chapter three the double-entry accounting system copyright © 2011 by the mcgraw-hill companies,...
TRANSCRIPT
Chapter Three
The Double-Entry Accounting
System
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
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Debit/Credit Terminology
= +Debi
tCredi
t
Assets
Debit
Credit
Liabilities
Debit
Credit
Equity
Claims
+ + +- - -
In every transaction, the total dollar value of all debits equals the total dollar value of all credits.
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Collins Brokerage Services began the period with the following balances: $5,000 in cash, $4,000 in common stock, and $1,000 in retained earnings.
Assets = Liab. +Cash Comm. Stk. Ret. Earn.
5,000 = n/a + 4,000 + 1,000
Equity
= +
Debit Credit Debit Credit Debit CreditBal. 5,000 4,000 Bal. 1,000 Bal.
Ret. Earn.EquityAssets Liabilities
Cash Common Stock
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Event 1: Collins acquired $25,000 from the issue of common stock.
1. Increase assets (cash).
2. Increase equity (common stock).
Asset Source
Transaction
= +
Debit Credit Debit Credit+ - - +25,000 25,000
Assets Liabilities EquityCash Common Stock
Assets = Liab. + Equity Revenue - Expenses = Net
Income 25,000 = n/a + 25,000 n/a - n/a = n/a 25,000 FA
Cash Flow
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Event 2: Collins purchased $850 of supplies on account.
1. Increase assets (supplies).
2. Increase liabilities (accounts payable).
Asset Source
Transaction
Assets = Liab. + Equity Revenue - Expenses = Net
Income 850 = 850 + n/a n/a - n/a = n/a n/a
Cash Flow
= +
Debit Credit Debit Credit+ - - +
850 850
Assets Liabilities EquitySupplies Accounts Payable
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Event 3: Collins collected $1,800 as an advance to provide future services over a one-year period starting March 1.
1. Increase assets (cash).
2. Increase liabilities (unearned revenue).
Asset Source
Transaction
Assets = Liab. + Equity Revenue - Expenses = Net
Income 1,800 = 1,800 + n/a n/a - n/a = n/a 1,800 OA
Cash Flow
= +
Debit Credit Debit Credit+ - - +1,800 1,800
Assets Liabilities EquityCash Unearned Revenue
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Event 4: Collins provided $15,760 of services on account.
1. Increase assets (accounts receivable).
2. Increase stockholders’ equity (consulting revenue).
Asset Source
Transaction
Assets = Liab. + Equity Revenue - Expenses = Net
Income 15,760 = n/a + 15,760 15,760 - n/a = 15,760 n/a
Cash Flow
= +
Debit Credit Debit Credit Debit Credit+ - - + + -15,760 15,760
Assets Liabilities EquityAccounts Receivable Consulting Revenue
3-8
Event 5: Collins purchased land for $26,000 cash.
1. Increase assets (land).
2. Decrease assets (cash).
Asset Exchange
Transaction
= Liab. + Equity Revenue - Expenses = Net
Income (26,000) + 26,000 = n/a + n/a n/a - n/a = n/a (26,000) IA
Cash Flow Assets
= +
Debit Credit Debit Credit+ - + -
26,000 26,000
CashLiabilities Equity
LandAssets
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Event 6: Collins paid $1,200 cash for a one-year insurance policy with coverage starting August 1.
1. Increase assets (prepaid insurance).
2. Decrease assets (cash).
Asset Exchange
Transaction
= Liab. + Equity Revenue - Expenses = Net
Income (1,200) + 1,200 = n/a + n/a n/a - n/a = n/a (1,200) OA
Cash Flow Assets
= +
Debit Credit Debit Credit+ - + -
1,200 1,200
Liabilities EquityPrepaid Insurance
AssetsCash
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Event 7: Collins collected $13,400 from accounts receivable.
1. Increase assets (cash).
2. Decrease assets (accounts receivable).
Asset Exchange
Transaction
= Liab. + Equity Revenue - Expenses = Net
Income 13,400 + (13,400) = n/a + n/a n/a - n/a = n/a 13,400 OA
Cash Flow Assets
= +
Debit Credit Debit Credit+ - + -13,400 13,400
CashLiabilities Equity
Accounts ReceivableAssets
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Event 8: Collins paid $9,500 for salaries expense.
1. Decrease assets (cash).
2. Decrease equity (salaries expense).
Asset Use Transaction
= +
Debit Credit Debit Credit+ - + -
9,500 9,500
Assets Liabilities EquityCash Salaries Expense
Assets = Liab. + Equity Revenue - Expenses = Net
Income (9,500) = n/a + (9,500) n/a - 9,500 = (9,500) (9,500) OA
Cash Flow
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The General Journal
Accountants initially record
data from source documents into a
journal.
Special Journals
General Journals
Date Account Title Debit CreditAug. 1 Cash 1,000
Service Revenue 1,000
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