24314920 Financial Managerialaccounting 15e Williams Haka Bettner Chap3

5/28/2018 24314920 Financial Managerialaccounting 15e Williams Haka Bettner Chap3

1/15McGraw-Hill/Irwin Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

The Accounting Cycle:

Capturing Economic Events

Chapter 3


2/15

3-2

The Ledger

The entire group of

accounts is kepttogether in an

accounting record

called a ledger.

Cash

Accounts

Payable

Capital

Stock

Accountsare

individual records

showing increases

and decreases.


3/15

3-3

The Use of Accounts

Increases are

recorded on oneside of the T

account, and

decreasesare

recorded on theother side.

Left

or

Debit

Side

Right

or

Credit

Side

Title of Account


4/15

3-4

Cash

5/1 8,000 5/2 2,500

5/25 75 5/8 2,0005/29 750 5/28 150

5/31 50

5/31 4,125

Bal.

Receipts are

on the debit

side.

Payments are

on the credit

side.

The balance is the

difference between the

debit and credit entries

in the account.

Debit and Credit Entries


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A = L + OEASSETSDebit

for

Increase

Credit

for

Decrease

EQUITIES

Debit

for

Decrease

Credit

for

Increase

LIABILITIES

Debit

for

Decrease

Credit

for

Increase

Debits and credits affect accounts as follows:

Debit and Credit Entries


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In an actual accounting system,transactions are initially recorded in the

journal.

GENERAL JOURNAL

Date Account Titles and Explanation Debit Credit

2009

May 1 Cash 8,000

Capital Stock 8,000

Owners invest cash in the business.

The Journal


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Posting Journal Entries to the

Ledger Accounts

Postingsimply

means updating theledger accounts forthe effects of the

transactionsrecorded in thejournal.


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GENERAL JOURNAL


2009

May 1 Cash 8,000

Capital Stock 8,000

Owners invest cash in the business.General Ledger

Cash

Date Debit Credit Balance

2009

May 1 8,000 8,000


Ledger Accounts


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GENERAL JOURNAL


2009

May 1 Cash 8,000

Capital Stock 8,000

Owners invest cash in the business.General Ledger

Capital Stock


2009

May 1 8,000 8,000


Ledger Accounts


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General Ledger

Cash


2009May 1 8,000 8,000

2 2,500 5,500

T accountsare simplified versions ofthe ledger account that only show the

debit and credit columns.

Ledger Accounts After Posting


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Net income is not an asset its an increase

in owners equity from profits of the

business.

A = L + OEIncrease Decrease

As income is earned,

either an asset is

increased or a liability is

decreased.

Increase

Net income

always results in

the increase of

Owners Equity

What is Net Income?


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Revenue and Expenses

The price for

goods sold

and services

rendered during a

given accountingperiod.

Increases

owners equity.

The costs ofgoods and

services used up

in the process of

earning revenue.

Decreases

owners equity.


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Debit and Credit Rules for

Revenue and Expenses

EQUITIES

Debit

for

Decrease

Credit

for

Increase

Expenses

decrease

owners

equity.

Revenues

increase

owners

equity.

EXPENSESCredit

for

Decrease

Debit

for

Increase

REVENUESDebit

for

Decrease

Credit

for

Increase


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EQUITIES

Debit

for

Decrease

Credit

for

Increase

Payments toowners

decrease

owners

equity.

Ownersinvestments

increase

owners

equity.

DIVIDENDS

Credit

for

Decrease

Debit

for

Increase

Dividends

CAPITAL STOCK

Debit

for

Decrease

Credit

for

Increase


15/153-15

End of Chapter 3

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24314920 Financial Managerialaccounting 15e Williams Haka Bettner Chap3