chap002powerpointaccounting1-121209171404-phpapp01
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PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
Chapter 02
ANALYZINGANDRECORDINGTRANSACTIONS
McGraw-Hill/I rwin Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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Analyze each transaction andevent from source documents
ANALYZINGAND RECORDING
PROCESS
Record relevant transactionsand events in ajournal
Post journal informationto ledger accounts
Prepare and analyzethe trial balance
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Sales
Tickets
Bank
Statements
Purchase
Orders
Checks
SOURCE DOCUMENTS
Bills fromSuppliers
Employee
EarningsRecords
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An account is arecord of
increases anddecreases in aspecific asset,
liability, equity,revenue, orexpense item.
THE ACCOUNTANDITS ANALYSIS
The generalledgeris a recordcontaining all
accounts used by
the company.
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THE ACCOUNTANDITS ANALYSIS
Owner, Capital
Owner, Withdrawals
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Land
Equipment
Buildings
Cash
NotesReceivable
Supplies
PrepaidAccounts
AccountsReceivable
Asset
Accounts
ASSET ACCOUNTS
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AccruedLiabilities
UnearnedRevenue
NotesPayable
AccountsPayable
Liability
Accounts
LIABILITY ACCOUNTS
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Equity
Accounts
Revenues
Owners
CapitalOwners
Withdrawals
Expenses
EQUITY ACCOUNTS
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Liabilities EquityAssets = +
THE ACCOUNTANDITS ANALYSIS
Owners
Capital
Owner's
Withdrawals Revenues Expenses
+ +
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LEDGERAND CHARTOF ACCOUNTS
The ledger is a collection of all accounts for an
information system. A companys size and diversity
of operations affect the number of accounts needed.
The chart of accounts is a list of all accounts and includes an
identifying number for each account.
Account Number Account Name Account Number Account Name
101 Cash 302 C. Taylor, Withdrawals106 Accounts receivable 403 Revenues
126 Supplies 406 Rental revenue
128 Prepaid insurance 622 Salaries expense167 Equipment 637 Insurance expense
201 Accounts payable 640 Rent expense
236 Unearned revenue 652 Supplies expense
301 C. Taylor, Capital 690 Utilities expense
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DEBITSAND CREDITS
A T-account represents a ledger account andis a tool used to understand the effects of
one or more transactions.
(Left side) (Right side)
Debit Credit
Account Title
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Liabilities EquityAssets = +
DOUBLE-ENTRY ACCOUNTING
Debit Credit Debit Credit Debit Credit
ASSETS
+ -
LIABILITIES
- +
EQUITIES
- +
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Normal Normal Normal
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Revenues Expenses
Owners
Capital
Owner's
Withdrawals
_+
_
Debit Credit
Owners
Capital
- +Debit Credit
Owner'sWithdrawals
+ -Debit Credit
Expenses
+ -Debit Credit
Revenues
- +
DOUBLE-ENTRY ACCOUNTING
Equity
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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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JOURNALIZING &
POSTING TRANSACTIONS
Step 1: Analyzetransactions and source
documents.
Liabilities EquityAssets = +
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
GENERAL JOURNAL Page 123
Date Description
Post.
Ref. Debit Credit
Step 3: Record journal entry
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Date Description Debit Credit2011
Dec. 1 Cash 30,000
C. Taylor, Capital 30,000
Investment by owner
Dec. 2 Supplies 2,500Cash 2,500
Purchased supplies for cash
Dollar amount of debits
and credits
JOURNALIZING TRANSACTIONS
TransactionDate
Transaction
explanation
Titles of AffectedAccounts
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CASH ACCOUNT No. 101
Date Description PR Debit Credit Balance
2011
Dec. 1 Initial investment G1 30,000 30,000
Dec. 2 Purchased supplies G1 2,500 27,500
Dec. 3 Purchased equipment G1 26,000 1,500
Dec. 10 Collection from customer G1 4,200 5,700
BALANCE COLUMN ACCOUNT
T-accounts are useful illustrations, but balance
column ledger accounts are used in practice.
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2011
Dec. 1 Cash 30,000
C. Taylor, Capital 30,000
Investment by owner
CASH ACCOUNT No. 101
Date Description PR Debit Credit Balance
2011
1 Identify the debit account in ledger.
POSTING JOURNAL ENTRIES
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2011
Dec. 1 Cash 30,000
C. Taylor, Capital 30,000
Investment by owner
CASH ACCOUNT No. 101
Date Description PR Debit Credit Balance
2011
Dec. 1
2 Enter the date.
POSTING JOURNAL ENTRIES
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2011
Dec. 1 Cash 30,000
C. Taylor, Capital 30,000
Investment by owner
CASH ACCOUNT No. 101
Date Description PR Debit Credit Balance
2011
Dec. 1 Investment by owner 30,000
3 Enter the amount and description.
POSTING JOURNAL ENTRIES
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CASH ACCOUNT No. 101
Date Description PR Debit Credit Balance
2011
Dec. 1 Investment by owner G1 30,000
4 Enter the journal reference.
POSTING JOURNAL ENTRIES
P 1
2011
Dec. 1 Cash 30,000
C. Taylor, Capital 30,000
Investment by owner
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CASH ACCOUNT No. 101
Date Description PR Debit Credit Balance
2011
Dec. 1 Investment by owner G1 30,000 30,000
5 Compute the balance.
POSTING JOURNAL ENTRIES
P 1
2011
Dec. 1 Cash 30,000
C. Taylor, Capital 30,000
Investment by owner
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2011
Dec. 1 Cash 101 30,000
C. Taylor, Capital 30,000
Investment by owner
CASH ACCOUNT No. 101
Date Description PR Debit Credit Balance
2011
Dec. 1 Investment by owner G1 30,000 30,000
Enter the ledger reference.6
POSTING JOURNAL ENTRIES
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Transaction: Owner invested $30,000 in FastForward on Dec. 1.
ANALYZING TRANSACTIONS
Assets = + Equity
Cash Capital
30,000 30,000
Liabilities
Analysis:
(1) Cash 101 30,000
C. Taylor, Capital 301 30,000
Double entry:
(1) 30,000
Cash 101 301
(1) 30,000
C. Taylor, Capital 301
Posting:
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ANALYZING TRANSACTIONS
Transaction: FastForward purchases supplies by paying $2,500cash.
Assets = + Equity
Cash Supplies Capital(2,500) 2,500
Liabilities
Analysis:
(2) Supplies 126 2,500Cash 101 2,500
Double entry:
(2) 2,500
Supplies 126
(1) 30,000 (2) 2,500
Cash 101
Posting:
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Transaction: FastForward purchases equipment by paying $26,000cash.
ANALYZING TRANSACTIONS
Assets = + Equity
Cash Equipment Capital(26,000) 26,000
Liabilities
Analysis:
(3) Equipment 167 26,000Cash 101 26,000
Double entry:
(1) 30,000 (2) 2,500
(3) 26,000
Cash
(3) 26,000
Equipment 167 101
Posting:
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Transaction: FastForward purchases $7,100 of supplies on credit.
ANALYZING TRANSACTIONS
Assets = + Equity
Supplies Accounts Payable Capital7,100 7,100
Liabilities
Analysis:
(4) Supplies 126 7,100Accounts payable 201 7,100
Double entry:
(2) 2,500(4) 7,100
Supplies 126(4) 7,100
Accounts Payable 201
Posting:
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ANALYZING TRANSACTIONS
Transaction: FastForward provides consulting services andimmediately collects $4,200 cash.
Assets = + Equity
Cash Revenue4,200 4,200
Liabilities
Analysis:
(5) Cash 101 4,200Consulting Revenue 403 4,200
Double entry:
403 101
(1) 30,000 (2) 2,500(5) 4,200 (3) 26,000
Cash 101(5) 4,200
Consulting Revenue 403
Posting:
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After processing its remaining transactions forDecember, FastForwards Trial Balance is prepared.
Debits Credits
Cash 4,350$Accounts receivable -Supplies 9,720Prepaid Insurance 2,400Equipment 26,000Accounts payable 6,200$Unearned consulting revenue 3,000C. Taylor, Capital 30,000Owner's Withdrawals 200
Consulting revenue 5,800Rental revenue 300Salaries expense 1,400Rent expense 1,000Utilities expense 230Total 45,300$ 45,300$
FastForwardTrial BalanceDecember 31, 2011
The trial balancelists all account
balances in the
general ledger. If
the books are inbalance, the total
debits will equal the
total credits.
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PREPARINGA 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 thenormal 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.
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SEARCHINGFORAND CORRECTING
ERRORS
If the trial balance does not balance, theerror(s) must be found and corrected.
Make sure the trialbalance columns arecorrectly added.
Make sure accountbalances are correctly
entered from the ledger.
See if debit or creditaccounts are mistakenlyplaced on the trial balance.
Re-compute eachaccount balance in theledger.
Verify that each journalentry is posted correctly.
Verify that each originaljournal entry has equaldebits and credits.
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USINGA TRIAL BALANCETO PREPARE
FINANCIAL STATEMENTS
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INCOME STATEMENT
Revenues:
Consulting revenue 5,800$Rental revenue 300
Total revenues 6,100$
Expenses:
Rent expense 1,000
Salaries expense 1,400
Utilities expense 230
Total expenses 2,630
Net income 3,470$
FASTFORWARDIncome Statement
For the Month Ended December 31, 2011
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STATEMENT OF OWNER'S EQUITY
C. Taylor, Capital 12/1/11 -$
Net income for December 3,470
Plus: Investments by Owner 30,000
33,470
Less: Owner Withdrawals 200
C. Taylor, Capital, 12/31/11 33,270$
Statement of Owner's EquityFor the Month Ended December 31, 2011
FASTFORWARD
Revenues:
Consulting revenue 5,800$Rental revenue 300Total revenues 6,100$
Expenses:
Rent expense 1,000Salaries expense 1,400
Utilities expense 230
Total expenses 2,630
Net income 3,470$
FASTFORWARDIncome Statement
For the Month Ended December 31, 2011
Connections
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BALANCE SHEET
AssetsCash 4,350$Supplies 9,720
Prepaid insurance 2,400Equipment 26,000
Total assets 42,470$
LiabilitiesAccounts payable 6,200$
Unearned revenue 3,000
Total liabilities 9,200
Equity
C. Taylor, Capital 33,270$
Total equity 33,270Total liabilities and equity 42,470$
FASTFORWARDBalance Sheet
December 31, 2011
Connections
P 3
C. Taylor, Capital 12/1/11 -$
Net income for December 3,470
Plus: Investments by Owner 30,000
33,470
Less: Owner Withdrawals 200C. Taylor, Capital, 12/31/11 33,270$
Statement of Owner's EquityFor the Month Ended December 31, 2011
FASTFORWARD
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PRESENTATION ISSUES
1. Dollar signs are not used in journals and ledgers.2. Dollar signs appear in financial statements and other
reports such as trial balances. The usual practice is to
put dollar signs beside only the first and last numbers
in a column.3. When amounts are entered in the journal, ledger, or
trial balance, commas are optional to indicate
thousands, millions, and so forth.
4. Commas are always used in financial statements.5. Companies commonly round amounts in reports to the
nearest dollar, or even to a higher level.
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ACCOUNTING CONTROLSAND ASSURANCE
Accounting systems depend on control procedures thatassure the proper principles were applied in processing
accounting information. The passage of SOX legislation
strengthened U.S. control procedures in recent years.
The percentage of employees in information technology thatreport observing specific types of misconduct in 2009.
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Debt Ratio
Evaluates the level of debt risk.
A higher ratio indicates that there is a
greater probability that a company will
not be able to pay its debt in the future.
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Total Liabilities
Total AssetsDebt Ratio =
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END OF CHAPTER 02
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