174852217 Financial Accounting Notes

8/13/2019 174852217 Financial Accounting Notes

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Notes

Assets = Liabilities + Owners Equity

Assets is not account, it is a

category. Assets go up with debits, and assets

go down with credits.

Liabilities go up with credits, and godown with debits.


2/29

Adel invested L.E 30,000 cash in a business.

What accounts are affected and how does this

affect the accounting equation?

A = L + OE

+ 30,0000 (Cash) = + 30,000 (Owners capital)

T account for cash and owners capital


3/29

Adel withdrew L.E 10,000 of cash. What

accounts are affected and how does this affect

the accounting equation ?


- 10,000 (cash) = - 10,000 (withdrawals)

What are the balances remaining in the openaccounts ?


4/29

Debit simply means left

Credit simply means right.

Total amount of debit must equal total amount of

credits debits = credits

Accounts that increase with debits are:

Dividends or drawings

Expenses

Assets


5/29

Accounts that increase with credits are

Liability

Equity Revenues


6/29

Debit Credit


+ Capital+ Revenue

Drawing

Expenses

Credit Debit


7/29

Normal Balance of Accounts Normal balance is what makes the account

increase.

Debit simply means left

Credit simply means right.

Total amount of debit must equal total

amount of credits


8/29

Journal Chronological list of all economic events

recorded in the accounting records

Journal includes:

Date

Accounts Names

Amount debited to each account

Amount credited to each account

Description of transaction


9/29

Journal EntriesCreditDebitAccount NamesDate

100100CashService RevenueReceived L.E 100 from customers for service rendered

2012

Sept. 1

7070Supplies

Accounts Payable

Purchased L.E 70 on account3

70

70Accounts Payable

Cash

Paid for supplies purchased on account

5


10/29

Ledger

Ledger groups all of the transactions affecting

a particular account together.

The ledger reports the account balances.

The T-Account is a way to conveniently

represent the ledger.


11/29

There are two broad categories of adjustments.

The first is when payments are made or cash is receivedbefore the expense or revenue is recognized. This category

includes prepaid or deferred expenses (includingdepreciation), and unearned or deferred revenues.

The second major category of adjustments is when cash ispaid or received after the expense or revenue is recognized.

These are very common adjustments. This categoryincludes accrued expenses and accrued revenues.


12/29


13/29

Ledger EntriesCash

BalanceCreditDebitRef.descriptionDate

0

100100J 1Received cash from customer1/9/20123070Paid for supplies purchased5/9/2012


14/29

Accounting Steps1. Each transaction is analyzed to determine the

accounts involved.

2. A Journal entry is entered into the general

journal for each transaction.

3. Periodically, the journal entries are posted to

the general ledger page (accounts).


15/29

merchandising Periodic

Perpetual


16/29


17/29

New accountsInventory

Goods for resaleCost


18/29

New AccountsSales Revenue

Retail


19/29

Sales Returns and Allowances

Contra Revenue Account

Cash DiscountSales Discounts

is contra

net sales = salesS R&AS Disc


20/29

Cost of Goods Sold Expense

Gross Profit = Net SalesCost of Goods Sold


21/29

New Terms

FOB Shipping FOB Destination

2/10, n/30 means

2% amount of discount allowed

10 days (time period which payment is expected)

Net (the whole thing)

30 days (time period within which Full payment is

expected)

1/10,n/30

2/10,n/eom


22/29

New transactions

Purchased merchandise from Seller, Inc., FOB shippingpoint, 2/10,n/30, L.E 1,000.

Inventory 1000

Accounts Payable 1000

What about the discount ?Ever been lost ..

.. At disneyWorld?

.. In a hospital?

. In an office building?

4/10 14/10 4/11

We are here discount


23/29

New Transactions

(buyers point of view)Paid Maged Trucking Company for freight

charges, L.E 100.

inventory 100

Cash 100


24/29

New Transactions

(buyers point of view) Returned L.E 200 of defective goods, receiving

credit.


Inventory 200

This entry is the opposite of the original one


25/29

New Transactions

(buyers point of view) Paid the balance due within the discount

period.


Cash 784

Inventory 16

But I thought debits and credits had to equal !?!They dont . They do . They will.


26/29

New Transactions

(buyers point of view) Cost of goods bought

= 1000 + 10020016 = L.E 884


27/29

New Transactions

(sellers point of view) Sold merchandise (costing L.E 60) to Buyer

Co., FOB shipping point, 1/10,n/30, L.E 100.

Accounts Receivable 100

Sales Revenue 100

Cost of Goods Sold 60

Inventory 60What about the discount?


28/29


29/29

New Transactions

(sellers point of view) Received the balance due within the discount

period.

Cash 79.20

Sales Discount 0.80Accounts Receivable 80

But I thought debits and credits had to equal !

You say they dont . And I say they do. You say theywill. You say when ?

When we debit sales discount debit by 0.80

Documents

174852217 Financial Accounting Notes