analyzing and recording transactions pr. samlal zoubida
TRANSCRIPT
Analyzing and Recording Transactions
Pr. SAMLAL Zoubida
Procedural Learning Objectives
P1: Record transactions in a journal and
post entries to a ledger (T account).
P2: Prepare and explain the use of a trial
balance.
P3: Prepare financial statements from business transactions.
2-2
External Transactions occur between the
organization and an outside party.
Internal Transactions occur within the
organization.
Analyzing and Recording Process
Exchanges of economic consideration between two parties.
C 1
2-3
Analyzing and Recording Process
Accounting process: -Identifies business transactions and events, -Analyzes and records their effects, and -Summarizes and presents information in reports and financial statements.
Steps in accounts process that focus on analyzing 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 and event from source documents
Analyzing and Recording Process
Record relevant transactions and events in a journal
Post journal information to
ledger (T) accountsPrepare and analyze
the trial balance
C 1
2-5
Sales Tickets
Bank Statements
Purchase Orders
Checks
Source Documents
Bills from Suppliers
Employee EarningsRecords
C 2
2-6
An account is a record of
increases and decreases in a specific asset, liability, equity,
revenue, or expense item.
An account is a record of
increases and decreases in a specific asset, liability, equity,
revenue, or expense item.
The Account and its Analysis
The general ledger is a record
containing all accounts used by
the company.
The general ledger is a record
containing all accounts used by
the company.
C 3
2-7
AssetsAccountsAssets
AccountsAssets
AccountsAssets
AccountsAsset
AccountsAsset
Accounts =
The Account and its Analysis
+LiabilityAccountsLiability
AccountsLiability
AccountsLiability
AccountsLiability
AccountsLiability
AccountsEquity
AccountsEquity
AccountsEquity
AccountsEquity
AccountsEquity
AccountsEquity
Accounts
C 3
2-8
LandLand
EquipmentEquipment
BuildingsBuildings
CashCash
Notes Receivable
Notes Receivable
SuppliesSupplies
Prepaid AccountsPrepaid
Accounts
Accounts ReceivableAccounts
Receivable
AssetAccounts
AssetAccounts
Asset AccountsC 3
2-9
Accrued LiabilitiesAccrued
Liabilities
Unearned Revenue
Unearned Revenue
Notes PayableNotes
PayableAccounts Payable
Accounts Payable
LiabilityAccountsLiability
Accounts
Liability AccountsC 3
2-10
DividendsPayable
DividendsPayable
EquityAccounts
EquityAccounts
RevenuesRevenues
CommonStock
CommonStock
DividendsDeclared
DividendsDeclared
ExpensesExpenses
Equity AccountsC 3
RetainedEarningsRetainedEarnings
2-11
LiabilitiesLiabilities EquityEquityAssetsAssets = +
The Account and its Analysis
CommonStock
CommonStock Dividends Dividends RevenuesRevenues ExpensesExpenses
+ +– –
C 3
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 affect the number of accounts needed.
The ledger is a collection of all accounts for aninformation system. A company’s size and diversity of operations affect the number of accounts needed.
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 expense
201 Accounts payable 640 Rent expense
236 Unearned revenue 652 Supplies expense307 Common stock 690 Utilities expense318 Retained Earnings
C 4
2-13
A T-account represents a ledger account and is a tool used to understand the effects of one or more transactions.
Debits and Credits
(Left side) (Right side)Debit Credit
T- Account
C 5
2-14
Double-Entry Accounting
NORMAL Balance
ASSETS = LIABILITIES + EQUITY DR = CR CR
Assets are on the left side of the equation; therefore, the left, or debit side is the normal balance side for assets.
Liabilities and equities are on the right side; therefore, the right, or credit side is the normal balance side for liabilities and equity.
Double-Entry Accounting
Total amount that is debited to accounts must equal the total amount credited to accounts for each transaction.
Sum of debit account balances in the ledger must equal the sum of credit account balances.
ASSETS = LIABILITIES + EQUITY ||
ASSETS = LIABILITIES + Common Stock – DIV + REV - EXP
LiabilitiesLiabilities EquityEquityAssetsAssets = +
Double-Entry AccountingNORMAL Balance
Debit Credit Debit Credit Debit Credit
ASSETS
+ - + -
LIABILITIES
- + - +
EQUITIES
- + - +
C 5
2-17
Whether a debit or a credit is an increase or decrease depends on the NORMAL Balance of the account.
RevenuesRevenues ExpensesExpensesCommon
StockCommon
StockDividendsDividends__ ++ __
Debit Credit
Stock
- + - + Debit Credit
Dividends
+ - + - Debit Credit
Expenses
+ - + -Debit Credit
Revenues
- + - +
EquityEquity
C 5
2-18
Double-Entry AccountingNORMAL Balance
An account balance is the difference between the increases and decreases in an account.
Notice the T-Account
C 5
2-19
Double-Entry AccountingNORMAL Balance
Journalizing & Posting Transactions
Step 1: Analyze transactions and source documents.
LiabilitiesLiabilities EquityEquityAssetsAssets = +
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 ledgerStep 3: Record journal entry
P1
2-20
Dollar amount of debits and credits
Dollar amount of debits and credits
Journalizing Transactions
Transaction Date
Transaction Date
Transaction explanation
Transaction explanation
Titles of Affected Accounts
Titles of Affected Accounts
P1
2-21
T-accounts are useful illustrations, but balance column accounts are used in practice.
Balance Column AccountP1
2-22
11 Identify the debit account in ledger.
Posting Journal EntriesP1
2-23
22 Enter the date.
Posting Journal EntriesP1
2-24
33 Enter the amount and description.
Posting Journal EntriesP1
2-25
44 Enter the journal reference.
Posting Journal EntriesP1
2-26
55 Compute the balance.
Posting Journal EntriesP1
2-27
Enter the ledger reference.66
Posting Journal EntriesP1
2-28
Analyzing Transactions
Analysis:
(1) Cash 101 30,000 Common stock 301 30,000
Double entry:
(1) 30,000Cash 101
(1) 30,000Common Stock 301
Posting:
A1
2-29
Analyzing Transactions
Analysis:
(2) Supplies 126 2,500 Cash 101 2,500
Double entry:
(2) 2,500Supplies 126
(1) 30,000 (2) 2,500Cash 101
Posting:
A1
2-30
Analyzing Transactions
(3) Equipment 167 26,000 Cash 101 26,000
Double entry:
(1) 30,000 (2) 2,500(3) 26,000
Cash(3) 26,000
Equipment 167 101
Posting:
A1
Analysis:
2-31
Analyzing Transactions
Analysis:
(4) Supplies 126 7,100 Accounts payable 201 7,100
Double entry:
2,500 (4) 7,100
Supplies 126
(4) 7,100Accounts Payable 201
Posting:
A1
2-32
Analyzing Transactions
Analysis:
(5) Cash 101 4,200 Consulting 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:
A1
Analyzing Transactions
Analysis:
(6) Rent Expense 640 1,000 Cash 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:
A1
Analyzing Transactions
Transactions 7: Payment of Salaries expenses in cash Analysis: - 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 Consulting Revenue and Credit Rental Revenue
Transaction 9: Receipt of cash from accounts receivable Analysis: + Assets (Cash) = – Assets (Accounts Receivable)Double entry: Debit Cash and credit Accounts Receivable
Analyzing Transactions
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 future consulting servicesAnalysis: + Assets (Cash) = + Liabilities (Unearned Revenue)Double entry: Debit Cash and credit Unearned Consulting Revenue
Analyzing Transactions
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 cash Analysis: - 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 Prepaid Insurance 2,400 Equipment 26,000 Accounts payable 6,200$ Unearned consulting revenue 3,000 Common stock 30,000 Dividends 200 Consulting revenue 5,800 Rental revenue 300 Salaries expense 1,400 Rent expense 1,000 Utilities expense 230 Total 45,300$ 45,300$
FastForwardTrial Balance
December 31, 2009 The trial balance lists all account balances in the general ledger.
If the books are in balance, the total
debits will equal the total credits.
The trial balance lists all account balances in the general ledger.
If the books are in balance, the total
debits will equal the total credits.
A1
Six Steps for Searching for and Correcting Errors
If the trial balance does not balance, the error(s) must be found and corrected.
Make sure the trial balance columns are correctly added.Make sure the trial balance columns are correctly added.
Make sure account balances are correctly entered from the ledger.
Make sure account balances are correctly entered from the ledger.
See if debit or credit accounts are mistakenly placed on the trial balance.
See if debit or credit accounts are mistakenly placed on the trial balance.
Recompute each account balance in the ledger.Recompute each account balance in the ledger.
Verify that each journal entry is posted correctly.Verify that each journal entry is posted correctly.
Verify that each original journal entry has equal debits and credits.
Verify that each original journal entry has equal debits and credits.
P2
Using a Trial Balance to Prepare Financial Statements
Statement of Cash Flows
Income StatementStatement of Retained Earnings
Beginning Balance Sheet
Ending Balance Sheet
Period of TimePoint inTime
Point inTime
P3
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 2,630 Net income 3,470$
FASTFORWARDIncome Statement
For the Month Ended December 31, 2009
P3
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
For the Month Ended December 31, 2009
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 2,630 Net income 3,470$
FASTFORWARDIncome Statement
For the Month Ended December 31, 2009
P3
Balance Sheet
AssetsCash 4,350$ Supplies 9,720 Prepaid insurance 2,400 Equipment 26,000 Total assets 42,470$
LiabilitiesAccounts payable 6,200$ Unearned revenue 3,000 Total liabilities 9,200
EquityCommon stock 30,000 Retained earnings 3,270 Total equity 33,270 Total liabilities and equity 42,470$
FASTFORWARDBalance Sheet
December 31, 2009
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
For the Month Ended December 31, 2009
P3