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© 2009 The McGraw-Hill Companies, Inc.,
All Rights Reserved
ANALYZING AND RECORDING TRANSACTIONS
Chapter 2
McGraw-Hill/Irwin Slide 2McGraw-Hill/Irwin Slide 2
Analyze each transaction and event from source documents
ANALYZING AND RECORDING PROCESS
Record relevant transactions and events in a journal
Post journal information
to ledger accounts
Prepare and analyze the trial balance
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McGraw-Hill/Irwin Slide 3McGraw-Hill/Irwin Slide 3
Sales Tickets
Bank Statements
Purchase Orders
Checks
SOURCE DOCUMENTSBills from Suppliers
Employee EarningsRecords
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McGraw-Hill/Irwin Slide 4McGraw-Hill/Irwin Slide 4
An account is a record of
increases and decreases in a specific asset, liability, equity,
revenue, or expense item.
An account is a record of
increases and decreases in a specific asset, liability, equity,
revenue, or expense item.
THE ACCOUNT AND ITS ANALYSIS
The general ledger is a record
containing all accounts used by
the company.
The general ledger is a record
containing all accounts used by
the company.
C3
McGraw-Hill/Irwin Slide 5McGraw-Hill/Irwin Slide 5
LandLand
EquipmentEquipment
BuildingsBuildings
CashCash
Notes Receivable
Notes Receivable
SuppliesSupplies
Prepaid AccountsPrepaid
Accounts
Accounts ReceivableAccounts
Receivable
AssetAccounts
AssetAccounts
ASSET ACCOUNTSC3
McGraw-Hill/Irwin Slide 6McGraw-Hill/Irwin Slide 6
Accrued LiabilitiesAccrued
LiabilitiesUnearned Revenue
Unearned Revenue
Notes PayableNotes
PayableAccounts Payable
Accounts Payable
LiabilityAccountsLiability
Accounts
LIABILITY ACCOUNTSC3
McGraw-Hill/Irwin Slide 7McGraw-Hill/Irwin Slide 7
EquityEquityAccountsAccounts
EquityEquityAccountsAccounts
RevenuesRevenues
Owner’s Equity
Owner’s Equity
Owner’s Withdrawals
Owner’s Withdrawals
ExpensesExpenses
EQUITY ACCOUNTS
Owner’s Capital
Owner’s Capital
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McGraw-Hill/Irwin Slide 8McGraw-Hill/Irwin Slide 8
LiabilitiesLiabilities EquityEquityAssetsAssets = +
THE ACCOUNT AND ITS ANALYSIS
Owner’s Capital
Owner’s Capital
Owner's Withdrawals
Owner's Withdrawals RevenuesRevenues ExpensesExpenses
+ +– –
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McGraw-Hill/Irwin Slide 9McGraw-Hill/Irwin Slide 9
LEDGER AND CHART OF ACCOUNTS
The ledger is a collection of all accounts for anThe ledger is a collection of all accounts for aninformation system. A company’s size and diversityinformation system. A company’s size and diversityof operations affect the number of accounts needed.of operations affect the number of accounts needed.
The ledger is a collection of all accounts for anThe ledger is a collection of all accounts for aninformation system. A company’s size and diversityinformation system. A company’s size and diversityof operations affect the number of accounts needed.of operations affect the number of accounts needed.
The chart of accounts is a list of all accounts and includes anidentifying number for each account.
The chart of accounts is a list of all accounts and includes anidentifying number for each account.
Account Number Account Name Accounting Number Accounting Name101 Cash 302 C. Taylor, Withdrawals106 Accounts receivable 403 Revenues126 Supplies 406 Rental revenue128 Prepaid insurance 622 Salaries expense167 Equipment 637 Insurance expense
201 Accounting payable 640 Rent expense
236 Unearned revenue 652 Supplies expense301 C. Taylor, Capital 690 Utilities expense
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McGraw-Hill/Irwin Slide 10McGraw-Hill/Irwin Slide 10
DEBITS AND CREDITS
A T-account represents a ledger account and is a A T-account represents a ledger account and is a tool used to understand the effects of one or more tool used to understand the effects of one or more
transactions. transactions.
(Left side) (Right side)Debit Credit
Account Title
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McGraw-Hill/Irwin Slide 11McGraw-Hill/Irwin Slide 11
LiabilitiesLiabilities EquityEquityAssetsAssets = +
DOUBLE-ENTRY ACCOUNTING
Debit Credit Debit Credit Debit Credit
ASSETS
+ - + -
LIABILITIES
- + - +
EQUITIES
- + - +
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McGraw-Hill/Irwin Slide 12McGraw-Hill/Irwin Slide 12
RevenuesRevenuesRevenuesRevenues ExpensesExpensesExpensesExpensesOwner’sOwner’sCapitalCapital
Owner’sOwner’sCapitalCapital
Owner's Owner's WithdrawalsWithdrawals
Owner's Owner's WithdrawalsWithdrawals
__ ++ __
Debit Credit
Owner’s Capital
- + - + Debit Credit
Owner's Withdrawals
+ - + - Debit Credit
Expenses
+ - + -Debit Credit
Revenues
- + - +
DOUBLE-ENTRY ACCOUNTING
EquityEquityEquityEquity
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McGraw-Hill/Irwin Slide 13McGraw-Hill/Irwin Slide 13
DOUBLE-ENTRY ACCOUNTING
An account balance is the difference between the increases and decreases in an account.
Notice the T-Account.
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McGraw-Hill/Irwin Slide 14McGraw-Hill/Irwin Slide 14
JOURNALIZING & POSTING TRANSACTIONS
Step 1: Analyze transactions and source
documents.
LiabilitiesLiabilities EquityEquityAssetsAssets = +
Step 2: Apply double-entry accounting
(Left side) (Right side)Debit Credit
T- Account
ACCOUNT NAME: ACCOUNT No.
Date Description PR Debit Credit Balance
Step 4: Post entry to ledger Step 3: Record journal entry
P1
McGraw-Hill/Irwin Slide 15McGraw-Hill/Irwin Slide 15
BALANCE COLUMN ACCOUNT
T-accounts are useful illustrations, but balance column ledger accounts are used in practice.
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McGraw-Hill/Irwin Slide 16McGraw-Hill/Irwin Slide 16
ANALYZING TRANSACTIONS
Analysis:
(1) Cash 101 30,000 C. Taylor, Capital 301 30,000
Double entry:
(1) 30,000Cash 101 301
(1) 30,000C. Taylor, Capital 301
Posting:
A1
McGraw-Hill/Irwin Slide 17McGraw-Hill/Irwin Slide 17
ANALYZING TRANSACTIONS
Analysis:
(2) Supplies 126 2,500 Cash 101 2,500
Double entry:
(2) 2,500Supplies 126
(1) 30,000 (2) 2,500Cash 101
Posting:
A1
McGraw-Hill/Irwin Slide 18McGraw-Hill/Irwin Slide 18
ANALYZING TRANSACTIONS
Analysis:
(3) Equipment 167 26,000 Cash 101 26,000
Double entry:
(1) 30,000 (2) 2,500(3) 26,000
Cash(3) 26,000
Equipment 167 101
Posting:
A1
McGraw-Hill/Irwin Slide 19McGraw-Hill/Irwin Slide 19
After processing its remaining transactions for December, FastForward’s Trial Balance is prepared.
After processing its remaining transactions for December, FastForward’s Trial Balance is prepared.
Debits CreditsCash 4,350$ Accounts receivable - Supplies 9,720 Prepaid Insurance 2,400 Equipment 26,000 Accounts payable 6,200$ Unearned consulting revenue 3,000 C. Taylor, Capital 30,000 Owner's Withdrawals 200 Consulting revenue 5,800 Rental revenue 300 Salaries expense 1,400 Rent expense 1,000 Utilities expense 230 Total 45,300$ 45,300$
FastForwardTrial Balance
December 31, 2009The trial balance lists all account balances in the general ledger. If the books are in balance, the total debits will equal the total credits.
The trial balance lists all account balances in the general ledger. If the books are in balance, the total debits will equal the total credits.
P2
McGraw-Hill/Irwin Slide 20McGraw-Hill/Irwin Slide 20
PREPARING A TRIAL BALANCE
Preparing a trail balance involves three steps:1.List each account title and its amount (from ledger) in the trial balance. If an account has a zero balance, list it with a zero in the normal balance column (or omit it entirely).2.Compute the total of debit balances and the total of credit balances.3.Verify (prove) total debit balances equal total credit balances.
Preparing a trail balance involves three steps:1.List each account title and its amount (from ledger) in the trial balance. If an account has a zero balance, list it with a zero in the normal balance column (or omit it entirely).2.Compute the total of debit balances and the total of credit balances.3.Verify (prove) total debit balances equal total credit balances.
P2
McGraw-Hill/Irwin Slide 21McGraw-Hill/Irwin Slide 21
END OF CHAPTER 2