c2 - 1 recording business transactions chapter 2
TRANSCRIPT
C2 - 1
Recording Business Transactions
Chapter 2
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Objective 1
Describe the role of accounts in summarizing business
transactions
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Account
• Basic summary device– Describes a category of asset, liability, or
expense– Example: land, cash, office supplies
• After posting is completed, an account it becomes a detailed record of increases and decreases in these categories of assets, liabilities, or owner’s equity during a period
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Recording Transactions in the Journal
• This is when you write down (in a list) the accounts that will be increased and decreased.
• Example– Increase (Debit) the Cash Account and
• Increase (Credit) the Service Revenue Account
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Posting
• This is when you go through your list of transactions, (the journal), and you record them in the accounts.
• After posting is completed, an account it becomes a detailed record of increases and decreases in these categories of assets, liabilities, or owner’s equity during a period
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Posting Example• Journal entry
– Increase (debit) cash $2,000– Increase (credit) bank note $2,000
Cash
$2,000
Bank Note
$2,000
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Ledger
• Book or printout holding all the accounts
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Chart of Accounts
A list of accounts in the ledger is called a chart of accounts.
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Smart Touch LearningChart of Accounts
Balance Sheet Income Statement
1. Assets101 Cash111 Accounts Receivable121 Notes Receivable141 Supplies151 Furniture171 Building
191 Land
2. Liabilities201 Accounts Payable211 Salary Payable 221Interest Payable231 Notes Payable3. Owner’s Equity301 Sheena Bright, Capital311 Sheena Bright, Withdrawal
4. Revenue401Service Revenue402 Interest Revenue
5. Expenses501 Rent Expense, Comp.502 Rent Expense, Office505 Salary Expense510 Depreciation Expense520 Utilities Expense530Advertising Expense540 Supplies Expense
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Objective 2
Explain double entry accounting
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Double Entry System• Record transactions in a way that keeps the profit
equation in balance. – Assets = Liabilities + Owner’s Equity
• Each transaction affects at least two accounts – (This is why it is called “double entry”)
– Each transaction is recorded with at least• One debit
• One credit
• Total debits must equal total credits
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Total debits = Total credits
• Increase asset (debit) and then– Decrease asset (credit)– Increase liability (credit)– Increase owner’s equity (credit)
• Decrease asset (credit) and then– Increase asset (debit)– Decrease liability (debit)– Decrease liability (debit)
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Total debits = Total credits
• Increase liability (credit) and then– Increase asset (debit)– Decrease liability (debit)– Decrease owner’s equity (debit)
• Decrease liability (debit) and then– Decrease asset (credit)– Increase liability (credit)– Increase owner’s (credit)
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Total debits = Total credits
• Increase owner’s equity (credit) and then– Increase asset (debit)– Decrease liability (debit)– Decrease owner’s equity (debit)
• Decrease owner’s equity (debit) and then– Decrease asset (credit)– Increase liability (credit)– Increase owner’s (credit)
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Account Name
(Left Side) Debit
(Right Side) Credit
Tool for analyzing and determining the balance in a given account
T-Account
Assets are normally debit
Liabilities and owner’s equity are normally
credit
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+ + --
AssetsDebit CreditDebit Credit
Rules of Debit and Credit
Liabilities Equity== ++Debit CreditDebit Credit - +- +
Debit CreditDebit Credit - +- +
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Liabilities EquityAssets == ++Normal Balances
Debit CreditDebit Credit
+ -+ -Debit CreditDebit Credit
- +- +Debit CreditDebit Credit
- +- +
NormalNormalBalanceBalance
NormalNormalBalanceBalance
NormalNormalBalanceBalance
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Cash
3,750 8504,300 1,400
2,900 7002,900 1,000
10,950 6,850
Total Debits - Total Credits
Balance 4,100
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Sheena Bright deposits $30,000 in a bank account for her business
Business TransactionsBusiness Transactions
General Journal
receiveDebit
giveCredit
Smart Touch Learning(investee)
Sheena Bright(investor)
giveCredit
Entry 1.
Date Description Debit Credit
Apr 1
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Sheena Bright Deposits $30,000 in a bank account for her business
Business TransactionsBusiness Transactions
General Journal
receiveDebit
giveCredit
Smart Touch Learning(investee)
Cash
Sheena Bright (investor)
giveCredit
Apr 1.
Date Description Debit Credit
Apr 1 Cash 30,000
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Sheena Bright deposits $20,000 in a bank account for her business.
Business TransactionsBusiness Transactions
General Journal
Date Description Debit Credit
Apr 1 Cash 30,000 Sheena Bright, Capital 30,000
receiveDebit
giveCredit
Smart Touch Learning (investee)
Cash A promiseto the owner
Sheena Bright (investor)
giveCredit
Apr 1.
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Smart Touch buys Land for $20,000.
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(buyer)
Land Owner (seller)
giveCredit
Apr 2.
General Journal
Date Description Debit Credit
Apr 2
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Smart Agency buys Land for $20,000.
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(buyer)
Land
Land Owner (seller)
giveCredit
Apr 2.
General Journal
Date Description Debit Credit
Apr 2 Land 20,000
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Smart Touch buys Land for $20,000.
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(buyer)
Land Cash
Land Owner (seller)
giveCredit
Apr 2.
General Journal
Date Description Debit Credit
Apr 2 Land 20,000 Cash 20,000
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Smart Touch purchased Supplies on account for $500
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(borrower)
Supplier (granter of credit)
giveCredit
Apr 3.
General Journal
Date Description Debit Credit
Apr 3
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Purchased supplies on account for $500
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(borrower)
Supplier (Granter of credit)
giveCredit
Apr 3.
General Journal
Date Description Debit Credit
Apr 3 Supplies 500
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Purchased supplies on account of $500
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(borrower)
Supplier (Granter of credit)
giveCredit
Apr 3.
General Journal
Date Description Debit Credit
Apr 3 Supplies 500 Accounts Payable 500
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Smart Touch LearningTrial BalanceApril 30, 2010
Cash 10,000 Supplies 500 Land 20,000 Accounts Payable 500 Sheena Bright, Capital 30,000
30,500 30,500
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RevenuesRevenues ExpensesExpensesOwner’s Owner’s CapitalCapital
Owner’sOwner’s WithdrawalsWithdrawals
__ ++ __
Expanding the Rules of Debit and Credit
Owner’s Equity
Debit CreditDebit Credit - +- +
Debit CreditDebit Credit - +- +
Debit CreditDebit Credit + + --
Debit CreditDebit Credit + + --
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++++
Owner’s EquityNormal Balances
Debit CreditDebit Credit
+ -+ -Debit Debit CreditCredit- +- +
Debit CreditDebit Credit
- +- +
RevenuesRevenuesRevenuesRevenues ExpensesExpensesExpensesExpensesOwner’s Owner’s CapitalCapital
Owner’s Owner’s CapitalCapital
Owner’s Owner’s WithdrawalsWithdrawals
Owner’s Owner’s WithdrawalsWithdrawals
____ ____Debit CreditDebit Credit
+ -+ -
NormalNormalBalanceBalance
NormalNormalBalanceBalance
NormalNormalBalanceBalance
NormalNormalBalanceBalance
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Smart Touch received $5,500 cash for services provided.
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(seller)
Customer (buyer)
giveCredit
Apr 8.
General Journal
Date Description Debit Credit
Apr 8
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Smart Touch received $5,500 cash for services provided.
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(seller)
Cash
Customer (buyer)
giveCredit
Apr 8.
General Journal
Date Description Debit Credit
Apr 8 Cash 5,500
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Smart Touch received $5,500 cash for services provided
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(seller)
Cash
Customer (buyer)
giveCredit
Apr 8.
Services
General Journal
Date Description Debit Credit
Apr 8 Cash 5,500 Service Revenue 5,500
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Smart Touch provided $3,000 of services on credit
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(seller)
Customer (buyer)
giveCredit
Apr 10.
General Journal
Date Description Debit Credit
Apr 10
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Smart Touch provided $3,000 of services on credit.
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(seller)
Accounts Receivable
Customer (buyer)
giveCredit
Apr 10.
General Journal
Date Description Debit Credit
Apr 10 Accounts Receivable 3,000
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Smart Touch provided $3,000 of services on credit.
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(seller)
Accounts Receivable
Customer (buyer)
giveCredit
Apr 10.
Services
General Journal
Date Description Debit Credit
Apr 10 Accounts Receivable 3,000 Service Revenue 3,000
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Date Description Debit Credit
Smart Touch paid: rent, comp. $600, rent, office $1,000, salaries, $1,200, utilities, $400.
Business TransactionsBusiness Transactions
General Journal
receiveDebit
giveCredit
Smart Touch(buyer)
Various suppliers
giveCredit
Apr 15.
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Date Description Debit Credit
Apr 15 Rent Expense: Comp 600Rent Expense: Office 1,000Salary Expense 1,200Utilities Expense 400
Smart Touch paid: rent, comp.$600; rent, office, $1,000; salaries, $1,200; Utilities, $400;
Business TransactionsBusiness Transactions
General Journal
receiveDebit
giveCredit
Smart Touch(buyer)
Services,benefits
Various suppliers
giveCredit
Apr 15
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Date Description Debit Credit
Apr 15 Rent Expense: Comp 600Rent Expense: Office 1,000Salary Expense 1,200Utilities Expense 400
Cash 3,200
Smart Touch paid: rent, comp.$600; rent, office, $1,000; salaries, $1,200; Utilities, $400;
Business TransactionsBusiness Transactions
General Journal
receiveDebit
giveCredit
Smart Touch(buyer)
Services,benefits
Various suppliers
giveCredit
Apr 15
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Smart Touch paid $300 of the $500 owed to a supplier.
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(payor)
Reduction in obligation
Supplier (payee)
giveCredit
Apr 21
General Journal
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Smart Touch paid $300 of the $500 owed to a supplier.
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(payor)
Reduction in obligation
Supplier (payee)
giveCredit
Apr 21
General Journal
Date Description Debit Credit
Apr 21 Accounts Payable 300
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Smart Touch paid $300 of the $500 owed to a supplier.
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(payor)
Reduction in obligation
Supplier (payee)
giveCredit
Apr 21.
Cash
General Journal
Date Description Debit Credit
Apr 21 Accounts Payable 300 Cash 300
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Date Description Debit Credit
Smart Touch received $2,000 from the client billed on the 10th.
Business TransactionsBusiness Transactions
General Journal
receiveDebit
giveCredit
Reduction in account rec.
(buyer)
Receive cash from client
giveCredit
Apr 22.
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Date Description Debit CreditApr 22 Cash 2,000
Smart Touch received $2,000 from the client billed on the 10th.
Business TransactionsBusiness Transactions
General Journal
receiveDebit
giveCredit
Reduction in account rec.
(buyer)
Receive cash from client
giveCredit
Apr 22.
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Date Description Debit CreditApr 22 Cash 2,000 Accounts Receivable 2,000
Smart Touch received $2,000 from the client billed on the 10th.
Business TransactionsBusiness Transactions
General Journal
receiveDebit
giveCredit
Reduction in account rec.
(buyer)
Receive cash from client
giveCredit
Apr 22.
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Date Description Debit Credit
Smart Touch received $9,000 for the sale of land.
Business TransactionsBusiness Transactions
General Journal
receiveDebit
giveCredit
Purchase land(buyer)
Receive cash for land sale
giveCredit
Apr 24.
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Date Description Debit CreditApr 24 Cash 9,000
Smart Touch received $9,000 for the sale of land.
Business TransactionsBusiness Transactions
General Journal
receiveDebit
giveCredit
Purchase land(buyer)
Receive cash for land sale
giveCredit
Apr 24.
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Date Description Debit CreditApr 24 Cash 9,000 Land 9,000
Smart Touch received $9,000 for sale of land
Business TransactionsBusiness Transactions
General Journal
receiveDebit
giveCredit
Purchase of land
(buyer)
Receive cash or land sale
giveCredit
Apr 24.
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Smart Touch received utility bill to be paid next month. $100
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(buyer)
Supplier (utility Co. )
giveCredit
Apr 30.
General Journal
Date Description Debit Credit
Apr 30
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Smart Touch received utility bill to be paid next month. $100
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(buyer)
Supplies
Supplier (Utility Co.)
giveCredit
Apr 30.
General Journal
Date Description Debit Credit
Apr 30 Utilities Expense 100
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Smart Touch received utility bill to be paid next month. $100
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch (buyer)
Supplies
Supplier (Utility Co.)
giveCredit
Apr 30.
A promiseto pay later
General Journal
Date Description Debit Credit
Apr 30 Utilities Expense 100 Accounts Payable 100
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Sheena Bright withdrew $2,000 for personal use.
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(payor)
Sheena Bright(payee)
giveCredit
Apr 30.
General Journal
Date Description Debit Credit
Apr 30
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Sheena Bright withdrew $2,000 for personal use.
Business TransactionsBusiness Transactions
SreceiveDebit
giveCredit
Smart touch(payor)
Reduction in obligation
Sheena Bright(payee)
giveCredit
Apr 30.
General Journal
Date Description Debit Credit
Apr 30 Sheena Bright, Withdrawals 2,000
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Withdrew $2,000 for
personal use.
Business TransactionsBusiness Transactions
receiveDebit
giveCredit
Smart Touch(payor)
Reduction in obligation
Sheena Bright(payee)
giveCredit
Apr 30.
Cash
General Journal
Date Description Debit Credit
Apr 30 Sheena Bright, Withdrawals 2,000 Cash 2,000
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Smart Touch LearningTrial BalanceApril 30, 2010
Cash 21,000 Accounts Receivable 1,000 Supplies 500 Land 11,000 Accounts Payable 300 Sheena Bright, Capital 30,000 Sheena Bright, Withdrawals 2,000 Service Revenue 8,500 Rent Expense, Computer 600 Rent Expense, Office 1,000 Salary Expense 1,200
Utilities Expense 500 38,800 38,800
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Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
Smart Touch LearningIncome Statement
Month Ended April 30, 2010
Service Revenue $8,500 Expenses: Salary expense $1,200 Rent Expense, Office 1,000 Rent Expense, Computer 600 Utilities Expense 500 Total expenses 3,300Net income $5,200
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Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
Sheena Bright, capital, April 1, 2010 $ 0Add: Investment by owner $30,000Net income 5,200Subtotal $35,200Less withdrawals 2,000 Sheena Bright, Capital April 30, 2010$33,200
Smart Touch LearningStatement of Owners Equity Month Ended April 30, 2010
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Smart Touch LearningBalance Sheet April 30, 2010
Assets Liabilities
Cash
$21,00
0 Accounts payable $ 300
Accounts receivable 1,000
Office Supplies 500 Owner’s Equity
Land 11,000 Sheena Bright, Capital 33,200
Total assets 33,500 Total liabilities & owner’s equity
33,500