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Chapter Two
T Accounts, Debits and Credits, Trial
Balance, and Financial Statements
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 2
Performance Objectives
1. Determine balances of T accounts having entries recorded on both sides of the accounts
2. Present the fundamental accounting equation with the T account form, and label the plus and minus sides
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 3
Performance Objectives
3. Present the fundamental accounting equation with the T account form, and label the debit and credit sides
4. Record directly in T accounts a group of business transactions involving changes in asset, liability, owner’s equity, revenue, and expense accounts for a service business
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 4
Performance Objectives
5. Prepare a trial balance
6. Prepare:– Income statement– Statement of owner’s equity– Balance sheet
7. Recognize the effect of transpositions and slides on account balances
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 5
Performance Objective 1
Determine balances of T accounts having entries recorded on both sides of the accounts
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 6
T Account Form
• Shaped like the letter T
• Two sides to the form
• One side for increases (+) to the account
• The other side for decreases (-) to the account
34,120
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 7
Compare Account Column to T Account
34,120
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T Accounts
• Footings– The totals of the
amounts listed on both sides of a T account recorded in small, penciled-in figures.
34,120
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T Accounts
• Balance– Record transactions
for a period of time– Subtract the smaller
footing on one side from the larger footing on the other side
– Record the balance on the side having the larger footing 34,120
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 10
T Accounts
• Normal Balance– The increase (plus) side
of any T account.
• Normally, the footing on the increase (plus) side of an account will be larger than the footing on the decrease (minus) side of an account.
34,120
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 11
T Accounts
• Assets– The plus side for
assets is placed on the left
– The minus side is placed on the right
+ -Left Right
Assets
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 12
T Accounts
• Liabilities and owner’s equity– These classifications
are placed on the opposite side of the equals sign
– The plus and minus signs are therefore placed on the opposite sides of the T (switched around)
- +Left Right
Liabilities
- +Left Right
Owner's Equity
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 13
T Accounts
• Revenue and expenses are under the umbrella of owner’s equity
• Revenue increases owner’s equity
• Expenses decrease owner’s equity
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 14
Performance Objective 2
Present the fundamental accounting equation with the T account form, and label the plus and minus sides
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 15
Fundamental Accounting Equation
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 16
Label the Plus and Minus Sides
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 17
Performance Objective 3
Present the fundamental accounting equation with the T account form, and label the debit and credit sides
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 18
Debits and Credits
• What does debit mean?– Forget what you
know about debit cards!
• Debit means left• Debit is abbreviated
“DR”
• What does credit mean?– Forget what you
know about credit cards!
• Credit means right• Credit is abbreviated
“CR”
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 19
Debits and Credits
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 20
Fundamental Accounting Equation with Debits and Credits
The amount placed on the debit side of one or more accounts MUST equal the amount placed on the credit side of another account or accounts
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 21
Debits and Credits
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 22
Drawing Account
• Drawing is placed under the umbrella of the Capital account
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 23
Performance Objective 4
Record directly in T accounts a group of business transactions involving changes in asset, liability, owner’s equity, revenue, and expense accounts for a service business
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 24
Steps in Analyzing Transactions
Step 1– Which accounts are
involved?
Step 2– How should you classify
the accounts?• Asset• Liability• Capital• Revenue• Expenses
Step 3– Are the accounts
increased or decreased?
Step 4– Which accounts are
debited and which accounts are credited?
Step 5– Balance the equations:– DR = CR– A = L + OE
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 25
Recording Business Transactions for a Service Business
We will be recording business transactions for a company with the following details:
Owner name: L. P. ArchBusiness name: Arch Copy Co.Business type: Sole proprietorship
(one-person business)
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 26
= + + –
a) 70,000 a) 70,000
Utilities Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (a): Arch deposited $70,000 in a bank account in name of business.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 27
= + + –
a) 70,000 b) 33,000 a) 70,000
b) 33,000
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Utilities Expense+ –
Debit Credit
Transaction (b): Bought equipment, paying cash, $33,000.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 28
= + + –
a) 70,000 b) 33,000 c) 7,000 a) 70,000
b) 33,000c) 7,000
Utilities Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (c): Bought equipment on account from Melton Office Supply, $7,000.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 29
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000d) 2,000
b) 33,000c) 7,000
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Utilities Expense+ –
Debit Credit
Transaction (d): Paid Melton Office Supply, a creditor, $2,000.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 30
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000d) 2,000 e) 6,200
b) 33,000c) 7,000e) 6,200
Utilities Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (e): Arch invested her personal computer equipment having a fair market value of $6,200 in Arch Copy Co.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 31
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 e) 6,200
b) 33,000c) 7,000e) 6,200
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Utilities Expense+ –
Debit Credit
Transaction (f): Arch Copy Co. sold services for cash, $2,520.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 32
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 e) 6,200
g) 700
g) 700
b) 33,000c) 7,000e) 6,200
Utilities Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (g): Paid rent for the month, $700.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 33
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 h) 600 e) 6,200
g) 700
g) 700
h) 600
b) 33,000c) 7,000e) 6,200
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Utilities Expense+ –
Debit Credit
Transaction (h): Bought supplies (toner and paper) on credit. These supplies are used immediately; therefore, they are recorded as an expense ($600).
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 34
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 h) 600 e) 6,200
g) 700
i) 360
g) 700
h) 600
i) 360
b) 33,000c) 7,000e) 6,200
Utilities Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (i): Arch Copy Co. paid $360 for a one-year liability insurance policy.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 35
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 h) 600 e) 6,200
g) 700 j) 200
i) 360
g) 700
h) 600
j) 200
i) 360
b) 33,000c) 7,000e) 6,200
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Utilities Expense+ –
Debit Credit
Transaction (j): Received bill for newspaper advertising, $200.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 36
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 h) 600 e) 6,200 k) 1,050
g) 700 j) 200
i) 360
g) 700
h) 600
j) 200k) 1,050
i) 360
b) 33,000c) 7,000e) 6,200
Utilities Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (k): Arch Copy Co. completed a printing job and billed Walker Company $1,050 for services performed.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 37
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050
g) 700 j) 200
i) 360
l) 1,800
g) 700
h) 600
j) 200k) 1,050
i) 360
b) 33,000c) 7,000e) 6,200
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Utilities Expense+ –
Debit Credit
Transaction (l): Arch Copy Co. paid $1,800 to Melton Office Supply, its creditor, as part payment on account.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 38
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050
g) 700 j) 200
i) 360
l) 1,800
m) 160 g) 700
h) 600
j) 200k) 1,050
m) 160
i) 360
b) 33,000c) 7,000e) 6,200
Utilities Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (m): Arch Copy Co. received and paid electric bill, $160.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 39
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050
g) 700 n) 200 j) 200
i) 360
l) 1,800
m) 160 g) 700
n) 200
h) 600
j) 200k) 1,050
m) 160
i) 360
b) 33,000c) 7,000e) 6,200
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Utilities Expense+ –
Debit Credit
Transaction (n): Arch Copy Co. paid on account $200 to City News for advertising.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 40
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520 o) 2,130f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050
g) 700 n) 200 j) 200
i) 360
l) 1,800
m) 160 g) 700
n) 200
o) 2,130
h) 600
j) 200k) 1,050
m) 160
i) 360
b) 33,000c) 7,000e) 6,200
Utilities Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (o): Arch Copy Co. paid wages of a part-time employee, $2,130.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 41
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520 o) 2,130f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050
g) 700 n) 200 j) 200
i) 360 p) 2,900
l) 1,800
m) 160 g) 700
n) 200
o) 2,130
p) 620
h) 600
j) 200k) 1,050
m) 160
i) 360
b) 33,000c) 7,000e) 6,200p) 3,520
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Utilities Expense+ –
Debit Credit
Transaction (p): Bought additional equipment from Melton Office Supply, $3,520, paying $620 down with the remaining $2,900 on account.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 42
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520 o) 2,130f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050
q) 850 g) 700 n) 200 j) 200
i) 360 p) 2,900
l) 1,800
m) 160 g) 700
n) 200
o) 2,130
p) 620
h) 600
j) 200k) 1,050 q) 850
m) 160
i) 360
b) 33,000c) 7,000e) 6,200p) 3,520
Utilities Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (q): Arch Copy Co. received $850 cash on account from a credit customer.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 43
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520 o) 2,130f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050
q) 850 g) 700 n) 200 j) 200 r) 4,220
r) 4,220 i) 360 p) 2,900
l) 1,800
m) 160 g) 700
n) 200
o) 2,130
p) 620
h) 600
j) 200k) 1,050 q) 850
m) 160
i) 360
b) 33,000c) 7,000e) 6,200p) 3,520
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Utilities Expense+ –
Debit Credit
Transaction (r): Arch Copy Co. received revenue from cash customers for the rest of the month, $4,220.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 44
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520 o) 2,130f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050
q) 850 g) 700 n) 200 j) 200 r) 4,220
r) 4,220 i) 360 p) 2,900
l) 1,800
m) 160 g) 700
n) 200
o) 2,130 s) 2,500
p) 620
s) 2,500h) 600
j) 200k) 1,050 q) 850
m) 160
i) 360
b) 33,000c) 7,000e) 6,200p) 3,520
Utilities Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (s): Arch withdrew $2,500 in cash from the business for her personal use.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 45
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520 o) 2,130f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050
q) 850 g) 700 n) 200 j) 200 76,200 r) 4,220
r) 4,220 i) 360 4,000 p) 2,900 7,790
77,590 l) 1,800 10,700
m) 160 g) 700
n) 200
o) 2,130 s) 2,500
p) 620
s) 2,50043,470 h) 600
j) 200k) 1,050 q) 850
m) 160
i) 360
b) 33,000c) 7,000e) 6,200p) 3,520
49,720
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Utilities Expense+ –
Debit Credit
Footing
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 46
= + + –
a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520 o) 2,130f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050
q) 850 g) 700 n) 200 j) 200 Bal. 76,200 r) 4,220
r) 4,220 i) 360 4,000 p) 2,900 Bal. 7,790
77,590 l) 1,800 10,700
m) 160 Bal. 6,700 g) 700
n) 200
o) 2,130 s) 2,500
p) 620
s) 2,500Bal. 34,120 43,470 h) 600
j) 200k) 1,050 q) 850
Bal. 200
m) 160
i) 360
b) 33,000c) 7,000e) 6,200p) 3,520Bal. 49,720
Utilities Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Services– +
Debit CreditCredit
L.P. Arch, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
L.P. Arch, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Balances
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 47
Performance Objective 5
Prepare a trial balance
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 48
Prepare a Trial Balance
• List the account balances in two columns– Left column = Debits– Right column = Credits
• List the accounts in the same order as the chart of accounts– First the balance sheet accounts– Then the income statement accounts
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 49
Trial Balance• A trial run to prove that DR = CR• If DR = CR, then A = L + OE
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 50
Trial Balance• Not a financial statement• Don’t use dollar signs • Use a single underline under the list of figures
to be added• Use a double underline under column totals
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 51
Accounting
Process of:
• Analyzing
• Classifying
• Recording
• Summarizing
• Interpreting business transactions
Summarizing means Summarizing means preparing financial preparing financial
statementsstatements
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 52
Performance Objective 6
Prepare – Income statement– Statement of owner’s equity– Balance sheet
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 53
All Financial Statements
• Summarize useful financial information for users of accounting information:– Owners/investors– Managers– Creditors– Government agencies
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 54
All Financial Statements
• Have a three-line title– Who: Name of the company (or owner)– What: Title of financial statement– When: Period of time or date
Income StatementOr
Statement of OEBalance Sheet
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 55
Income Statement
Total Revenue – Total Expenses = Net Income (or Net Loss)
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 56
Income Statement
• Answers the questions– How profitable was the
company over the past period?– How much net income did the
entity earn?
RevenuesRevenues – Expenses– ExpensesNet IncomeNet Income
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 57
What the Income Statement Tells Us• Is the business profitable?• What is the net income?
– Revenue > Expenses
• What is the net loss?– Expenses > Revenue
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 58
Income Statement—Also Known As
• Statement of income and expenses
• Profit and loss statement
• Results of operations
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 59
Net Income—Also Known As
• Profit
• Earnings
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 60
Net Income
• Use the net income figure on the income statement to complete the statement of owner’s equity
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 61
Statement of Owner’s Equity
Beg. Bal. Capital + Investments + Net Income (or - Net Loss) – Drawing = Ending Capital
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 62
Statement of Owner’s Equity• Prepared after you finish the income statement• Answers the questions
– How did the owner’s equity change over the last period?– How and why did the Capital account change?
• Provides ending Capital amount for use on the balance sheet
00
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 63
Additional Investment in the Company
• Can you invest assets other than cash?– Tools?– Trucks?– Equipment?
• Yes!– They must be recorded at their fair market
value (what they would be sold for on the open market)
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 64
Balance Sheet
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 65
Balance Sheet
• Answers the questions– What is the entity’s financial position on the last
day of the period?– What assets, liabilities, and equities does the
entity have on the last day of the period?
• Uses the ending capital figure shown on the statement of owner’s equity
• Resembles a snapshot—shows a point in time
• Be careful of the date!
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 66
Balance Sheet• List accounts in the same order as the chart of accounts• Why?
– Listed in order of liquidity– Liquidity: How quickly it can be turned into cash
• Report Form– Balance Sheet presentation where Assets are above Liabilities and
Owner’s Equity
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 67
Errors Exposed by the Trial Balance
• DR ≠ CR?• Arithmetic error
– Trial balance columns added correctly?
– Accounts added correctly?
• Half an entry– DR without a CR?– Example: If Trial Balance
is off by $100, did you record the DR without the CR?
• DR ≠ CR?• Both sides of an entry
on one side (two DRs)– Example: If the Trial
Balance is off by $200, divide by 2 to get $100 and look for transactions for the amount $100 ($100 DR to Cash and $100 DR to Revenue)
• Recording amounts incorrectly– Look back to original
receipt, source document, or problem
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 68
Errors Exposed by the Trial Balance
When DR = CR, there can still be an error if you:
– Forgot to record a transaction– Recorded the transaction twice– Recorded the transaction for an incorrect
amount– Recorded the amount in the incorrect
account
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 69
How Do You Find the Errors?
• Pay careful attention as you record transactions.
• Look to see if a normal balance was placed in the wrong column.
• Re-add the columns.• Check to see if account totals were
transferred correctly.• Recalculate the footings and balances
in the accounts.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 70
Performance Objective 7
Recognize the effect of transpositions and slides on account balances
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 71
Transpositions and Slides
• Transposition error– Digits have been transposed (switched around)
• Slide error– The decimal point in an amount has been
misplaced– “Slide the decimal place”
Error Type Original Number Mistakenly written as Difference Evenly divided by 9?
Transp
osition 96 69 27 3
549 945 -396 -44197 791 -594 -66513 315 198 22Tra
nspositi
on
Slide
27430 2743 24687 2743230 23 207 2344 440 -396 -44Slid
e
Both 430 34 396 4464390 9436 54954 6106Both
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 72
Transpositions and Slides
• Finding an error– Divide the difference between two trial
balance totals by 2, or multiply by 2. See if the result matches a transaction amount.
– Errors divisible by 9: If an error exists and the amount of difference between the totals of the trial balance is evenly divisible by 9, the error consists of either a transposition or a slide or both.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 73
Demonstration Problem
We will be recording business transactions for a company with the following details:
Owner name: R. P. NelsonBusiness name: WindSport Boomerang & Kite DemosBusiness type: Sole proprietorship
(one-person business)
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 74
= + + –
a) 43,000 a) 43,000
Traveling Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (a): Nelson deposited $43,000 in a bank account in the name of business.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 75
= + + –
a) 43,000 b) 23,000 a) 43,000
b) 23,000
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Traveling Expense+ –
Debit Credit
Transaction (b): Bought truck, paying cash, $23,000.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 76
= + + –
a) 43,000 b) 23,000 c) 2,500 a) 43,000
b) 23,000c) 2,500
Traveling Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (c): Bought camper shell for truck on account from Louie's Trucks & Campers, $2,500.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 77
= + + –
a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000d) 1,500
b) 23,000c) 2,500
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Traveling Expense+ –
Debit Credit
Transaction (d): Paid Louie's Trucks & Campers, a creditor, $1,500.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 78
= + + –
a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000d) 1,500 e) 3,400
b) 23,000c) 2,500e) 3,400
Traveling Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (e): Nelson invested his own personal computer equipment, having a fair market value of $3,400, in WindSport Boomerang & Kite Demos.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 79
= + + –
a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500f) 2,500 d) 1,500 e) 3,400
b) 23,000c) 2,500e) 3,400
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Traveling Expense+ –
Debit Credit
Transaction (f): Nelson and employee performed boomerang & kite demo for Girl Scouts and received cash, $2,500.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 80
= + + –
a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500f) 2,500 d) 1,500 e) 3,400
g) 700
g) 700
b) 23,000c) 2,500e) 3,400
Traveling Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (g): Paid rent for the month, $700.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 81
= + + –
a) 43,000b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500.0f) 2,500 d) 1,500 h) 600 e) 3,400
g) 700
g) 700
h) 600
b) 23,000c) 2,500e) 3,400
Debit Credit
Expenses+ – – +
Assets Liabilities Owner's Equity Revenue– + – + + –
Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Traveling Expense+ –
Debit Credit
Transaction (h): WindSport B&K Demos bought supplies (toner and paper) on credit. These supplies are used immediately so they are recorded as an expense ($600).
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 82
= + + –
a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500f) 2,500 d) 1,500 h) 600 e) 3,400
g) 700
i) 2,000
g) 700
h) 600
i) 2,000
b) 23,000c) 2,500e) 3,400
Traveling Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue– + – +
Debit Credit
Expenses+ – – +
Assets Liabilities Owner's Equity
Transaction (i): WindSport B & K Demos paid $2,000 for a one-year liability insurance policy.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 83
= + + –
a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500f) 2,500 d) 1,500 h) 600 e) 3,400
g) 700 j) 200
i) 2,000
g) 700
h) 600
j) 200
i) 2,000
b) 23,000c) 2,500e) 3,400
Debit Credit
Expenses+ – – +
Assets Liabilities Owner's Equity Revenue– + – + + –
Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Credit
Accounts Receivable+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Traveling Expense+ –
Debit CreditPrepaid Insurance+ –
Debit
Transaction (j): WindSport B & K Demos received an advertising bill from City News for advertising, $200.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 84
= + + –
a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500f) 2,500 d) 1,500 h) 600 e) 3,400 k) 2,500
g) 700 j) 200
i) 2,000
g) 700
h) 600
j) 200k) 2,500
i) 2,000
b) 23,000c) 2,500e) 3,400
Traveling Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (k): Nelson and employee performed boomerang & kite demo for Boy Scouts and earned income on account ("sold services on account"), $2,500.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 85
= + + –
a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500
g) 700 j) 200
i) 2,000
l) 1,000
g) 700
h) 600
j) 200k) 2,500
i) 2,000
b) 23,000c) 2,500e) 3,400
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Traveling Expense+ –
Debit Credit
Transaction (l): WindSport B & K Demos paid $1,000 to Louie's Trucks & Campers, its creditor, as final payment on account.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 86
= + + –
a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500
g) 700 j) 200
i) 2,000
l) 1,000
m) 160 g) 700
h) 600
j) 200k) 2,500
m) 160
i) 2,000
b) 23,000c) 2,500e) 3,400
Traveling Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (m): WindSport B & K Demos received and paid the gas card bill, $160 (Traveling Expense).
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 87
= + + –
a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500
g) 700 n) 200 j) 200
i) 2,000
l) 1,000
m) 160 g) 700
n) 200
h) 600
j) 200k) 2,500
m) 160
i) 2,000
b) 23,000c) 2,500e) 3,400
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Traveling Expense+ –
Debit Credit
Transaction (n): WindSport B & K Demos pays $200 on account to City News for advertising.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 88
= + + –
a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500 o) 1,030f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500
g) 700 n) 200 j) 200
i) 2,000
l) 1,000
m) 160 g) 700
n) 200
o) 1,030
h) 600
j) 200k) 2,500
m) 160
i) 2,000
b) 23,000c) 2,500e) 3,400
Traveling Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (o): WindSport B & K Demos pays wages for a part-time employee, $1,030.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 89
= + + –
a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500 o) 1,030f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500
g) 700 n) 200 j) 200
i) 2,000 p) 1,500
l) 1,000
m) 160 g) 700
n) 200
o) 1,030
p) 620
h) 600
j) 200k) 2,500
m) 160
i) 2,000
b) 23,000c) 2,500e) 3,400p) 2,120
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Traveling Expense+ –
Debit Credit
Transaction (p): WindSport B&K Demos buysa trailer from Louie's Trucks & Campers for $2,120, paying $620 down with the remaining $1,500 on account (Equipment, A/P, and Cash accounts).
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 90
= + + –
a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500 o) 1,030f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500
q) 850 g) 700 n) 200 j) 200
i) 2,000 p) 1,500
l) 1,000
m) 160 g) 700
n) 200
o) 1,030
p) 620
h) 600
j) 200k) 2,500 q) 850
m) 160
i) 2,000
b) 23,000c) 2,500e) 3,400p) 2,120
Traveling Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (q): WindSport B & K Demos receives $850 cash on account from a credit customer.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 91
= + + –
a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500 o) 1,030f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500
q) 850 g) 700 n) 200 j) 200 r) 4,220
r) 4,220 i) 2,000 p) 1,500
l) 1,000
m) 160 g) 700
n) 200
o) 1,030
p) 620
h) 600
j) 200k) 2,500 q) 850
m) 160
i) 2,000
b) 23,000c) 2,500e) 3,400p) 2,120
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Traveling Expense+ –
Debit Credit
Transaction (r): WindSport B & K Demos receives revenue from cash customers for the rest of the month, $4,220.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 92
= + + –
a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500 o) 1,030f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500
q) 850 g) 700 n) 200 j) 200 r) 4,220
r) 4,220 i) 2,000 p) 1,500
l) 1,000
m) 160 g) 700
n) 200
o) 1,030 s) 2,500
p) 620
s) 2,500h) 600
j) 200k) 2,500 q) 850
m) 160
i) 2,000
b) 23,000c) 2,500e) 3,400p) 2,120
Traveling Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Transaction (s): Nelson withdraws $2,500 in cash from the business for his personal living costs.
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 93
= + + –
a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500 o) 1,030f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500
q) 850 g) 700 n) 200 j) 200 46,400 r) 4,220
r) 4,220 i) 2,000 2,700 p) 1,500 9,220
50,570 l) 1,000 4,800
m) 160 g) 700
n) 200
o) 1,030 s) 2,500
p) 620
s) 2,50032,710 h) 600
j) 200k) 2,500 q) 850
m) 160
i) 2,000
b) 23,000c) 2,500e) 3,400p) 2,120
31,020
Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity Revenue
– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit
Cash+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Equipment+ –
Debit Credit
-
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+
Wages Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Traveling Expense+ –
Debit Credit
Footing
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 94
= + + –
a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500 o) 1,030f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500
q) 850 g) 700 n) 200 j) 200 Bal. 46,400 r) 4,220
r) 4,220 i) 2,000 2,700 p) 1,500 Bal. 9,220
50,570 l) 1,000 4,800
m) 160 Bal. 2,100 g) 700
n) 200
o) 1,030 s) 2,500
p) 620
s) 2,500Bal. 17,860 32,710 h) 600
j) 200k) 2,500 q) 850
Bal. 1,650
m) 160
i) 2,000
b) 23,000c) 2,500e) 3,400p) 2,120Bal. 31,020
Traveling Expense+ –
Debit Credit
Advertising Expense+ –
Debit Credit
Supplies Expense+ –
Debit Credit
Rent Expense+ –
Debit Credit
Wages Expense+ –
Debit Credit
Debit Credit
Income from Demos– +
Debit CreditCredit
R. P. Nelson, Drawing+ -
Accounts Payable– +
Debit Credit– +
Debit
R. P. Nelson, Capital
Equipment+ –
Debit Credit
Prepaid Insurance+ –
Debit Credit
Accounts Receivable+ –
Debit Credit
Cash+ –
Debit Credit
+ –Debit Credit Debit Credit Debit Credit Debit Credit
Revenue
– + – +Debit Credit
Expenses
+ – – +
Assets Liabilities Owner's Equity
Balances
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 95
Trial Balance
17,860 1,650 2,000
31,020 2,100
46,400 2,500
9,220 1,030
700 600 200 160
57,720 57,720
Rent ExpenseSupplies ExpenseAdvertising ExpenseTraveling Expense
R. P. Nelson, CapitalR. P. Nelson, DrawingIncome from DemosWages Expense
Accounts ReceivablePrepaid InsuranceEquipmentAccounts Payable
WindSport Boomerang & Kite DemosTrial BalanceJune 30, 2003
Cash
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 96
Income Statement
9,220$
1,030$ 700 600 200 160
2,690 6,530$
Traveling Expense
Wages ExpenseRent ExpenseSupplies ExpenseAdvertising Expense
For Month Ended June 30, 2003
Revenues:Income from Demos
Expenses:
WindSport Boomerang & Kite DemosIncome Statement
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 97
Statement of Owner’s Equity
46,400$ 6,530$ 2,500
4,030 50,430$
Less Withdrawals for JuneIncrease in CapitalR. P. Nelson, Capital, June 30, 2003
Statement of Owner's EquityFor Month Ended June 30, 2003
R. P. Nelson, Capital, June 1, 2003Net Income for June
WindSport Boomerang & Kite Demos
Copyright © Houghton Mifflin Company. All rights reserved. 2 - 98
Balance Sheet
17,860$ 1,650 2,000
31,020 52,530$
2,100$
50,430 52,530$
Owner's EquityR. P. Nelson, CapitalTotal Liabilities and Owner's Equity
LiabilitiesAccounts Payable
CashAccounts ReceivablePrepaid InsuranceEquipment
June 30, 2003
Assets
WindSport Boomerang & Kite DemosBalance Sheet