Download - Analyzing Transactions
Analyzing Transactions
By Rachelle Agatha, CPA, MBA
Slides by Rachelle Agatha, CPA, with excerpts from Warren, Reeve, Duchac
1. Describe the characteristics of an account and record transactions using a chart of accounts and journal.
2. Describe and illustrate the posting of journal entries to accounts.
3. Prepare an unadjusted trial balance and explain how it can be used to discover errors.
4. Discover and correct errors in recording transactions.
After studying this chapter, you should be able to:
Describe the characteristics of an account and record transactions using a
chart of accounts and journal.
Objective 1
Accounting systems are designed to show the
increases and decreases in each
financial statement line item as a separate
record. This record is called an account.
"T" Accounts
= +dr cr dr cr dr cr+ - - + - +
TermsNormal Balance dr cr dr crDebit - + + -Credit
dr cr+ -
drDRAWING
ASSETdr cr
LIABILITYcr
EQUITY
crREVENUE
drEXPENSE
dr cr a 500 b 300+ - c 300
500$ 300$
dr cr b 300- + c 300
-$
dr cr a 500- +
500$
SUPPLIES
crEQUITY SMITH, CAPITAL
LIABILITY
CASH
crA/P
drASSET
Assets are resources owned by the business entity.
• Cash• Supplies• Prepaid expenses• Buildings
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Liabilities are debts owed to outsiders (creditors).
• Accounts payable
• Notes payable• Wages payable
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Owner’s equity is the owner’s right to the
assets of the business. A drawing account
represents the amount of withdrawals by the
owner.
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Revenues are increases in owner’s equity as a result of selling services or
products to customers.
• Fees earned• Commission
revenue• Rent revenue
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The using up of assets or consuming services
in the process of generating revenues results in expenses.
• Wages expense• Rent expense• Miscellaneous
expense
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The transaction is initially entered in a record called
a journal.
The process of recording a transaction in the
journal is called journalizing.
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Journalizing requires the following steps:
1. Record the date.
(Continued)
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2. The title of the account debited is listed in the Description column.
3. Enter the amount in the Debit column.
4. Record the credit account in the Description column.
5. Enter the amount in the Credit column.
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2-1Page 1
DATE DESCRIPTION DEBIT CREDIT
09/01/08 Cash 8,000 S. Morgan, Capital 8,000
09/15/08 Supplies 200 Cash 200Purchased supplies.
09/21/08 Cash 500 Fees Earned 500
JOURNALPOST.RE
F.
Owner’s initial investment.
Received from cash from customers
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dr cr dr cr+ - - +
dr cr dr cr+ - - +
crINVESTMENT
drEXPENSE
EQUITY / CAPITAL
dr crDRAWING REVENUE
Where Revenue < Expense..
Net Loss (Deficit) 2-1
Credits < Debits
Net Loss Decreases Owner’s Equity.
2-1Page 1
DATE DESCRIPTION DEBIT CREDIT
09/25/08 Accounts Receivable 15,000 Fees Earned 15,000
POST.REF.
Fees Earned for services rendered
JOURNAL
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Page 1
DATE DESCRIPTION DEBIT CREDIT
09/21/08 Wages Expense 2,500Utilities Expense 800Rent Expense 3,500 Cash 6,800
JOURNALPOST.RE
F.
Paid for expenses
Page 1
DATE DESCRIPTION DEBIT CREDIT
09/30/08 S.Morgan, Drawing 1,000 Cash 1,000
JOURNALPOST.REF
.
Withdrawl by Morgan
Balance sheet accounts:Asset Debit CreditLiability Credit DebitOwner’s Equity:
Capital Credit DebitDrawing Debit Credit
Income statement accounts:Revenue Credit DebitExpense Debit Credit
Increase(Normal
Bal.)
Decrease
POSTING is the process of transferring the debits and credits
from the journal entries to the accounts
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2-2Page 1
DATE DESCRIPTION DEBIT CREDIT
09/01/08 Cash 8,000 S. Morgan, Capital 8,000
POST.
DATE ITEM REF. DEBIT CREDIT DEBIT CREDIT
09/01/08 1 8,000
POST.
DATE ITEM REF. DEBIT CREDIT DEBIT CREDIT
09/01/08 8,000
BALANCE
BALANCE
ACCOUNT S. Morgan, Capital ACCOUNT NO. 31
JOURNALPOST.REF
.
Owner’s initial investment.
ACCOUNT Cash ACCOUNT NO. 10
Prepare an unadjusted trial
balance and explain how it can
be used to discover errors.
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Objective 3
TRIAL BALANCE is prepared to show the equality of debits and
credits in the ledger . It is prepared as of a date in
time.
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2-2DEBIT CREDIT
Cash 12,000$ Supplies 1,300 Prepaid insurance 900 Inventory 16,000 Equipment 182,865 Acc. Depreciation 47,335 Accounts payable 15,000 Wages payable 4,500 Notes Payable 25,000 J . Terrier Capital, J anuary 1, 2008 75,000 J . Terrier Drawing 15,000 Fees Earned 153,750 Wages 20,775 Rent 48,000 Depreciation 10,800 Supplies 9,375 Utilities 1,065 Insurance 1,800 Miscellaneous 705
320,585$ 320,585$
San Diego Designer Puppy Store and CoutureAdjusted Trial Balance
December 31, 2008
A transposition error occurs when the order of
the digits is changed mistakenly, such as writing
$542 as $452 or $524. (usually divisible by 9)
In a slide, the entire number is mistakenly
moved one or more spaces to the right or the left, such
as writing $542.00 as $54.20.
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