Date post: | 21-Dec-2015 |
Category: |
Documents |
View: | 230 times |
Download: | 3 times |
What you will learn in Chapter 2:What you will learn in Chapter 2:
Basics of the accountSteps in the recording processJournalizing and postingThe trial balance
The AccountThe Account
Individual record of increases or decreases in a specific asset, liability or equity item.
The T-account is a way of illustrating those changes. We will use it in the course to illustrate the effects of events on these specific accounts…
A T-account represents a ledger account and is a tool used to understand the effects of one or more
transactions.
Debits and CreditsDebits and Credits
(Left side) (Right side)Debit Credit
T- Account
Remember: debits on the left, credits on the right!
Double-Entry AccountingDouble-Entry AccountingAn account balance is the difference between the
increases and decreases in an account.
LiabilitiesLiabilities EquityEquityAssetsAssets = +
Double-Entry AccountingDouble-Entry Accounting
Debit Credit Debit Credit Debit Credit
ASSETS
+ - + -
LIABILITIES
- + - +
EQUITIES
- + - +
In an accounting system, the sum of the debits always equals the sum of the credits.
Normal Account BalancesNormal Account BalancesAsset = Increase is a debit
= Decrease is a credit
= Normal balance is a debit
Liability= Increase is a credit
= Decrease is a debit
= Normal balance is a credit
Equity = Increase is a credit
= Decrease is a debit
= Normal balance is a credit
RevenuesRevenues ExpensesExpensesOwner’s Capital
Owner’s Capital
Owner’s Withdrawals
Owner’s Withdrawals
__ ++ __
Debit Credit
Capital
- + - + Debit Credit
Withdrawals
+ - + - Debit Credit
Expenses
+ - + -Debit Credit
Revenues
- + - +
Double-Entry AccountingDouble-Entry AccountingEquityEquity
Exh.3.8
The Recording ProcessThe Recording Process
Steps are:
1. Analyze each transaction and how it affects the accounts.
2. Enter the transaction information in a journal.
3. Transfer (post) the journal information in the ledger (book of accounts).
Analyze each transaction and event form source documents
Analyzing and Recording Analyzing and Recording ProcessProcess
Record relevant transactions and events in a journal
Post journal information to ledger accounts
Prepare and analyze the trial balance
JournalizingJournalizing
A journal is an original book of entry where the transactions are recorded.
It shows the complete record of one transaction.
It provides a chronological record of all transactions.
It helps to find errors by comparing debits and credits.
Sales Tickets
Bank Statement
Purchase Orders
Checks
Source DocumentsSource DocumentsBills from Suppliers
Employee EarningsRecord
Journalizing and Posting Journalizing and Posting TransactionsTransactions
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
Dollar amount of debits and credits
Dollar amount of debits and credits
General JournalGeneral Journal((Debits on left, credits on right)Debits on left, credits on right)
Transaction Date
Transaction Date
Transaction explanation
Transaction explanation
Titles of Affected Accounts
Titles of Affected Accounts
Simple vs. Compound EntrySimple vs. Compound Entry
A simple entry involves one debit and one credit.
A compound entry involves more than one debit or more than one credit
1/1/2006 Delivery Equipment 100,000Cash 40,000Accounts Payable 60,000
To record purchase of truck on credit with down payment of $40,000.
General LedgerGeneral Ledger
A ledger account contains all the information in one place about changes in a specific account and the account’s balance.
The general ledger contains all the asset, liability and equity accounts maintained by the business.
Let’s look at Ill. 2-15 on p. 54.
Chart of AccountsChart of Accounts
A list of accounts identified by a unique account number. III. 2-18 in text
Typical numbering system:– Assets 100-199– Liabilities 200-299– Equity 300-399– Revenues 400-499– Expenses 500-599– More specific revenue/expenses 600-
999
Analyzing Transactions – An Analyzing Transactions – An IllustrationIllustration
Analysis:
(1) Cash 101 30,000 C. Taylor, Capital 301 30,000
Double entry:
(1) 30,000Cash 101
(1) 30,000C. Taylor, Capital 301
Posting:
Analyzing TransactionsAnalyzing 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:
Analyzing TransactionsAnalyzing 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:
Analyzing TransactionsAnalyzing Transactions
Analysis:
(4) Supplies 126 7,100 Accounts payable 201 7,100
Double entry:
(2) 26,000(4) 7,100
Supplies 126
(4) 7,100Accounts Payable 201
Posting:
Analyzing TransactionsAnalyzing Transactions
Analysis:
(5) Cash 101 4,200 Consulting Revenue 403 4,200
Double entry:
(1) 30,000 (2) 2,500(5) 4,200 (3) 26,000
Cash(5) 4,200
Consulting Revenue 403 101
Posting:
The Trial BalanceThe Trial Balance
A trial balance is a list of all accounts and their balances at a specific point in time.
The trial balance is used to prove the equality of debits and credits.
If there are errors, the trial balance can be used to find them.
Steps to Prepare A Trial BalanceSteps to Prepare A Trial Balance1. List the account titles and their balances
2. Total the debit and credit columns
3. Prove the equality of the two columns
Note: the trial balance proves that debits equal credits, but it does not prove that all transactions are correctly record or that the ledger balances are correct.
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 3,950$ 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 C. Taylor, Withdrawals 600 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, 2004
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.
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.
Finding Errors In A Trial BalanceFinding Errors In A Trial Balance
If the error is $1 or a multiple of $10, 100 or $1,000 re-add the trial balance or re-add the individual account balances.
If the error can be divided by $2, check if an amount equal to half the error was entered in the wrong column.
If the error can be divided by 9, there may be a transposition error.
If the error is some other amount, check to see if that amount was not entered on the trial balance.
If all else fails, go back to the original journal entries and check if they are correct!
Formatting with Dollar SignsFormatting with Dollar Signs
Don’t use dollar signs in the journals and ledgers.
Use them only in the trial balance and on financial statements.