analyzing and recording transactionsanalyzing transactions assets = + equity cash common stock...

Analyzing and RecordingTransactions

Analyzing and RecordingTransactions

Pr. SAMLAL Zoubida

Procedural Learning Objectives

P1: Record transactions in a journal andpost entries to a ledger (T account).

P2: Prepare and explain the use of a trialbalance.

P3: Prepare financial statements frombusiness transactions.

P1: Record transactions in a journal andpost entries to a ledger (T account).

P2: Prepare and explain the use of a trialbalance.

P3: Prepare financial statements frombusiness transactions.

2-2

Analyzing and Recording Process

Exchanges of economic considerationbetween two parties.

C 1

External Transactionsoccur between the

organization and anoutside party.

Internal Transactionsoccur within the

organization.

2-3


Accounting process:-Identifies business transactions and events,-Analyzes and records their effects, and-Summarizes and presents information in reportsand financial statements.

Steps in accounts process that focus onanalyzing and recording transactions and events are:(1)Record relevant transactions and events in a journal,(2) Post journal information to ledger accounts, and(3) Prepare a trial balance.

Accounting records are informally referred as theaccounting books, or simply the books.

Accounting process:-Identifies business transactions and events,-Analyzes and records their effects, and-Summarizes and presents information in reportsand financial statements.

Steps in accounts process that focus onanalyzing and recording transactions and events are:(1)Record relevant transactions and events in a journal,(2) Post journal information to ledger accounts, and(3) Prepare a trial balance.

Accounting records are informally referred as theaccounting books, or simply the books.

Analyze each transaction andevent from source documents


Record relevant transactionsand events in a journal

C 1

Analyze each transaction andevent from source documents

Record relevant transactionsand events in a journal

Post journalinformation to

ledger (T)accountsPrepare and analyze

the trial balance2-5

BankStatements

PurchaseOrders

Checks

Source Documents

Bills fromSuppliers

EmployeeEarningsRecords

C 2

SalesTickets

BankStatements

EmployeeEarningsRecords

2-6

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.



the company.

C 3









the company.



the company.

2-7

AssetsAccounts

AssetsAccountsAssets

AccountsAssets

AccountsAsset

AccountsAsset

Accounts =


+LiabilityAccountsLiability

AccountsLiability

AccountsLiability

AccountsLiability

AccountsLiability

AccountsEquity

AccountsEquity

AccountsEquity

AccountsEquity

AccountsEquity

AccountsEquity

Accounts

C 3

2-8

LandLandCashCash

AccountsReceivableAccounts

Receivable

AssetAccounts

AssetAccounts

Asset AccountsC 3

EquipmentEquipment

BuildingsBuildings NotesReceivable

NotesReceivable

SuppliesSupplies

PrepaidAccountsPrepaid

Accounts

AssetAccounts

AssetAccounts

2-9

NotesPayableNotes

PayableAccountsPayable

AccountsPayable

LiabilityAccountsLiability

Accounts

Liability AccountsC 3

AccruedLiabilitiesAccrued

Liabilities

UnearnedRevenueUnearnedRevenue

LiabilityAccountsLiability

Accounts

2-10

DividendsPayable

DividendsPayable

EquityAccounts

EquityAccounts

CommonStock

CommonStock

DividendsDeclaredDividendsDeclared

Equity AccountsC 3

RetainedEarningsRetainedEarnings

EquityAccounts

EquityAccounts

RevenuesRevenues

DividendsDeclared

ExpensesExpenses

2-11

LiabilitiesLiabilities EquityEquityAssetsAssets = +


+ +– –

C 3

CommonStock

CommonStock DividendsDividends RevenuesRevenues ExpensesExpenses

+ +– –

2-12

Ledger and Chart of Accounts

The ledger is a collection of all accounts for aninformation system.A company’s size and diversity of operations affectthe number of accounts needed.


C 4


The chart of accounts is a list of all accounts andincludes an identifying number for each account.The chart of accounts is a list of all accounts andincludes an identifying number for each account.

101 Cash 319 Dividends106 Accounts receivable 403 Consulting Revenues126 Supplies 406 Rental revenue128 Prepaid insurance 622 Salaries expense167 Equipment 637 Insurance expense201 Accounts payable 640 Rent expense236 Unearned revenue 652 Supplies expense307 Common stock 690 Utilities expense318 Retained Earnings 2-13

A T-account represents a ledger accountand is a tool used to understand theeffects of one or more transactions.

Debits and Credits

(Left side) (Right side)Debit Credit

T- Account

C 5


T- Account

2-14

Double-Entry Accounting

NORMAL Balance

ASSETS = LIABILITIES + EQUITYDR = CR CR

Assets are on the left side of the equation;therefore, the left, or debit side is the normalbalance side for assets.

Liabilities and equities are on the right side;therefore, the right, or credit side is the normalbalance side for liabilities and equity.

ASSETS = LIABILITIES + EQUITYDR = CR CR

Assets are on the left side of the equation;therefore, the left, or debit side is the normalbalance side for assets.

Liabilities and equities are on the right side;therefore, the right, or credit side is the normalbalance side for liabilities and equity.

Double-Entry Accounting

Total amount that is debited to accountsmust equal the total amount credited toaccounts for each transaction.

Sum of debit account balances in theledger must equal the sum of creditaccount balances.

ASSETS = LIABILITIES + EQUITY||

ASSETS = LIABILITIES + Common Stock – DIV + REV - EXP

Total amount that is debited to accountsmust equal the total amount credited toaccounts for each transaction.

Sum of debit account balances in theledger must equal the sum of creditaccount balances.


Double-Entry AccountingNORMAL Balance

ASSETS LIABILITIES EQUITIES

C 5

Debit Credit Debit Credit Debit Credit+ -+ - - +- + - +- +

2-17

Whether a debit or a credit is an increase or decreasedepends on the NORMAL Balance of the account.

RevenuesRevenues ExpensesExpensesCommon

StockCommon

StockDividendsDividends__ ++ __

EquityEquity

C 5 Double-Entry AccountingNORMAL Balance

Revenues ExpensesCommon

StockDividends ++

Debit Credit

Stock

- +- +Debit Credit

Dividends

+ -+ - Debit Credit

Expenses

+ -+ -Debit Credit

Revenues

- +- +

2-18

An account balance is the difference between theincreases and decreases in an account.

Notice the T-Account

C 5

Double-Entry AccountingNORMAL Balance

Investment by owner for stock 30,000 Purchase of supplies 2,500Consulting services revenues earned 4,200 Purchase of equipment 26,000Collection of accounts receivable 1,900 Payment of rent 1,000

Payment of salary 700Payment of accounts payable 900Payment of cash dividend 200

Total increases 36,100 Total decreases 31,300Balance 4,800

Cash

2-19

Journalizing & Posting Transactions

Step 1: Analyze transactionsand source documents.


Step 2: Apply double-entry accounting


T- Account

P1

Step 1: Analyze transactionsand source documents.

Step 2: Apply double-entry accounting

ACCOUNT NAME: ACCOUNT No.

Date Description PR Debit Credit Balance

Step 4: Post entry to ledger

GENERAL JOURNAL Page 123

Date DescriptionPost.Ref. Debit Credit

Step 3: Record journal entry2-20

GENERAL JOURNAL Page 1Date Account Titles and Explanations PR Debit Credit2009Dec. 1 Cash 30,000

Common stock 30,000 Investment by shareholders

Dec. 2 Supplies 2,500Cash 2,500

Purchased supplies for cash

Journalizing Transactions

TransactionDate

TransactionDate

Titles of AffectedAccounts

Titles of AffectedAccounts

P1

GENERAL JOURNAL Page 1Date Account Titles and Explanations PR Debit Credit2009Dec. 1 Cash 30,000



Purchased supplies for cash

Dollar amount of debitsand credits

Dollar amount of debitsand credits

TransactionexplanationTransactionexplanation

2-21

T-accounts are useful illustrations, butbalance column accounts are used inpractice.

Balance Column AccountP1

CASH ACCOUNT No. 101

Date Explanation PR Debit Credit Balance2009

Dec. 1 Initial investment 30,000 30,000Dec. 2 Purchased supplies 2,500 27,500Dec. 3 Purchased equipment 26,000 1,500Dec. 10 Collection from customer 4,200 5,700

2-22

GENERAL JOURNAL Page 1Date Account Titles and Explanation PR Debit Credit2009Dec. 1 Cash 30,000



Purchased store suppliesfor cash

Posting Journal EntriesP1







Dec. 3 Purchased equipment G1 20,000.00 ########Dec. 10 Collection from customer G1 2,200.00 ########

11 Identify the debit account in ledger.

2-23









Purchased store suppliesfor cashCASH ACCOUNT No. 101


Dec. 1

Dec. 3 Purchased equipment G1 20,000.00 ########Dec. 10 Collection from customer G1 2,200.00 ########

22 Enter the date.

2-24

GENERAL JOURNAL Page 1Date Account Titles & Elxplanations PR Debit Credit2009Dec. 1 Cash 30,000










Dec. 1 30,000

Dec. 3 Purchased equipment G1 20,000 (20,000)Dec. 10 Collection from customer G1 2,200 (17,800)

33 Enter the amount and description.

2-25











Dec. 1 G1 30,000


44 Enter the journal reference.

2-26








Dec. 1 G1 30,000 30,000


55 Compute the balance.





2-27

GENERAL JOURNAL Page 1Date Account Titles and Explanation PR Debit Credit2009Dec. 1 Cash 101 30,000





GENERAL JOURNAL Page 1Date Account Titles and Explanation PR Debit Credit2009Dec. 1 Cash 101 30,000





Dec. 1 G1 30,000 30,000


Enter the ledger reference.66

2-28

Transaction:1Shareholders invested $30,000 in FastForward onDec. 1.

Analyzing Transactions

Assets = + EquityCash Common

Stock30,000 30,000

LiabilitiesAnalysis:

A1

Assets = + EquityCash Common

Stock30,000 30,000

Liabilities

(1) Cash 101 30,000Common stock 301 30,000

Double entry:

(1) 30,000Cash 101

(1) 30,000Common Stock 301

Posting:

2-29


Transaction:2FastForward purchases supplies by paying $2,500cash.

Assets = + EquityCash Supplies Common

Stock(2,500) 2,500

LiabilitiesAnalysis:

A1

Assets = + EquityCash Supplies Common

Stock(2,500) 2,500

Liabilities

(2) Supplies 126 2,500Cash 101 2,500

Double entry:

(2) 2,500Supplies 126

(1) 30,000 (2) 2,500Cash 101

Posting:

2-30

Transaction:3FastForward purchases equipment by paying $26,000cash.


Assets = + EquityCash Equipment Common

Stock(26,000) 26,000

Liabilities

A1

Analysis:Assets = + Equity

Cash Equipment CommonStock

(26,000) 26,000

Liabilities

(3) Equipment 167 26,000Cash 101 26,000

Double entry:

(1) 30,000 (2) 2,500(3) 26,000

Cash(3) 26,000

Equipment 167 101

Posting:

2-31

Transaction:4 FastForward purchases $7,100 of supplies on credit.


Assets = + EquitySupplies Accounts Payable Common

Stock7,100 7,100

Liabilities

Analysis:

A1

Assets = + EquitySupplies Accounts Payable Common

Stock7,100 7,100

Liabilities

(4) Supplies 126 7,100Accounts payable 201 7,100

Double entry:

2,500(4) 7,100

Supplies 126(4) 7,100

Accounts Payable 201

Posting:

2-32


Transaction:5FastForward provides consulting services andimmediately collects $4,200 cash.

Assets = + EquityCash Revenue

4,200 4,200

Liabilities

Analysis:

A1

Assets = + EquityCash Revenue

4,200 4,200

Liabilities

(5) Cash 101 4,200Consulting Revenue 403 4,200

Double entry:

(1) 30,000 (2) 2,500(5) 4,200 (3) 26,000

Cash(5) 4,200

Consulting Revenue 403 101

Posting:


Transaction: 6 FastForward pays $1,000 cash for December rent.

Assets = + EquityCash (Expense)

(1,000) (1,000)

Liabilities

Analysis:

A1

Assets = + EquityCash (Expense)

(1,000) (1,000)

Liabilities

(6) Rent Expense 640 1,000Cash 101 1,000

Double entry:

(1) 30,000 (2) 2,500 (5) 4,200 (3) 26,000

(6) 1,000

Cash(6) 1,000

Rent Expense 640 101

Posting:


Transactions 7: Payment of Salaries expenses in cashAnalysis: - Assets (Cash) = – Equity (Expenses)Double entry: Debit Salaries Expenses and credit Cash

Transaction 8: Provide services and rents test facilities for creditAnalysis: + Assets (Accts Receivable) = + Equity (Revenues)Double entry: Debit Accounts Receivable and Credit ConsultingRevenue and Credit Rental Revenue

Transaction 9: Receipt of cash from accounts receivableAnalysis: + Assets (Cash) = – Assets (Accounts Receivable)Double entry: Debit Cash and credit Accounts Receivable

Transactions 7: Payment of Salaries expenses in cashAnalysis: - Assets (Cash) = – Equity (Expenses)Double entry: Debit Salaries Expenses and credit Cash

Transaction 8: Provide services and rents test facilities for creditAnalysis: + Assets (Accts Receivable) = + Equity (Revenues)Double entry: Debit Accounts Receivable and Credit ConsultingRevenue and Credit Rental Revenue

Transaction 9: Receipt of cash from accounts receivableAnalysis: + Assets (Cash) = – Assets (Accounts Receivable)Double entry: Debit Cash and credit Accounts Receivable


Transaction 10: Payment of accounts payableAnalysis: – Assets (Cash) = – Liability (Accounts Payable)Double entry: Debit Accounts Payable and credit Cash

Transaction 11: Payment of cash dividendAnalysis: – Assets (Cash) = – Equity (Dividends)Double entry: Debit Dividends and credit Cash

Transaction 12: Receipts of cash from a customer for futureconsulting servicesAnalysis: + Assets (Cash) = + Liabilities (Unearned Revenue)Double entry: Debit Cash and credit Unearned Consulting Revenue

Transaction 10: Payment of accounts payableAnalysis: – Assets (Cash) = – Liability (Accounts Payable)Double entry: Debit Accounts Payable and credit Cash

Transaction 11: Payment of cash dividendAnalysis: – Assets (Cash) = – Equity (Dividends)Double entry: Debit Dividends and credit Cash

Transaction 12: Receipts of cash from a customer for futureconsulting servicesAnalysis: + Assets (Cash) = + Liabilities (Unearned Revenue)Double entry: Debit Cash and credit Unearned Consulting Revenue


Transaction 13: Pay cash for future insurance coverageAnalysis: – Assets (Cash) = + Assets (Prepaid Insurance)Double entry: Debit Prepaid Insurance and credit Cash

Transaction 14: Purchase supplies for cashAnalysis: - Assets (Cash) = + Assets (Supplies)Double entry: Debit Supplies and credit Cash

Transactions 15: Payment of utilities expenses in cashAnalysis: – Assets (Cash) = – Equity (Expenses)Double entry: Debit Utilities Expense and credit Cash

Transactions 16: Payment of salaries expenses in cashAnalysis: – Assets (Cash) = – Equity (Expenses)Double entry: Debit Salaries Expense and credit Cash

Transaction 13: Pay cash for future insurance coverageAnalysis: – Assets (Cash) = + Assets (Prepaid Insurance)Double entry: Debit Prepaid Insurance and credit Cash

Transaction 14: Purchase supplies for cashAnalysis: - Assets (Cash) = + Assets (Supplies)Double entry: Debit Supplies and credit Cash

Transactions 15: Payment of utilities expenses in cashAnalysis: – Assets (Cash) = – Equity (Expenses)Double entry: Debit Utilities Expense and credit Cash

Transactions 16: Payment of salaries expenses in cashAnalysis: – Assets (Cash) = – Equity (Expenses)Double entry: Debit Salaries Expense and credit Cash

After processing its remaining transactions for December,FastForward’s Trial Balance is prepared.

After processing its remaining transactions for December,FastForward’s Trial Balance is prepared.

Debits CreditsCash 4,350$Accounts receivable -Supplies 9,720

FastForwardTrial Balance

December 31, 2009 The trial balance listsall account balancesin the general ledger.

If the books are inbalance, the total

debits will equal thetotal credits.

The trial balance listsall account balancesin the general ledger.



A1

Supplies 9,720Prepaid Insurance 2,400Equipment 26,000Accounts payable 6,200$Unearned consulting revenue 3,000Common stock 30,000Dividends 200Consulting revenue 5,800Rental revenue 300Salaries expense 1,400Rent expense 1,000Utilities expense 230Total 45,300$ 45,300$







Six Steps for Searching for andCorrecting Errors

If the trial balance does not balance, theerror(s) must be found and corrected.

Make sure the trial balancecolumns are correctly added.Make sure the trial balancecolumns are correctly added.

Recompute each accountbalance in the ledger.Recompute each accountbalance in the ledger.

P2

Make sure accountbalances are correctlyentered from the ledger.

Make sure accountbalances are correctlyentered from the ledger.

See if debit or creditaccounts are mistakenlyplaced on the trial balance.

See if debit or creditaccounts are mistakenlyplaced on the trial balance.

Verify that each journalentry is posted correctly.Verify that each journalentry is posted correctly.

Verify that each originaljournal entry has equaldebits and credits.

Verify that each originaljournal entry has equaldebits and credits.

Using a Trial Balance to Prepare FinancialStatements

Statement of CashFlows

Income StatementStatement of Retained Earnings

BeginningBalanceSheet

EndingBalanceSheet

Period of TimePoint in

TimePoint in

Time

P3

Statement of CashFlowsBeginning

BalanceSheet

EndingBalanceSheet

Income Statement

Revenues: Consulting revenue 5,800$ Rental revenue 300 Total revenues 6,100$Expenses: Salaries expense 1,400 Rent Expense 1,000 Utilities Expense 230 Total expenses 2,630Net income 3,470$

FASTFORWARDIncome Statement

For the Month Ended December 31, 2009

P3

Revenues: Consulting revenue 5,800$ Rental revenue 300 Total revenues 6,100$Expenses: Salaries expense 1,400 Rent Expense 1,000 Utilities Expense 230 Total expenses 2,630Net income 3,470$



Statement of Retained Earnings

Balance, 12/1/09 -$ Net income for December 3,470

3,470 Less: Dividends (200)Balance, 12/31/09 3,270$

FASTFORWARDStatement of Retained Earnings


P3


3,470 Less: Dividends (200)Balance, 12/31/09 3,270$



Revenues: Consulting revenue 5,800$ Rental revenue 300 Total revenues 6,100$Expenses: Rent expense 1,000 Salaries expense 1,400 Utilities expense 230 Total expenses 2,630Net income 3,470$



Balance Sheet

AssetsCash 4,350$Supplies 9,720Prepaid insurance 2,400Equipment 26,000Total assets 42,470$

LiabilitiesAccounts payable 6,200$Unearned revenue 3,000Total liabilities 9,200

EquityCommon stock 30,000Retained earnings 3,270Total equity 33,270Total liabilities and equity 42,470$

FASTFORWARDBalance Sheet

December 31, 2009


3,470 Less: Dividends 200Balance, 12/31/09 3,270$



P3

AssetsCash 4,350$Supplies 9,720Prepaid insurance 2,400Equipment 26,000Total assets 42,470$

LiabilitiesAccounts payable 6,200$Unearned revenue 3,000Total liabilities 9,200

EquityCommon stock 30,000Retained earnings 3,270Total equity 33,270Total liabilities and equity 42,470$

FASTFORWARDBalance Sheet

December 31, 2009


3,470 Less: Dividends 200Balance, 12/31/09 3,270$

