analyzing transactions acg 2021 chapter 2. steps in the accounting process analyze transactions from...
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Analyzing Transactions
ACG 2021
Chapter 2
Steps in the Accounting Process
AnalyzeTransactions from source documents
Record relevant transactions in journal
Post journal info to general ledger
Prepare trial balance
Usefulness of an Account
• Account – shows increases and decreases in financial transactions
• Ledger – a group of accounts
• Chart of Accounts– List of accounts
Chart of Account Example• American Company• Chart of Accounts
• Assets• Cash
• Accounts receivable• Prepaid insurance
• Supplies • Equipment
• Liabilities• Accounts payable
• Notes payable
• Stockholder’s equity• Capital stock
• Retained earnings• Dividends
• Revenue• Fees Earned
• Expenses• Rent expense
• Salaries expense
Definition of Accounts
Account Definition
Cash Funds in the bank
Accounts receivable Amounts due from customers for services rendered
Prepaid expenses Represents a prepayment of a future expense
Accounts payable Amounts due to our suppliers. Usually with payment due in 30 days
Retained earnings Earnings from prior periods which have been kept in the business
Dividends Distribution of income to shareholders
Common Stock Shareholders investment in the business
Fees earned Revenues earned from the operation of the business
Characteristics of an Account
• Each account has a title which is the name of the item recorded in the account
• Each account has a space for recording increases in the amount of the item
• Each account has a space for recording the decreases in the amount of the item
T- Account
Debit CreditDR CR
Journal
• The first book in which a transactions is recorded.
• Chronological order
• Debit before credit
• Indent credit information
• Each entry debit = credit
Account
DebitIncrease
CreditDecrease
Assets Liabilities
DebitDecrease
CreditIncrease
Equity and revenues act like liabilitiesExpenses act like assets
Memorize
Mar 1: American Co received cash for company’s capital stock $20,000
Date Account PR
Debit Credit
Mar 1 Cash $20,000
Capital stock $20,000
Mar 5: Paid rent of $500
Date Account PR
Debit Credit
Mar 5 Rent expense 500
Cash 500
Mar 10: Purchased supplies for cash $1,000
Date Account PR
Debit Credit
Mar 10
Supplies 1,000
Cash 1,000
Mar 12: Received cash from customers for services rendered $2,500
Date Account PR
Debit Credit
Mar 12
Cash 2500
Fees earned 2500
Mar 15: Purchased equip on account $5,000
Date Account PR
Debit Credit
Mar 15
Equipment 5000
Accts payable 5000
Mar 20: Billed customers for services rendered $3,000
Date Account PR
Debit Credit
Mar 20
Accounts receivable 3000
Fees earned 3000
Mar 25: Paid amount due on account $400
Date Account PR
Debit Credit
Mar 25
Accounts payable 400
Cash 400
Mar 26: Paid dividends $1,000
Date Account PR
Debit Credit
Mar 26
Dividends 1,000
Cash 1,000
Mar 31: Received cash from customers billed $900
Date Account PR Debit Credit
Mar 31
Cash 900
Accts receivable
900
American CompanyTrial Balance
March 31, 2007
Cash $20,500
Accts rec 2,100
Supplies 1,000
Equip 5,000
Accts pay $ 4,600
Capital stock 20,000
Dividends 1,000
Fees earned 5,500
Rent expense 500
Total 30,100 30,100
Balance Sheet Accounts
Asset accounts……. Increase (+) Decrease (-)
Liability accounts.… Decrease (-) Increase (+)
Stockholders’ equity accounts… Decrease (-) Increase (+)
DEBIT CREDIT
Credit for increases
(+)
Debit for decreases
(–)
Stockholders’ Equity Accounts
Credit for decreases
(–)
Debit for increases
(+)
Asset AccountsCredit for increases
(+)
Debit for decreases
(–)
Liability Accounts
Balance Sheet Accounts2-1
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Debits Credits
Revenue accounts… Decrease (-) Increase (+)
Expense accounts… Increase (+) Decrease (-)
2-1Income Statement Accounts
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Credit for increases
(+)
Debit for decreases
(–)
Revenue AccountsIncome Statement Accounts
Credit for decreases
(–)
Debit for increases
(+)
Expense AccountsLess
2-1
41(Continued)
Equals
Net income (credit > debits) increases stockholders’ equity (retained earnings)
Net income (credit > debits) increases stockholders’ equity (retained earnings)
Net loss (debits > credits) decreases stockholders’ equity (retained earnings)
2-1
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