Accounting chap02

2 - 1© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Debits and Credits:Debits and Credits:Analyzing and RecordingAnalyzing and Recording

Business TransactionsBusiness Transactions

Chapter 2Chapter 2

2 - 2© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Setting up and organizingSetting up and organizinga chart of accounts.a chart of accounts.

Learning Objective 1Learning Objective 1

2 - 3© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Unit 2-1Learning Unit 2-1(The T Account)(The T Account)

AccountAccount

Standard accountStandard account

LedgerLedger

2 - 4© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Unit 2-1Learning Unit 2-1(The T Account)(The T Account)

Account TitleAccount Title Account No.Account No.

DateDate ItemItem PRPR DebitDebit DateDate ItemItem PRPR CreditCredit

The Standard Account FormThe Standard Account Form

2 - 5© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Unit 2-1Learning Unit 2-1(The T Account)(The T Account)

Each T account contains three basic parts.Each T account contains three basic parts.

2.2. Left side Left sideDr. (debit)Dr. (debit)

1.1. Title of account Title of account3.3. Right side Right sideCr. (credit)Cr. (credit)

2 - 6© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Unit 2-1Learning Unit 2-1(The T Account)(The T Account)

Account Name (Title)Account Name (Title)Dr. (debit)Dr. (debit)

4,0004,000 500500

Cr. (credit)Cr. (credit)300300400400

4,5004,500 700700

3,8003,800

EntriesEntries

FootingsFootings

BalanceBalance

2 - 7© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Recording transactions inRecording transactions inT accounts according toT accounts according to

the rules of debit and credit.the rules of debit and credit.

Learning Objective 2Learning Objective 2

2 - 8© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Unit 2-2 (Recording Learning Unit 2-2 (Recording Business Transactions)Business Transactions)

Owner’s EquityOwner’s EquityAssetsAssets LiabilitiesLiabilities= +

2 - 9© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Unit 2-2 (Recording Learning Unit 2-2 (Recording Business Transactions)Business Transactions)

NormalNormalBalanceBalance

DebitDebit

DebitsDebits++

CreditsCredits––

NormalNormalBalanceBalanceCreditCredit

DebitsDebits––

CreditsCredits++

NormalNormalBalanceBalanceCreditCredit

DebitsDebits––

CreditsCredits++

Owner’s EquityOwner’s EquityAssetsAssets LiabilitiesLiabilities= +

2 - 10© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Unit 2-2 (Recording Learning Unit 2-2 (Recording Business Transactions)Business Transactions)

NormalNormalBalanceBalance

DebitDebit

DebitsDebits++

CreditsCredits––

WithdrawalsWithdrawals

NormalNormalBalanceBalanceCreditCredit

DebitsDebits––

CreditsCredits++

CapitalCapital

2 - 11© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Unit 2-2 (Recording Learning Unit 2-2 (Recording Business Transactions)Business Transactions)

NormalNormalBalanceBalanceCreditCredit

DebitsDebits––

CreditsCredits++

RevenuesRevenues

NormalNormalBalanceBalance

DebitDebit

DebitsDebits++

CreditsCredits––

ExpensesExpenses

2 - 12© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

AssetsAssets111 Cash111 Cash112 Accounts Receivable112 Accounts Receivable121 Office Equipment121 Office Equipment

Chart of AccountsChart of Accounts

LiabilitiesLiabilities211 Accounts Payable211 Accounts PayableOwner’s EquityOwner’s Equity311 Cathy Hall, Capital311 Cathy Hall, Capital312 Cathy Hall, Withdrawals312 Cathy Hall, Withdrawals

2 - 13© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Chart of AccountsChart of Accounts

RevenueRevenue411 Legal Fees411 Legal FeesExpensesExpenses511 Salaries Expense511 Salaries Expense512 Rent Expense512 Rent Expense513 Advertising Expense513 Advertising Expense

2 - 14© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

The Transaction AnalysisThe Transaction Analysis

Determine which accounts are affected.Determine which accounts are affected.

Determine which category the accounts belong.Determine which category the accounts belong.

Determine increases or decreases.Determine increases or decreases.

What do the rules of debits and credits say?What do the rules of debits and credits say?

What does the T account look like?What does the T account look like?

2 - 15© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Applying theApplying theTransaction AnalysisTransaction Analysis

A. August 28: Cathy Hall investsA. August 28: Cathy Hall invests$7,000 in cash and $800 of$7,000 in cash and $800 of

office equipment into the business. office equipment into the business.

B. August 29: Law practice buysB. August 29: Law practice buysoffice equipment for cash, $900.office equipment for cash, $900.

C. August 30: Buys additional officeC. August 30: Buys additional officeequipment on account, $400.equipment on account, $400.

2 - 16© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Applying theApplying theTransaction AnalysisTransaction Analysis

(A) 7,000(A) 7,000

(A) 800(A) 800

7,800 (A)7,800 (A)

Office Equipment 121Office Equipment 121

Cathy Hall, Capital 311Cathy Hall, Capital 311Cash 111Cash 111

Accounts Payable 211Accounts Payable 211

900 (B)900 (B)

(B) 900(B) 900400 (C)400 (C)

(C) 400(C) 400

2 - 17© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Applying theApplying theTransaction AnalysisTransaction Analysis

D. September 1-30: Cathy Hall providedD. September 1-30: Cathy Hall providedlegal services for cash, $3,000.legal services for cash, $3,000.

E. September 1-30: Provided legalE. September 1-30: Provided legalservices on account, $4,000.services on account, $4,000.

F. September 1-30: Received $700 cashF. September 1-30: Received $700 cashas partial payment from previousas partial payment from previousservices performed on account.services performed on account.

G. September 1-30: Paid salaries expense, $600.G. September 1-30: Paid salaries expense, $600.

2 - 18© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Applying theApplying theTransaction AnalysisTransaction Analysis

Salaries Expense 511Salaries Expense 511

Accts. Receivable 112Accts. Receivable 112Cash 111Cash 111(A) 7,000(A) 7,000 900 (B)900 (B)

Legal Fees 411Legal Fees 4113,000 (D)3,000 (D)

(D) 3,000(D) 3,000700 (F)700 (F)

(F) 700(F) 700

(E) 4,000(E) 4,000

4,000 (E)4,000 (E)(G) 600(G) 600

600 (G)600 (G)

2 - 19© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Applying theApplying theTransaction AnalysisTransaction Analysis

H. September 1-30: Paid rent expense, $700.H. September 1-30: Paid rent expense, $700.

I. September 1-30: Incurred advertisingI. September 1-30: Incurred advertisingexpense of $300, to be paid next month.expense of $300, to be paid next month.

2 - 20© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Applying theApplying theTransaction AnalysisTransaction Analysis

Rent Expense 512Rent Expense 512

Accounts Payable 211Accounts Payable 211Cash 111Cash 111(A) 7,000(A) 7,000(D) 3,000(D) 3,000(F) 700(F) 700

400 (C)400 (C)900 (B)900 (B)600 (G)600 (G)

Advertising Expense 513Advertising Expense 513

(H) 700(H) 700

700 (H)700 (H)

(I) 300(I) 300

300 (I)300 (I)

2 - 21© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Applying theApplying theTransaction AnalysisTransaction AnalysisJ. September 1-30: Hall withdrewJ. September 1-30: Hall withdrew

cash for personal use, $200.cash for personal use, $200.

Cash 111Cash 111(A) 7,000(A) 7,000(D) 3,000(D) 3,000(F) 700(F) 700

900 (B)900 (B)600 (G)600 (G)700 (H)700 (H)

C. Hall Withdrawals, 312C. Hall Withdrawals, 312

(J) 200(J) 200

200 (J)200 (J)

2 - 22© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Objective 3Learning Objective 3

Preparing a trial balance.Preparing a trial balance.

2 - 23© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Unit 2-3Learning Unit 2-3(The Trial Balance)(The Trial Balance)

Cash 111Cash 111(A) 7,000(A) 7,000(D) 3,000(D) 3,000(F) 700(F) 700

10,70010,700 8,300 8,300

900 (B)900 (B)600 (G)600 (G)700 (H)700 (H)200 (J)200 (J)2,4002,400

New Balance Footings

2 - 24© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Unit 2-3Learning Unit 2-3(The Trial Balance)(The Trial Balance)

Footings are used to obtain the balanceFootings are used to obtain the balanceof each side of every T accountof each side of every T accountthat has more than one entry.that has more than one entry.

The ending balances are usedThe ending balances are usedto prepare a trial balance.to prepare a trial balance.

2 - 25© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Unit 2-3Learning Unit 2-3(The Trial Balance)(The Trial Balance)

Balance $$$Balance $$$Balance $$$Balance $$$

Balance $$$Balance $$$Balance $$$Balance $$$

Balance $$$Balance $$$Balance $$$Balance $$$

Balance $$$Balance $$$Balance $$$Balance $$$

Balance $$$Balance $$$

Cash Account No.111Cash Account No.111

BalanceBalance $$$ $$$

Cathy Hall, Attorney-at-LawCathy Hall, Attorney-at-LawTrial BalanceTrial Balance

September 30, 200xSeptember 30, 200x

CashCash $$$$$$Accounts ReceivableAccounts Receivable $$$$$$Office EquipmentOffice Equipment $$$$$$Accounts PayableAccounts Payable $$$$$$Cathy Hall, Capital Cathy Hall, Capital $$$$$$Cathy Hall WithdrawalsCathy Hall Withdrawals $$$$$$Legal FeesLegal Fees $$$ $$$Salaries Expenses Salaries Expenses $$$$$$Rent ExpenseRent Expense $$$$$$Advertising ExpenseAdvertising Expense $$$$$$

2 - 26© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Unit 2-3Learning Unit 2-3(The Trial Balance)(The Trial Balance)

Dr.Dr. 8,3008,300 3,3003,300 2,1002,100

200200

600600 700700 30030015,50015,500

Cr.Cr.

700700 7,8007,800

7,0007,000

15,50015,500

111 Cash111 Cash112 Accounts Receivable112 Accounts Receivable121 Office Equipment121 Office Equipment211 Accounts Payable211 Accounts Payable311 Cathy Hall, Capital311 Cathy Hall, Capital312 Cathy Hall, Withdrawals312 Cathy Hall, Withdrawals411 Legal Fees411 Legal Fees511 Salaries Expense511 Salaries Expense512 Rent Expense512 Rent Expense513 Advertising Expense 513 Advertising Expense TotalsTotals

2 - 27© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Learning Objective 4Learning Objective 4

Preparing financial statementsPreparing financial statementsfrom a trial balance.from a trial balance.

2 - 28© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Preparing thePreparing theFinancial StatementsFinancial Statements

Cathy Hall, Attorney-at-LawCathy Hall, Attorney-at-LawIncome StatementIncome Statement

For Month Ended September 30, 200xFor Month Ended September 30, 200xRevenue:Revenue:Legal feesLegal fees $7,000$7,000Operating expenses:Operating expenses: Salaries expenseSalaries expense $600$600 Rent expenseRent expense 700 700 Advertising expenseAdvertising expense 300 300

Total operating expensesTotal operating expenses 1,600 1,600Net incomeNet income $5,400$5,400

2 - 29© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Preparing thePreparing theFinancial StatementsFinancial Statements

Cathy Hall, capitalCathy Hall, capitalSeptember 1, 200xSeptember 1, 200x $ 7,800$ 7,800Net income for SeptemberNet income for September $5,400$5,400Less withdrawalsLess withdrawals 200 200Increase in capitalIncrease in capital 5,200 5,200Cathy Hall, capital,Cathy Hall, capital,September 30, 200xSeptember 30, 200x $13,000$13,000

Cathy Hall, Attorney-at-LawCathy Hall, Attorney-at-LawStatements of Owner’s EquityStatements of Owner’s Equity

For Month Ended September 30, 200xFor Month Ended September 30, 200x

2 - 30© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Preparing thePreparing theFinancial StatementsFinancial Statements

AssetsAssetsCashCash $ 8,300$ 8,300Accts. rec.Accts. rec. 3,300 3,300Office equip.Office equip. 2,100 2,100TotalTotal $13,700$13,700

Liabilities and Owner’s EquityLiabilities and Owner’s EquityAccounts payableAccounts payable $ 700$ 700Owner’s equityOwner’s equityCathy Hall, capitalCathy Hall, capital 13,000 13,000TotalTotal $13,700$13,700

Cathy Hall, Attorney-at-LawCathy Hall, Attorney-at-LawBalance SheetBalance Sheet

September 30, 200xSeptember 30, 200x

2 - 31© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

End of Chapter 2End of Chapter 2