ch (2). record of increases and decreases in a specific asset, liability, equity, revenue, or...

CH (2)

Account Name

Debit / Dr. Credit / Cr.

Record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.

Debit = “Left”

Credit = “Right”

AccountAccount

An Account can be An Account can be illustrated in a T-Account illustrated in a T-Account

formform..

LO 1 Explain what an account is and how it helps in the recording processLO 1 Explain what an account is and how it helps in the recording process..

The AccountThe AccountThe AccountThe Account

Double-entry Double-entry accounting system

Each transaction must affect two or more accounts to keep the basic accounting equation in balance.

Recording done by debiting at least one account and crediting another.

DEBITS must equalmust equal CREDITS.

LO 2 Define debits and credits and explain their use in LO 2 Define debits and credits and explain their use in recording business transactionsrecording business transactions..

Debits and CreditsDebits and CreditsDebits and CreditsDebits and Credits

Account Name


If Debits are greater thangreater than Credits, the account will have a debit balance.

$10,000 Transaction #2$3,000

$15,000$15,000

8,000Transaction #3

Balance

Transaction #1



Account Name


If Credits are greater thangreater than Debits, the account will have a credit balance.

$10,000 Transaction #2$3,000

Balance

Transaction #1



$1,000$1,000

8,000 Transaction #3

Rules of Debit & CreditNature of AccountIncreaseDecreaseNormal Balance

Assets / ExpensesDrCrDr

Contra: Liabilities/OE/Revenues

DrCrDr

Liabilities/OE/RevenuesCrDrCr

Contra: Assets/ExpensesCrDrCr

Balance Sheet Balance Sheet Income StatementIncome Statement

= + -Asset Liability Equity Revenue Expense

Debit

Credit

Debits and Credits SummaryDebits and Credits SummaryDebits and Credits SummaryDebits and Credits Summary


Debits:

a. increase both assets and liabilities .

b. decrease both assets and liability .

c. increase assets and decrease liabilities .

d. decrease assets and increase liabilities .

Review QuestionReview Question



Accounts that normally have debit balances are:

a. assets, expenses, and revenues.

b. assets, expenses, and owner’s capital.

c. assets, liabilities, and owner’s drawings.

d. assets, owner’s drawings, and expenses.

Review QuestionReview Question



Expansion of the Basic EquationExpansion of the Basic EquationExpansion of the Basic EquationExpansion of the Basic EquationRelationship among the assets, liabilities and

owner’s equity of a business :

The equation must be in balance after every transaction. For The equation must be in balance after every transaction. For every every DebitDebit there must be a there must be a CreditCredit..

Illustration 2-11Assets Liabilities= Owner’s Equity

Basic Equation

Expanded Basic Equation


+

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Example• In blew the operation had happened in (NO WAY ) company• 1/1 the company invest 10,000 R.O deposit in the cash in the

company.• 2/1 the company opened account in the bank.• 5/1 the rent for the building 2,000 R.O paid by cash.• 12/1 the company purchased supply office by 5,000 R.O paid

2,000 and the other on the account.• 15/1 the company did service to other company by 50 R.O

cash• 17/1 the company did service by 300 R.O not receive.

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• 20/1 the company paid 1,000 to the creditor (according to transaction on 12/1 by cash)

• 25/1 receive the all amount from the debtors (according to transaction on 17/1)

• 30/1 the company paid these expenses by cash : 15 water , 20 electric and 30 salary.

Explain which it increase and what is decrease.

Business documents, such as a sales slip, a check, a bill, or a cash register tape, provide evidence of the transaction.

Steps in the Recording ProcessSteps in the Recording ProcessSteps in the Recording ProcessSteps in the Recording Process

LO 3 Identify the basic steps in the recording processLO 3 Identify the basic steps in the recording process..

Illustration 2-12

Analyze each transaction Enter transaction in a journalTransfer journal information to

ledger accounts

JOURNAL ENTERES

• What is the Journal?• The company record all the transactions day

by day in the book this book called Journal.• The journal should be like this form:

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DATEDescriptionsNo. ledger

DebitCredit

Journalizing - Entering transaction data in the journal.

JournalizingJournalizingJournalizingJournalizing

E2-4 (Facts) Presented below is information related to Hanshew Real Estate Agency.

LO 4 Explain what a journal is and how it helps in the recording processLO 4 Explain what a journal is and how it helps in the recording process..

Pete Hanshew begins business as a real estate agent with a cash investment of $15,000.

Oct. 1

Purchases office furniture for $1,900, on account.3

Sells a house and lot for B. Kidman; bills B. Kidman $3,200 for realty services provided.

6

Pays $700 on balance related to transaction of Oct. 3 .27

Pays the administrative assistant $2,500 salary for Oct.30

E2-5 Instructions - Journalize the transactions for E2-4.

Account Title Ref. Debit Credit

Oct. 1 Cash 15,000

Hanshew, Capital 15,000

(Owners investment)

Date


General Journal



Pete Hanshew begins business as a real estate agent with a cash investment of $15,000.

Oct. 1

Account T itle Ref . Debit Credit

Oct. 3 Offi ce Furniture 1,900

Accounts Payable 1,900

(Purchase f urniture)

Date


General Journal



Purchases office furniture for $1,900, on account.Oct. 3


Oct. 6 Accounts Receivable 3,200

S ervice Revenue 3,200

(Realty services provided)

Date


General Journal



Sells a house and lot for B. Kidman; bills B. Kidman $3,200 for realty services provided.

Oct. 6


Oct. 27 Accounts Payable 700

Cash 700

(Payment on account)

Date


General Journal



Pays $700 on balance related to transaction of Oct. 3.Oct. 27


Oct. 30 S alary Expense 2,500

Cash 2,500

(Payment f or salar ies)

Date


General Journal



Pays the administrative assistant $2,500 salary for Oct.Oct. 30

Simple Entry – Two accounts, one debit and one credit.

Compound Entry – Three or more accounts.


Example – On June 15, H. Burns, purchased equipment for $15,000 by paying cash of $10,000 and the balance on account (to be paid within 30 days) .


Account Title Ref . Debit Credit

J une 15 Equipment 15,000

Cash 10,000

Accounts Payable 5,000

(Purchased equipment)

Date

General Journal

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• The types of journal entry:1. Simple journal: when the journal have just one

account for both debit and credit. For example if Nasser bought car for 3,000 R.O in 5/1/2007 what is the journal?

2. Compound journal: when the journal have more then account . For example if Nasser paid expenses for electric & water 200 R.O and 800 salary what is the journal entry?

• Prepare the Journal entry for the question according to the last chapter?

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Chart of Accounts

• To make it easy for the ledger book , that will give the number for each account .

• For example let start for asset:Cash 101Account receivable 111Note receivable 121Office supply 131Land 141

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• In the liability:Account payable 201Note Payable 211• Owner equity:Capital 301Withdrew 311Revenue receive 401Rent expenses 501Salary expenses 502Electric & water expenses 503

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In blew the operation had happened in (NO WAY ) company

• 1/1 the company invest 10,000 R.O deposit in the cash in the company.

• 2/1 the company opened account in the bank.• 5/1 the rent for the building 2,000 R.O paid by cash.• 12/1 the company purchased supply office by 5,000 R.O

paid 2,000 and the other on the account.• 15/1 the company did service to other company by 50

R.O cash• 17/1 the company did service by 300 R.O not receive.

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• 20/1 the company paid 1,000 to the creditor (according to transaction on 12/1 by cash)

• 25/1 receive the all amount from the debtors (according to transaction on 17/1)

• 30/1 the company paid these expenses by cash : 15 water , 20 electric and 30 salary.

Prepare the journal entry for all operation.

ch (2). record of increases and decreases in a specific asset, liability, equity, revenue, or...

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