chap002powerpointaccounting1-121209171404-phpapp01

7/28/2019 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

C 1


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Sales

Tickets

Bank

Statements

Purchase

Orders

Checks

SOURCE DOCUMENTS

Bills fromSuppliers

Employee

EarningsRecords

C 1


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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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Owner, Capital

Owner, Withdrawals

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Land

Equipment

Buildings

Cash

NotesReceivable

Supplies

PrepaidAccounts

AccountsReceivable

Asset

Accounts

ASSET ACCOUNTS

C 2


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AccruedLiabilities

UnearnedRevenue

NotesPayable

AccountsPayable

Liability

Accounts

LIABILITY ACCOUNTS

C 2


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Equity

Accounts

Revenues

Owners

CapitalOwners

Withdrawals

Expenses

EQUITY ACCOUNTS

C 2


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Liabilities EquityAssets = +


Owners

Capital

Owner's

Withdrawals Revenues Expenses

+ +

C 2


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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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DOUBLE-ENTRY ACCOUNTING

Debit Credit Debit Credit Debit Credit

ASSETS

+ -

LIABILITIES

- +

EQUITIES

- +

C 4

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

- +


Equity

C 4

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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.


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


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


Investment by owner



2011

1 Identify the debit account in ledger.

POSTING JOURNAL ENTRIES

P 1

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2011

Dec. 1 Cash 30,000


Investment by owner



2011

Dec. 1

2 Enter the date.


P 1

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2011

Dec. 1 Cash 30,000


Investment by owner



2011

Dec. 1 Investment by owner 30,000

3 Enter the amount and description.


P 1

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2011

Dec. 1 Investment by owner G1 30,000

4 Enter the journal reference.


P 1

2011

Dec. 1 Cash 30,000


Investment by owner

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2011

Dec. 1 Investment by owner G1 30,000 30,000

5 Compute the balance.


P 1

2011

Dec. 1 Cash 30,000


Investment by owner

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2011

Dec. 1 Cash 101 30,000


Investment by owner



2011

Dec. 1 Investment by owner G1 30,000 30,000

Enter the ledger reference.6


P 1

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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:

A 1

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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:

A 1

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Transaction: FastForward purchases equipment by paying $26,000cash.


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:

A 1

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Transaction: FastForward purchases $7,100 of supplies on credit.


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:

A 1

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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:

A 1

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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

P 3

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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

P 3

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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.

A 2

Total Liabilities

Total AssetsDebt Ratio =

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END OF CHAPTER 02

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