module 2 exhibits and key terms - alison · module 2 – exhibits and key terms 4 principles of...

Module 2 – Exhibits and Key Terms

1 Principles of Accounting Recording Business Transactions

Table of Contents Exhibit 5: Balance sheet ...................................................................................................................................................... 2

Exhibit 6: Rules of debit and credit ..................................................................................................................................... 2

Exhibit 7: Steps in the Accounting Cycle ............................................................................................................................. 3

Exhibit 8: Journal Entry ....................................................................................................................................................... 3

MicroTrain Chart of Accounts ............................................................................................................................................. 4

Exhibit 9: Balance sheet ...................................................................................................................................................... 4

Exhibit 10: General Journal and General Ledger ................................................................................................................ 5

Exhibit 11: General journal (after posting) ......................................................................................................................... 6

Exhibit 12: General ledger - Extended illustration .............................................................................................................. 8

Exhibit 13: Trail balance .................................................................................................................................................... 11

Hewlett-Packard Data ....................................................................................................................................................... 12

Key terms .......................................................................................................................................................................... 13



Exhibit 5: Balance sheet

Exhibit 6: Rules of debit and credit



Exhibit 7: Steps in the Accounting Cycle

Exhibit 8: Journal Entry

MICROTRAIN COMPANY General Journal

Date Account Titles and Explanation Post. Ref. Debit Credit

2010 Nov. 28 Cash (+A) 100 5 0 0 0 0

Capital Stock (+SE) 300 5 0 0 0 0

Stockholders invested $50,000 cash in business.



MicroTrain Chart of Accounts

Acct. no Account Title Description

Assets

100 Cash Bank deposits and cash on hand.

103 Accounts Receivable Amounts owed to the company by customers.

107 Supplies on Hand Items such as paper, envelopes, writing materials, and other materials used in performing training services for customers in doing administrative and clerical office work.

108 Prepaid Insurance Insurance policy premiums paid in advance of the

periods which the insurance coverage applies.

112 Prepaid Rent Rent paid in advance of the periods for which the rent

payment applies.

150 Trucks Trucks used to transport personnel and training

supplies to clients' locations.

Liabilities

200 Accounts Payable Amounts owed to creditors for items purchased from

them.

216 Unearned Service Fees Amounts received from customers before the training

services have been performed for them.

Stockholders' Equity &

Dividends

300 Capital Stock Retained

The stockholders' investment in the business.

310 Earnings The earnings retained in the business.

320 Dividends The amount of dividends declared to stockholders.

Revenues 400 Service Revenue Amounts earned by performing training services for

customers.

Expenses

505 Advertising Expense The cost of advertising incurred in the current period.

506 Gas and Oil Expense The cost of gas and oil used in trucks in the current

period. 507 Salaries Expense The amount of salaries incurred in the current period.

511 Utilities Expense The cost of utilities incurred in the current period.

Exhibit 9: Balance sheet

MICROTRAIN COMPANY Balance Sheet 2010 November 30

Assets Liabilities and Stockholders' Equity

Cash $50,000 Stockholders' equity:

Capital stock $50,000

Total Assets $50,000 Total liabilities and stockholders’ equity

$50,000



Exhibit 10: General Journal and General Ledger

Postings and cross-indexing

JENKS COMPANY General Journal Page 1

Date Account Titles and Explanation Post.

Ref. Debit Credit

2010 Jan. 1(B) Cash (+A) (C)100 1 0 0 0 0 (A)

Capital Stock (+SE) 300 1 0 0 0 0 (D)

Stockholders invested $10,000 cash in the business.

5 Cash (+A) 100 5 0 0 0

Notes Payable (+L) 201 5 0 0 0

Borrowed $5,000 from the bank on a note.

General Ledger Cash Account No 100(C)

Date Explanation Post

Ref. Debt Credit Balance

2010 Jan. 1(B) Stockholders Investment G1 1 0 0 0 0 (A) 1 0 0 0 0 Dr

5 Bank loan G1 5 0 0 0 1 5 0 0 0 Dr

Notes Payable Account No. 201

Date Explanation Post Ref.

Debt Credit Balance

2010 Jan. 5 Borrowed cash G1 5 0 0 0 5 0 0 0 Cr

Capital Stock Account No. 300


Debt Credit Balance

2010 Jan. (B)1 Cash from stockholders G1

1 0 0 0 0 (D) 1 0 0 0 0 Cr



Exhibit 11: General journal (after posting) MICROTRAIN COMPANY General Journal Page 1

Date Account Titles and Explanation Post. Ref.

Debit Credit

2010 Nov.

28 Cash (+A) 100* 5 0 0 0 0

Capital Stock (+SE) 300 5 0 0 0 0

Stockholders invested $50,000 cash in the business.

Dec 1 Truck (+A) 150 4 0 0 0 0

Cash (-A) 100 4 0 0 0 0

To record the purchase of four trucks.

1 Prepaid Insurance (+A) 108 2 4 0 0

Cash (-A) 100 2 4 0 0

Purchased truck insurance to cover a one-year period.

1 Prepaid Rent (+A) 112 1 2 0 0

Cash (-A) 100 1 2 0 0

Paid three months' rent on a building.

4 Supplies on Hand (+A) 107 1 4 0 0

Accounts Payable (+L) 200 1 4 0 0

To record the purchase of training supplies for future use.

7 Cash (+A) 100 4 5 0 0

Unearned Service Fees (+L) 216 4 5 0 0

To record the receipt of cash from a customer in payment

for future training services.

15 Cash (+A) 100 5 0 0 0

Service Revenue (+SE) 400 5 0 0 0

To record the receipt of cash for performing training

services for a customer.

17 Accounts Payable (-L) 200 1 4 0 0

Cash (-A) 100 1 4 0 0

Paid the account payable arising from the purchase of

supplies on December 4.

Cont/…



MICROTRAIN COMPANY General Journal Page 2

Date Account Titles and Explanation Post.Ref.

Debit Credit

2010 Dec.

20 Accounts Receivable (+A) 103 5 7 0 0

Service Revenue (+SE) 400 5 7 0 0

To record the performance of training services on account

for which a customer was billed.

24 Advertising Expense (-SE) 505 5 0

Accounts Payable (+L) 200 5 0

Received a bill for advertising for the month of December.

26 Cash (+A) 100 5 0 0

Accounts Receivable (-A) 103 5 0 0

Received $500 from a customer on accounts receivable.

28 Salaries Expense (-SE) 507 3 6 0 0

Cash (-A) 100 3 6 0 0

Paid training personnel salaries for the first four weeks

of December.

29 Utilities Expense (-SE) 511 1 5 0

Cash (-A) 100 1 5 0

Paid the utilities bill for December.

30 Gas and Oil Expense (-SE) 506 6 8 0

Accounts Payable (-A) 200 6 8 0

Received a bill for gas and oil used in the trucks for

December.

31 Dividends (-SE) 320 3 0 0 0

Cash (-A) 100 3 0 0 0

Dividends were paid to stockholders.



Exhibit 12: General ledger - Extended illustration

MICROTRAIN COMPANY

General Ledger – Page 1

Cash Account No. 100


Debit Credit Balance

2010 Dec. 1 Beginning balance* 5 0 0 0 0 Dr 1 Trucks G1 4 0 0 0 0 1 0 0 0 0 Dr

1 Prepaid insurance G1 2 4 0 0 7 6 0 0 Dr

1 Prepaid rent G1 1 2 0 0 6 4 0 0 Dr

7 Unearned service fees G1 4 5 0 0 1 0 9 0 0 Dr 15 Service revenue G1 5 0 0 0 1 5 9 0 0 Dr 17 Paid account payable G1 1 4 0 0 1 4 5 0 0 Dr

26 Collected account receivable G2 5 0 0 1 5 0 0 0 Dr 28 Salaries G2 3 6 0 0 1 1 4 0 0 Dr

29 Utilities G2 1 5 0 1 1 2 5 0 Dr 31 Dividends G2 3 0 0 0 8 2 5 0 Dr

Accounts Receivable Account No. 103



2010 Dec. 20 Service revenue G2 5 7 0 0 5 7 0 0 Dr

26 Collections G2 5 0 0 5 2 0 0 Dr

Supplies on Hand Account No. 107



2010 Dec. 4 Purchased on account G1 1 4 0 0 1 4 0 0 Dr

Prepaid Insurance Account No. 108



2010 Dec. 1 One-year policy on trucks G1 2 4 0 0 2 4 0 0 Dr



MICROTRAIN COMPANY General Ledger – Page 2

Prepaid Rent. Account No 112



2010 Dec. 1 Three-month payment G1 1 2 0 0 1 2 0 0 Dr

Trucks Account No 150



2010 Dec. 1 Paid cash G1 4 0 0 0 0 4 0 0 0 0 Dr

Accounts Payable Account No. 200



2010 Dec. 4 Supplies G1 1 4 0 0 1 4 0 0 Cr

17 Paid for supplies G1 1 4 0 0 - 0 -

24 Advertising G2 5 0 5 0 Cr 30 Gas and oil G2 6 8 0 7 3 0 Cr

Unearned Service Fees Account No. 216



2010 Dec. 7 Received cash G1 4 5 0 0 4 5 0 0 Cr

Capital Stock Account No 300



2010 Dec. 1 Beginning balance 5 0 0 0 0 Cr



MICROTRAIN COMPANY General Ledger – Page 3

Dividends Account No. 320


Debt Credit Balance

2010 Dec. 31 Cash G2 3 0 0 0 3 0 0 0 Dr

Service Revenue Account No. 400


Debt Credit Balance

2010 Dec. 15 Cash G1 5 0 0 0 5 0 0 0 Cr 20 On account G2 5 7 0 0 1 0 7 0 0 Cr

Advertising Expense Account No. 505


Debt Credit Balance

2010 Dec. 24 On account G2 5 0 5 0 Dr

Gas and Oil Expense Account No. 506


Debt Credit Balance

2010 Dec. 30 On account G2 6 8 0 6 8 0 Dr

Salaries Expenses Account No. 507


Debt Credit Balance

2010 Dec. 28 Cash paid G2 3 6 0 0 3 6 0 0 Dr

Utilities Expenses Account No. 511


Debt Credit Balance

2010 Dec. 29 Cash paid G2 1 5 0 1 5 0 Dr



Exhibit 13: Trail balance

MICROTRAIN COMPANY Trial Balance December 31, 2010

No. Account Title Debits Credits 100 Cash $ 8,250 103 Accounts Receivable 5,200 107 Supplies on Hand 1,400 108 Prepaid Insurance 2,400 112 Prepaid Rent 1,200 150 Trucks 40,000 200 Accounts Payable $ 730 216 Unearned Service Fees 4,500 300 Capital Stock 50,000 320 Dividends 3,000 400 Service Revenue 10,700 505 Advertising Expense 50 506 Gas and Oil Expense 680 507 Salaries Expense 3,600 511 Utilities Expense 150

65,930 65,930



Hewlett-Packard Data

Increase or Percent of (Decrease) Total Assets 2000 over 1999 October 31

2000 1999 Dollars Percent 2000 1999

Assets (in millions) Current assets:

Cash and cash equivalents $ 3,415 $ 5,411 $ (1,996) -37% 10.0% 15.3% Short-term investments 592 179 413 231% 1.7% 0.5% Accounts receivable 6,394 5,958 436 7% 18.8% 16.9% Financing receivables 2,174 1,889 285 15% 6.4% 5.4% Inventory 5,699 4,863 836 17% 16.8% 13.8% Other current assets 4,970 3,342 1,628 49% 14.6% 9.5%

Total current assets $ 23,244 $ 21,642 $ 1,602 7% 68.3% 61.3%

Property, plant and equipment:

Property, plant and equipment, net 4,500 4,333 167 4% 13.2% 12.3%

Long-term investments and other non-current assets 6,265 9,322 (3,057) -33% 18.4% 26.4%

Total assets $ 34,009 $ 35,297 $ (1,288) -4% 100.0% 100.0%



Key terms

Account A • part of the accounting system used to classify and summarize the increases, decreases, and balances of each asset, liability, stockholders' equity item, dividend, revenue, and expense. The three-column account is normally used. It contains columns for debit, credit, and balance.

Accounting cycle • A series of steps performed during the accounting period (some throughout the period and some at the end) to analyze, record, classify, summarize, and report useful financial information for the purpose of preparing financial statements.

Accrual basis of accounting • Recognizes revenues when sales are made or services are performed, regardless of when cash is received. Recognizes expenses as incurred, whether or not cash has been paid out.

Business transactions • Measurable events that affect the financial condition of a business. Chart of accounts • The complete listing of the account titles and account numbers of all of the accounts in the

ledger; somewhat comparable to a table of contents. Compound journal entry • A journal entry with more than one debit and/or credit. Credit •The right side of any account; when used as a verb, to enter a dollar amount on the right side of an

account; credits increase liability, stockholders' equity, and revenue accounts and decrease asset, expense, and Dividends accounts.

Credit balance • The balance in an account when the sum of the credits to the account exceeds the sum of the debits to that account.

Cross-indexing • The placing of (1) the account number of the ledger account in the general journal and (2) the general journal page number in the ledger account.

Debit • The left side of any account; when used as a verb, to enter a dollar amount on the left side of an account; debits increase asset, expense, and Dividends accounts and decrease liability, stockholders' equity, and revenue accounts.

Debit balance • The balance in an account when the sum of the debits to the account exceeds the sum of the credits to that account.

Double-entry procedure • The accounting requirement that each transaction must be recorded by an entry that has equal debits and credits.

Horizontal analysis •The calculation of dollar and/or percentage changes in an item on the financial statements from one year to the next.

Journal A chronological (arranged in order of time) record of business transactions; the simplest form of journal is the two-column general journal.

Journal entry Shows all of the effects of a business transaction as expressed in debit(s) and credit(s) and may include an explanation of the transaction.

Journalizing • A step in the accounting recording process that consists of entering the effects of a transaction in a journal.

Ledger • The complete collection of all of the accounts of a company; often referred to as the general ledger. Nominal accounts • See temporary accounts.

Note • An unconditional written promise to pay to another party the amount owed either when demanded or at a certain specified date.

Permanent accounts (real accounts) • Balance sheet accounts; their balances are not transferred (or closed) to any other account at the end of the accounting period.

Posting • Recording in the ledger accounts the information contained in the journal. Real accounts • See permanent accounts.



Simple journal entry An entry with one debit and one credit. T-account • An account resembling the letter T, which is used for illustrative purposes only. Debits are

entered on the left side of the account, and credits are entered on the right side of the account. Temporary accounts (nominal accounts) • They temporarily contain the revenue, expense, and dividend

information that is transferred (or closed) to a stockholders' equity account (Retained Earnings) at the end of the accounting period.

Trial balance • A listing of the ledger accounts and their debit or credit balances to determine that debits equal credits in the recording process.

Vertical analysis • Shows the percentage that each item in a financial statement is of some significant total such as total assets or sales.

module 2 exhibits and key terms - alison · module 2 – exhibits and key terms 4 principles of...

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