accounting chapter 3
TRANSCRIPT
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3 Analyzing and Recording Transactions
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Post to the ledger
Source documents
Record transactions
Prepare a trial balance
Prepare financial statements and
report
Transaction Analyze
Overview of the Accounting Process
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External Transactions occur between the
organization and an outside party.
Internal Transactions occur within the
organization.
Transactions and Events
Exchanges of economic consideration between two parties.
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Sales Invoices
Bank Statement
Purchase Orders
Checks
Source Documents
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Detailed record of increases and decreases in
specific assets, liabilities, equities,
revenues, or expenses.
Separate accounts are maintained for each item of importance.
Detailed record of increases and decreases in
specific assets, liabilities, equities,
revenues, or expenses.
Separate accounts are maintained for each item of importance.
The Account
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LiabilitiesLiabilities EquityEquityAssetsAssets = +
Owner’s Capital
Owner’s Capital
Owner’s Withdrawals
Owner’s Withdrawals
RevenuesRevenues ExpensesExpenses
Accounting Equation
+ +– –
Exh.3.3
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LandLand
EquipmentEquipmentBuildingsBuildings
CashCash
Prepaid Expenses
Prepaid Expenses
Office Supplies
Office Supplies
Store Supplies
Store Supplies
Prepaid Insurance
Prepaid Insurance Notes
Receivable
Notes Receivable
Accounts Receivable
Accounts Receivable
ASSETSASSETS
Asset Accounts
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Accrued Liabilities
Accrued Liabilities
Unearned Revenues
Unearned Revenues
Notes Payable
Notes Payable
Accounts Payable
Accounts Payable
LIABILITIESLIABILITIES
LiabilityAccounts
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EquitiesEquities
RevenuesRevenues
Owners’ Capital
Owners’ Capital
Owners’ Withdrawals
Owners’ Withdrawals
ExpensesExpenses
Equity Accounts
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Account Name
(Left Side) Debit
(Right Side) Credit
Used as a simple tool for illustrating the balance in a given account.
T-AccountExh.3.5
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Balance of an Account
An account balance is the difference between the increases and decreases in
an account.
Exh.3.6
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LiabilitiesLiabilities EquityEquityAssetsAssets = +
Debit Credit Debit Credit Debit Credit
ASSETS
+ -
LIABILITIES
- +
EQUITIES
- +
Double-Entry AccountingExh.3.7
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RevenuesRevenues ExpensesExpensesOwner’s Capital
Owner’s Capital
Owner’s Withdrawals
Owner’s Withdrawals
_ + _
Debit Credit
Capital
- +Debit Credit
Withdrawals
+ -Debit Credit
Expenses
+ -Debit Credit
Revenues
- +
Double-Entry Accounting - Detail of Effects on Equity
EquityEquity
Exh.3.8
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Analyze the transaction and its source.
Identify the impact of the transaction on account balances.Also identify the
financial statements that are impacted by the transaction.
Analyzing Transactions
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Post the transaction in the T-accounts and complete the transaction analysis.
Analyzing TransactionsExample - Transaction 1
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Analyzing TransactionsExample - Transaction 1
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Post the transaction in the T-accounts and complete the transaction analysis.
Analyzing TransactionsExample - Transaction 2
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Post the transaction in the T-accounts and complete the transaction analysis.
Analyzing TransactionsExample - Transaction 3
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Analyzing TransactionsExample - Transaction 4
Post the transaction in the T-accounts and complete the transaction analysis.
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Remember these two steps?Now let’s look at some
additional steps.
Steps in Processing Transactions
Step 1: Examine source documents.
LiabilitiesLiabilities EquityEquityAssetsAssets = +
Step 2: Analyze transactions.
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ACCOUNT NAME: ACCOUNT No.
Date Description PR Debit Credit Balance
Step 4: Record the journal information in a
ledger.
Step 3: Record transactions in a
journal.
Step 5: Prepare a trial balance.
Steps in Processing Transactions
Step 1: Examine source documents.
LiabilitiesLiabilities EquityEquityAssetsAssets = +
Step 2: Analyze transactions.
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Transaction Date
Transaction Date
Titles of Affected Accounts
Titles of Affected Accounts
Dollar amount of debits and credits
Dollar amount of debits and credits
Transaction explanation
Transaction explanation
General Journal for FastForward
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T-accounts are useful illustrations, but balance column ledger accounts are used
in practice.
Balance Column Ledger
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Balance Column Ledger
T-accounts are useful illustrations, but balance column ledger accounts are used
in practice.
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The last line in the balance column shows the current balance in the account.
The last line in the balance column shows the current balance in the account.
Exh. 3.16
Balance Column Ledger
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LiabilitiesLiabilities EquityEquityAssetsAssets = +
Note that the balance column ledger does not indicate whether the balance in an account is debit
or credit.
This is because each account has a normal balance.
Note that the balance column ledger does not indicate whether the balance in an account is debit
or credit.
This is because each account has a normal balance.
Normal Balances
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Note that the balance column ledger does not indicate whether the balance in an account is debit
or credit.
This is because each account has a normal balance.
Note that the balance column ledger does not indicate whether the balance in an account is debit
or credit.
This is because each account has a normal balance.
RevenuesRevenues ExpensesExpensesOwner’s Capital
Owner’s Capital
Owner’s Withdrawals
Owner’s Withdrawals
_ + _
Continue
Normal Balances
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RevenuesRevenues ExpensesExpensesOwner’s Capital
Owner’s Capital
Owner’s Withdrawals
Owner’s Withdrawals
_ + _
Normal Balances
Note that the balance column ledger does not indicate whether the balance in an account is debit
or credit.
This is because each account has a normal balance.
Note that the balance column ledger does not indicate whether the balance in an account is debit
or credit.
This is because each account has a normal balance.
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1 Identify the account.
Posting Journal EntriesExample
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2 Enter the date.
Posting Journal EntriesExample
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3Enter the amount.
Posting Journal EntriesExample
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4Enter the journal reference.
Posting Journal EntriesExample
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5
Compute the balance.
Posting Journal EntriesExample
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Enter the ledger reference. 6
Posting Journal EntriesExample
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A Trial Balance is a listing of all
accounts and their
balances at a point in
time.
A Trial Balance is a listing of all
accounts and their
balances at a point in
time.
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Generally, dollar signs ($) are not used in the journals
or ledgers.
Generally, dollar signs ($) are not used in the journals
or ledgers.
RoundingRoundingRound numbers in financial
statements to the nearest dollar.
Round numbers in financial statements to the nearest
dollar.
ACCOUNT NAME: ACCOUNT No.
Date Description PR Debit Credit Balance
Formatting Conventions
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Describes the relationship between the amounts of the company’s liabilities and assets.
Helps to assess the risk that a company will fail to pay its debts.
Using the Information - Debt Ratio
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End of Chapter 3
Now, was that debits to the left or credits
to the left?I sure wish I had paid
more attention in class!