procedures a. Journalizing b. Postingc. Preparing Trial Balance

1. New Terms a. T Accounts b. Ledgerc. Journald. Debits & Creditse. Normal Balance f. Trial Balance

next topic
Next Topic

CHAPTER 3:

THE ADJUSTING PROCESS