topic4 recording transaction 1 1

7/31/2019 Topic4 Recording Transaction 1 1

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The McGraw-Hill Companies, Inc., 2007Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

RecordingTransactionsTOPIC

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Recording???


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Learning Objectives

Describe sourcedocuments and theirpurpose

Describe an accountand its use in recordingtransactions

Describe a ledger andchart of accounts

Define debits andcredits and explain theirrole in double-entryaccounting

Analyze the impact oftransactions onaccounts and financialstatements

Record transactions in ajournal and post entriesto a ledger

Prepare and explain the

use of a trial balance Prepare financial

statements frombusiness transactions


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External Transactionsoccur between the

organization and anoutside party.

Internal Transactionsoccur within the

organization.

Analyzing and Recording Process

Exchanges of economic consideration betweentwo parties.


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Analyze each transaction andevent from source documents

Analyzing and Recording Process

Record relevant transactionsand events in a journal

Post journal information

to ledger accounts

Prepare and analyze

the trial balance


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Sales

Tickets

Bank

Statement

Purchase

Orders

Checks

Source Documents

Bills fromSuppliers

Employee

EarningsRecord


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An account is arecord of

increases anddecreases in aspecific asset,liability, equity,

revenue, orexpense item.

The Account and Its Analysis

The generalledger is a record

containing allaccounts used by

the company.


7/37 The McGraw-Hill Companies, Inc., 2007Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

Liabilities

Accounts

Equity

Accounts

Assets

Accounts

= +




Land

Equipment

Buildings

Cash

NotesReceivabl

e

Supplies

PrepaidAccounts

AccountsReceivable

AssetAccounts

Asset Accounts

Inventory



AccruedLiabilities

UnearnedRevenues

NotesPayable

AccountsPayable

LiabilityAccounts

Liability Accounts



EquityAccounts

Revenues

Owners

CapitalOwners

Withdrawals

Expenses

Equity Accounts



Liabilities EquityAssets = +


Owners

Capital

Owners

Withdrawals Revenues Expenses

+ +



Ledger and Chart of Accounts

Ledger collection of all accounts

Chart of accounts list of all accounts a company uses andincludes an identification number assigned to each account

Eg: Charts of Account

Account Number Account Name101 Cash

106 Accounts Receivable

201 Accounts Payable

220 Notes payable301 Capital, Aminah

406 Service Revenue

637 Salary Expense

640 Rent Expense



A T-account represents a ledger account and isa tool used to understand the effects of one or

more transactions.

Debits and Credits

(Left side) (Right side)

Debit Credit

T- Account




Double-Entry Accounting

Debit Credit Debit Credit Debit Credit

ASSETS

+ -

LIABILITIES

- +

EQUITIES

- +



Revenues Expenses

Owners

Capital

Owners

Withdrawals

_+

_

Debit Credit

Capital

- +Debit Credit

Withdrawals

+ -Debit Credit

Expenses

+ -Debit Credit

Revenues

- +


Equity

Exh.

3.8


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Investment by owner 30,000 Purchase of supplies 2,500

Consulting services revenues earned 4,200 Purchase of equipment 26,000

Collection of accounts receivable 1,900 Payment of rent 1,000

Payment of salary 700

Payment of note payable 900

Withdrawal by owner 600

Total increases 36,100 Total decreases 31,700

Less decreases (31,700)

Balance 4,400

Cash


An account balance is the difference betweenthe increases and decreases in an account.


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Journalizing and 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 G123

Date Description

Post.

Ref. Debit Credit

Step 3: Record journal entry


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GENERAL JOURNAL G1Date Description REF Debit Credit

2006

Dec. 1 Cash 30.000

C. Taylor, Capital 30.000Investment by owner

Dollar amount ofdebits and credits

Journalizing Transactions

Transaction Date

Transaction explanation

Titles of Affected Accounts


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CASH ACCOUNT No. 101

Date Description REF Debit Credit Balance

2006

Dec. 1 Investment by owner 30.000 30.000

Dec. 2 Purchased supplies 2.500 27.500

Dec. 3 Purchased equipment 26.000 1.500Dec. 10 Collection from customer 1.900 3.400

T-accounts are useful illustrations, but balancecolumn ledger accounts are used in practice.

Balance Column Account


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GENERAL JOURNAL G 1Date Description REF Debit Credit

2006

Dec. 1 Cash 30.000

C. Taylor, Capital 30.000Investment by owner



2006

1 Identify the account.

Posting Journal Entries


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2006

Dec. 1 Cash 30.000

C. Taylor, Capital 30.000

Investment by owner



2006

Dec. 1 Investment by owner 30,000

3Enter the amount and description.



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2006

Dec. 1 Cash 101 30.000


Investment by owner


Date Description REF Debit Credit Balance2006

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

Enter the ledger reference. 6



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2006

Dec. 1 Cash 30.000


Investment by owner



2006

Dec. 1 Investment by owner G1 30,000

4Enter the journal reference.



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Transaction:

Chuck Taylor invested $30,000 in FastForward on 1

Dec.

Analyzing Transactions An Illustration

Assets = + Equity

Cash Capital

30,000 30,000

Liabilities

Analysis:
http://../Journal.doc


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Transaction:

FastForward purchases supplies by paying $2,500cash.

Assets = + Equity

Cash Supplies Capital(2,500) 2,500

Liabilities

Analysis:


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Transaction:

FastForward purchases equipment by paying $26,000cash.


Assets = + Equity

Cash Equipment Capital(26,000) 26,000

Liabilities

Analysis:


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


Assets = + Equity

Supplies Accounts Payable Capital7,100 7,100

Liabilities

Analysis:


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Transaction:

FastForward provides consulting services andimmediately collects $4,200 cash.

Assets = + Equity

Cash Revenue4,200 4,200

Liabilities

Analysis:


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Chart of Account

List of all account & includes an identification numberassigned to each account.

Ex: Account

101-199 Asset

201-299 Liability

301-399 Equity

401-499 Revenue

501-599 Expense

2nd & 3rddigits relate to the accounts subcategories


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After processing its remaining transactions for December,FastForwards Trial Balance is prepared.

Debits Credits

Cash 3,950$

Accounts receivable -

Supplies 9,720Prepaid Insurance 2,400

Equipment 26,000

Accounts payable 6,200$

Unearned consulting revenue 3,000

C. Taylor, Capital 30,000

C. Taylor, Withdrawals 600Consulting revenue 5,800

Rental revenue 300

Salaries expense 1,400

Rent expense 1,000

Utilities expense 230

Total 45,300$ 45,300$

FAST FORWARD

TRIAL BALANCE

31 DECEMBER 2006

The trial balance listsall account balances

in the general ledger.If the books are inbalance, the total

debits will equal thetotal credits.


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Using a Trial Balance to PrepareFinancial Statements

Income Statement ofCash Flows

Income Statement

Statement of Owners Equity

BeginningBalanceSheet

EndingBalanceSheet

Period of TimePoint in

TimePoint in

Time


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Income Statement

Revenues

Consulting revenue 5,800

Rental revenue 300

Total revenues 6,100

Expenses

Rent expense 1,000



2,630

Profit for the period 3,470

FOR THE MONTH ENDED 31 DECEMBER 2006


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Statement of Owners Equity

Investment by owner 30,000

Profit for the period 3,470

33,470

Withdrawals by owner 600

C. Taylor, Capital, 31 December 2006 32,870

Revenues:

Consulting revenue $5,800

Rental revenue 300

Total revenues $6,100

Expenses:

Rent expense 1,000



Total expenses $2,630

Profit for the period $3,470

FASTFORWARD

Income Statement

For the Month Ended 31 December 2006

BALANCE SHEET


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Non-current assets

Equipment 26,000

Total non-current assets

Current assets

Cash 3,950

Supplies 9,720

Prepaid insurance 2,400

Total assets 42,070

EQUITY AND LIABILITIES

Equity

C. Taylor, Capital 32,870

BALANCE SHEET

31 DECEMBER 2006


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Liabilities:

Current Liabilities

Account Payable 6,200

Unearned Consulting Revenue 3,000

Total Current Liabilities 9,200

Equities and Liabilities 42,070


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End of Topic 4