chapter 2: the accounting process
TRANSCRIPT
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CHAPTER 2CHAPTER 2
Recording Business Recording Business TransactionsTransactions
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InvertedPyramid
The Body of The Body of Accounting KnowledgeAccounting Knowledge
Chapter 1
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Tools of The Recording ProcessTools of The Recording Process Debits and Credits
Journal Entries
Ledger Accounts
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The The Accounting Accounting
CycleCycle
First, however, let’s look at...First, however, let’s look at...
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Analyze source
documents.
Journalize transactions in the general
journal.
Post entries to the accounts in the general
ledger.
Prepare financial statements.
Prepare a trial balance.
Steps in The Accounting CycleSteps in The Accounting Cycle
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Let’s start withLet’s start withThe General Ledger AccountThe General Ledger Account
A ledger account is a tool used for classifying and summarizing information about increases, decreases, and balances of financial statements items. Think of it as a storage
container like a bucket. Dollars, which are used to measure
economic transactions, are “poured” into and out of the container.
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General Ledger General Ledger Was not a Civil War HeroWas not a Civil War Hero
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Two General Ledger Account Two General Ledger Account FormatsFormats
Three-Amount Column Format (Debit, Credit, Balance) Used in general ledgers in the business
world T-Account Format
Used primarily for teaching and analysis of complex transactions
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General Ledger AccountGeneral Ledger AccountThree-Amount Column FormatThree-Amount Column Format
ACCOUNT NAME: ACCOUNT No.
Date Description PR Debit Credit Balance 1 2 3
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For the sake of simplicity, we often use this
format in teaching accounting even though it is no longer used in
practice.
Debit Credit
Account Name
General Ledger AccountGeneral Ledger AccountT-Account FormatT-Account Format
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The T-AccountThe T-Account
Increases to the T-account are recorded on
one side of the T-account, and decreases are
recorded on the other side.
Debit Credit
Account Name
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The T-AccountThe T-Account
The side which increases and the side which decreases is
determined by the type of account.
Debit Credit
Account Name
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What Are Debits and Credits?What Are Debits and Credits? Tools used for recording transactions
Debit (DR) Credit (CR)
Debit refers to the LEFTLEFT and Credit to the RIGHTRIGHT side of the T-Account.
Debit and Credit are neutral terms and do not connote value judgments. Neither is “good” or “bad”!
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[Baltimore Sun, September 23,
1998]
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Tools used for recording transactions Debit (DR) Credit (CR)
Debit refers to the LEFTLEFT and Credit to the RIGHTRIGHT side of the T-Account
Account Name
LEFT RIGHT
What Are Debits and Credits?What Are Debits and Credits?
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Tools used for recording transactions Debit (DR) Credit (CR)
Debit refers to the LEFTLEFT and Credit to the RIGHTRIGHT side of the T-Account
Account Name
LEFT RIGHT
DEBIT SIDE
CREDIT SIDE
Used as Adjectives:
What Are Debits and Credits?What Are Debits and Credits?
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Tools used for recording transactions Debit (DR) Credit (CR)
Debit refers to the LEFTLEFT and Credit to the RIGHTRIGHT side of the T-Account
Account Name
LEFT RIGHT
DEBIT CREDITUsed as Verbs:
Synonym for Debit?
What Are Debits and Credits?What Are Debits and Credits?
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Common Business Terminology Common Business Terminology
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Names of Ledger AccountsNames of Ledger Accounts There are no “magic” names for many
accounts e.g., either “Heat, Light & Power” or
“Utilities Expense” could be used for an account name.
Other accounts have names which must be used e.g., “Cash”, “Accounts Receivable” and
“Accounts Payable”.
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Let’s see how debits and
credits affect the different
types of accounts.
Debit Credit
Account Name
Types of Ledger AccountsTypes of Ledger Accounts
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Assets
Liabilities
Stockholders’ Equity
Revenues
Expenses
Types of Ledger AccountsTypes of Ledger Accounts
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Again, debits and credits are used to increase or decrease account balances.
Determining whether to use a debit or credit to record an increase or decrease depends on the type of account in question.
The Balance Sheet equation is the basis for the determination.
Using Debits and CreditsUsing Debits and Credits
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Balance Sheet ModelBalance Sheet Model((Revisited)Revisited)
A = L + SE
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Account Name
Debit Credit
Account Name
Debit Credit
Assign a T-Account to each element of the Balance Sheet Model
A = L + SEAccount Name
Debit Credit
Balance Sheet ModelBalance Sheet Model((Revisited)Revisited)
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Account Name
Debit Credit
Account Name
Debit Credit
Debits and credits affect the Balance Sheet Model as follows:
A = L + SEAccount Name
Debit Credit
Balance Sheet ModelBalance Sheet Model((Revisited)Revisited)
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Account Name
AA = L + SEAccount Name
Debit Credit Debit Credit
Debits and credits affect the Balance Sheet Model as follows:
ASSETSASSETS
Debit for
Increase
Credit for
Decrease
Balance Sheet ModelBalance Sheet Model((Revisited)Revisited)
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AA = LL + SEAccount Name
Debit Credit
Debits and credits affect the Balance Sheet Model as follows:
LIABILITIESLIABILITIES
Debit for
Decrease
Credit for
Increase
ASSETSASSETS
Debit for
Increase
Credit for
Decrease
Balance Sheet ModelBalance Sheet Model((Revisited)Revisited)
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AA = LL + SESEDebits and credits affect the Balance Sheet
Model as follows:
ASSETSASSETS
Debit for
Increase
Credit for
Decrease
EQUITIESEQUITIES
Debit for
Decrease
Credit for
Increase
LIABILITIESLIABILITIES
Debit for
Decrease
Credit for
Increase
Balance Sheet ModelBalance Sheet Model((Revisited)Revisited)
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Recall that Stockholders’ Equity consists of the following components:
+ Retained EarningsCapital Stock
C/S + R/E
Stockholders’ EquityStockholders’ EquityA Closer LookA Closer Look
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Therefore, the Capital Stock and Retained Earnings accounts are affected in the
following manner by debits and credits because they are part of Stockholders’
Equity:
CAPITAL STOCKCAPITAL STOCK
Debit for
Decrease
Credit for
Increase
RET. EARNINGSRET. EARNINGS
Debit for
Decrease
Credit for
Increase
Stockholders’ EquityStockholders’ EquityA Closer LookA Closer Look
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Also, because RevenueRevenue accounts increase Stockholders’ Equity, they are affected by
debits and credits as follows:
REVENUESREVENUES
Debit for
Decrease
Credit for
Increase
Stockholders’ EquityStockholders’ EquityA Closer LookA Closer Look
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And because ExpenseExpense accounts decrease Stockholders’ Equity, they are affected by
debits and credits as follows:
EXPENSESEXPENSES
Debit for
Increase
Credit for
Decrease
Stockholders’ EquityStockholders’ EquityA Closer LookA Closer Look
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Normal BalancesNormal Balances
Each of the 5 account types also has a normalnormal balancebalance side. It is always the
side which is used to record increases in the account.
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Normal BalancesNormal BalancesThe normal balances for each of the FIVEFIVE
types of accounts are as follows:
Account NameDebit Balance Credit Balance AssetsAssets ExpensesExpenses
LiabilitiesLiabilities Stockholders’ Stockholders’ EquityEquity RevenuesRevenues
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Three Alternative ApproachesThree Alternative ApproachesFor Learning Debits and CreditsFor Learning Debits and Credits
Alternative #1 The textbook approach on p. 59
Alternative #2 Expanded Accounting Equation This is Rice’s preferred approach
Alternative #3 “A L O R E” acronym
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Alternative Approach #1Alternative Approach #1Textbook ApproachTextbook Approach
59Check it out at top of page!
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Alternative Approach #2Alternative Approach #2Expanded Accounting EquationExpanded Accounting Equation
ASSETS + EXP. = LIAB. + S/H EQUITY + REV.
A + E = L + S/E + R Dr. Cr.
+ -Bal.
Dr. Cr.
+-Bal.
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Alternative Approach #3Alternative Approach #3““A L O R E” AcronymA L O R E” Acronym
A (ssets)A (ssets)L (iabilities)L (iabilities)O (wners' equity)O (wners' equity)R (evenues)R (evenues)E (xpenses)E (xpenses)
Debit Credit
+ -- +- +- ++ -
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Debits and CreditsDebits and CreditsQuestion 1Question 1
Which of the following accounts would normally be expected to have a debit
(or left-side) balance?
a. Accounts Payableb. Buildingsc. Interest Revenued. Capital Stock
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Debits and Credits Debits and Credits Solution 1Solution 1
Which of the following accounts would normally be expected to have a debit
(or left-side) balance?
a. Accounts Payableb. Buildingsc. Interest Revenued. Capital Stock
BUILDINGS is an asset account and normally has a DEBIT balance.
The other three accounts normally have CREDIT balances.
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Debits and Credits Debits and Credits Question 2Question 2
Which of the following accounts would normally be expected to have a credit
(or right-side) balance?
a. Accounts Receivableb. Salary Expensec. Salary Payabled. Land
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Debits and Credits Debits and Credits Solution 2Solution 2
Which of the following accounts would normally be expected to have a credit
(or right-side) balance?
a. Accounts Receivableb. Salary Expensec. Salary Payabled. Land
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Which of the following accounts would normally be expected to have a credit
(or right-side) balance?
a. Accounts Receivableb. Salary Expensec. Salary Payabled. Land
SALARY PAYABLE is a liability account and normally has a CREDIT balance.
The other three accounts normally have DEBIT balances.
Debits and Credits Debits and Credits Solution 2Solution 2
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Debits and Credits Debits and Credits ExampleExample
If the balance in Accounts Receivable (an asset) is $750 (debit side balance),
Accounts ReceivableAccounts Receivable
750
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Debits and Credits Debits and Credits ExampleExample
If the balance in Accounts Receivable (an asset) is $750 (debit side balance),
What would we do to increaseincrease the account by $200?
750
Accounts ReceivableAccounts Receivable
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If the balance in Accounts Receivable (an asset) is $750 (debit side balance),
What would we do to increaseincrease the account by $200?
750 200200
Debits and Credits Debits and Credits ExampleExample
Accounts ReceivableAccounts Receivable
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Debits and Credits Debits and Credits ExampleExample
If the balance in Accounts Receivable (an asset) is $750 (debit side balance),
What would we do to increaseincrease the account by $200?What would we do to decreasedecrease the account by $350?
750 200200
Accounts ReceivableAccounts Receivable
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Debits and Credits Debits and Credits ExampleExample
If the balance in Accounts Receivable (an asset) is $750 (debit side balance),
What would we do to increaseincrease the account by $200?What would we do to decreasedecrease the account by $350?
750 200200
350350
Accounts ReceivableAccounts Receivable
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Debits and Credits Debits and Credits ExampleExample
Note the lack of $. It is understood that the yardstick is dollars.
It is not “money”!
750 200200
350350
Accounts ReceivableAccounts Receivable
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Balancing The T-AccountBalancing The T-AccountTo get the balance of the T-Account . . .
. . . net the totals on the two sides against each other. Place the residual amount on
the appropriate side.
750 200200
350350
Accounts ReceivableAccounts Receivable
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To get the balance of the T-Account . . .
. . . net the totals on the two sides against each other. Place the residual amount on
the appropriate side.
Balancing The T-AccountBalancing The T-Account
750 200200
350350
600
Accounts ReceivableAccounts Receivable
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Balancing The T-AccountBalancing The T-AccountTo get the balance of the T-Account . . .
(Can use the either the approach above to show the balance, the text’s approach or
Rice’s approach)
750 200200
350350
600
Accounts ReceivableAccounts Receivable
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Approach on Previous slide
Using the example at the bottom of p. 57
Three Alternative Approaches to Three Alternative Approaches to Balancing The T-AccountBalancing The T-Account
(1) 10,000(2) 5,000(3) 1,000
13,400
CashCash(4) 600(5) 2,000
Text Approach
(1) 10,000(2) 5,000(3) 1,000 16,000
13,400
CashCash(4) 600(5) 2,000
2,600
bal
(1) 10,000(2) 5,000(3) 1,000
13,400
CashCash(4) 600(5) 2,000
Rice’s Approach
ALL 3 are O.K.!
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Debits and CreditsDebits and CreditsQuestion 3Question 3
The Cash account has three entries: a debit for $1,200, a credit for $300, and another credit for $400. What is the
balance in the Cash account?
a. $ 1,900 Debit.b. $ 500 Credit.c. $ 700 Credit.d. $ 500 Debit.
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The Cash account has three entries: a debit for $1,200, a credit for $300, and another credit for $400. What is the
balance in the Cash account?
a. $ 1,900 Debit.b. $ 500 Credit.c. $ 700 Credit.d. $ 500 Debit.
Debits and CreditsDebits and CreditsQuestion 3Question 3
$1,200$ 400$ 400
$ 500
Cash
$ 300$ 300
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Implications Of Debits And CreditsImplications Of Debits And CreditsDebits and Credits are used to indicate that something happened to an account.
Interpreting the implications requires an analysis of the entire journal entry.
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ImplicationsImplicationsQuestionQuestion 1 1
If the company made a Credit entry to Notes Payable, would the account
increase or decrease?
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ImplicationsImplicationsQuestionQuestion 1 1
If the company made a Credit entry to Notes Payable, would the account
increase or decrease?
ANSWER:Notes Payable would increase.
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ImplicationsImplicationsQuestionQuestion 2 2
Notes Payable is the account where we record long-term borrowings. What event would cause us to record an
increase in our long-term borrowings?
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ImplicationsImplicationsQuestionQuestion 2 2
Notes Payable is the account where we record long-term borrowings. What event would cause us to record an
increase in our long-term borrowings?
ANSWER:Such an increase could imply that the
company borrowed money.
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ImplicationsImplicationsQuestionQuestion 3 3
If the company borrowed money, which account would also be affected and in
what way?
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ImplicationsImplicationsQuestionQuestion 3 3
If the company borrowed money, which account would also be affected and in
what way?
ANSWER:There would also be an equal-sized
increase in the Cash account.
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ImplicationsImplicationsQuestionQuestion 4 4
Suppose instead of an increase to Cash, you find an increase to the Land
account. How do you interpret the increase in Notes Payable?
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ImplicationsImplicationsQuestionQuestion 4 4
Suppose instead of an increase to Cash, you find an increase to the Land
account. How do you interpret the increase in Notes Payable?
ANSWER:The company acquired land and gave a note that promised to pay for the land
in the future.
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Recording TransactionsRecording Transactions Initially, all transactions are recorded in
the General General JournalJournal.
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Recording TransactionsRecording Transactions
Each transaction always affects at least two different accounts. One account has a debit effect. The second account has a credit effect.
This methodology was named “double entry” accounting by whom?
Pacioli
Initially, all transactions are recorded in the General General JournalJournal.
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General Journal PageGeneral Journal PageGENERAL JOURNAL
Page:
Date Description PR Debit Credit
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Journal EntriesJournal EntriesExample 1Example 1
On January 1, 19X7, Caldwell Company borrows $10,000 from the bank.
Prepare the appropriate general journal entry for the above transaction.
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Journal Entries Journal Entries Solution 1Solution 1
Two accounts are affected: Cash is increased by $10,000. Notes Payable is increased by $10,000.
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Journal Entries Journal Entries Solution 1Solution 1
Two accounts are affected: Cash is increased by $10,000. Notes Payable is increased by $10,000.
GENERAL JOURNALPage: 1
Date Description PR Debit Credit
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Journal Entries Journal Entries Solution 1Solution 1
Two accounts are affected: Cash is increased by $10,000. Notes Payable is increased by $10,000.
GENERAL JOURNALPage: 1
Date Description PR Debit Credit1-Jan Cash 100 10,000
Notes Payable 201 10,000to record loan from bank
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Journal Entries Journal Entries Solution 1Solution 1
Two accounts are affected: Cash is increased by $10,000. Notes Payable is increased by $10,000.
GENERAL JOURNALPage: 1
Date Description PR Debit Credit1-Jan Cash 100 10,000
Notes Payable 201 10,000to record loan from bank
Typically, accounts are numbered. The
account numbers are used as references for posting to the General
Ledger. More on account numbers will
come later.
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Journal Entries Journal Entries Example 2Example 2
On January 15, 19X7, Caldwell Company purchases a truck for
$19,500 cash.
Prepare the appropriate journal entry for the above transaction.
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Journal Entries Journal Entries Solution 2Solution 2
Two accounts are affected: Trucks is increased by $19,500. Cash is decreased by $19,500.
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Journal Entries Journal Entries Solution 2Solution 2
Two accounts are affected: Trucks is increased by $19,500. Cash is decreased by $19,500.
GENERAL JOURNALPage: 1
Date Description PR Debit Credit
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Journal Entries Journal Entries Solution 2Solution 2
Two accounts are affected: Trucks is increased by $19,500. Cash is decreased by $19,500.
GENERAL JOURNALPage: 1
Date Description PR Debit Credit15-JanTrucks 150 19,500
Cash 100 19,500to record purchase of truck
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Journal Entries Journal Entries Example 3Example 3
On January 20, 19X7, Caldwell Co. pays the $400 electric bill for January.
Prepare the appropriate journal entry for the above transaction.
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Journal Entries Journal Entries Solution 3Solution 3
Two accounts are affected: Utility Expense is increased by $400. Cash is decreased by $400.
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Journal Entries Journal Entries Solution 3Solution 3
Two accounts are affected: Utility Expense is increased by $400. Cash is decreased by $400.
GENERAL JOURNALPage: 1
Date Description PR Debit Credit
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Journal Entries Journal Entries Solution 3Solution 3
Two accounts are affected: Utility Expense is increased by $400. Cash is decreased by $400.
GENERAL JOURNALPage: 1
Date Description PR Debit Credit20-JanUtility Expense 511 400
Cash 100 400to record payment of Januaryelectric bill
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More About The General More About The General LedgerLedger It is a complete collection of all the accounts
of a company Accounts are individually numbered for easy
reference It is used to collect the information about all
of the transactions affecting a specific account
A cumulative, running balance is maintained when using the 3-column type
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Categories of Categories of General Ledger AccountsGeneral Ledger AccountsThe five types of accounts fall into one of
two categories
Real Accounts
Nominal Accounts
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Real AccountsReal Accounts This category includes Assets,
Liabilities, and Stockholders’ Equities (i.e., Balance Sheet accounts)
Accounts are permanent.
Account balances are carried forward from one fiscal year to the next.
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Nominal AccountsNominal Accounts Nominal accounts include revenues
and expenses. Nominal accounts are temporary. Nominal account balances are closed
out to zero at the end of the fiscal year. Closing Entries will be discussed in
Chapter 4.
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Numbering AccountsNumbering Accounts
The listing of all accounts and their account numbers is called the chart of chart of
accountsaccounts.
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Numbering AccountsNumbering Accounts
The listing of all accounts and their account numbers is called the chart of chart of
accountsaccounts.A typical account numbering scheme
might appear as follows:Assets 100-199 Revenues 400-499Liabilities 200-299 Expenses 500-599Equities 300-399
(See page 63 and inside back cover)
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Start with the journal entry from the General Journal.
GENERAL JOURNALPage: 1
Date Description PR Debit Credit1-Jan Cash 10,000
Notes Payable 10,000to record loan from bank
Posting to the GLPosting to the GLExampleExample
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GENERAL JOURNALPage: 1
Date Description PR Debit Credit1-Jan Cash 10,000
Notes Payable 10,000to record loan from bank
ACCOUNT NAME: CASH ACCOUNT No. 100Date Description PR Debit Credit Balance
Beginning Balance 0 0
Next, find the appropriate page in the General Ledger for Cash.
Posting to the GLPosting to the GLExampleExample
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GENERAL JOURNALPage: 1
Date Description PR Debit Credit1-Jan Cash 100 10,000
Notes Payable 10,000to record loan from bank
Post the account reference number.
Posting to the GLPosting to the GLExampleExample
ACCOUNT NAME: CASH ACCOUNT No. 100Date Description PR Debit Credit Balance
Beginning Balance 0 0
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GENERAL JOURNALPage: 1
Date Description PR Debit Credit1-Jan Cash 100 10,000
Notes Payable 10,000to record loan from bank
ACCOUNT NAME: CASH ACCOUNT No. 100Date Description PR Debit Credit Balance
Beginning Balance 0 01-JanLoan G1 10,000
Posting to the GLPosting to the GLExampleExample
Post the transaction info to the GL.
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GENERAL JOURNALPage: 1
Date Description PR Debit Credit1-Jan Cash 100 10,000
Notes Payable 10,000to record loan from bank
ACCOUNT NAME: CASH ACCOUNT No. 100Date Description PR Debit Credit Balance
Beginning Balance 0 01-JanLoan G1 10,000 10,000
Update the General Ledger balance.
Posting to the GLPosting to the GLExampleExample
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GENERAL JOURNALPage: 1
Date Description PR Debit Credit1-Jan Cash 100 10,000
Notes Payable 10,000to record loan from bank
ACCOUNT NAME: Notes Payable ACCOUNT No. 201Date Description PR Debit Credit Balance
Beginning Balance 0 0
Posting to the GLPosting to the GLExampleExample
Next, find the Notes Payable page in the General Ledger.
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GENERAL JOURNALPage: 1
Date Description PR Debit Credit1-Jan Cash 100 10,000
Notes Payable 201 10,000to record loan from bank
ACCOUNT NAME: Notes Payable ACCOUNT No. 201Date Description PR Debit Credit Balance
Beginning Balance 0 0
Posting to the GLPosting to the GLExampleExample
Post the account reference number.
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GENERAL JOURNALPage: 1
Date Description PR Debit Credit1-Jan Cash 100 10,000
Notes Payable 201 10,000to record loan from bank
ACCOUNT NAME: Notes Payable ACCOUNT No. 201Date Description PR Debit Credit Balance
Beginning Balance 0 01-JanLoan G1 10,000
Posting to the GLPosting to the GLExampleExample
Post the transaction info to the GL.
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GENERAL JOURNALPage: 1
Date Description PR Debit Credit1-Jan Cash 100 10,000
Notes Payable 201 10,000to record loan from bank
ACCOUNT NAME: Notes Payable ACCOUNT No. 201Date Description PR Debit Credit Balance
Beginning Balance 0 01-JanLoan G1 10,000 10,000
Posting to the GLPosting to the GLExampleExample
Update the General Ledger balance.
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GENERAL JOURNALPage: 1
Date Description PR Debit Credit15-Jan Trucks 9,500
Cash 9,500to record purchase of truck
ACCOUNT NAME: CASH ACCOUNT No. 100Date Description PR Debit Credit Balance
Beginning Balance 0 01-JanLoan from bank G1 10,000 10,000
Examine the next journal entry.
Posting to the GLPosting to the GLExampleExample
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GENERAL JOURNALPage: 1
Date Description PR Debit Credit15-Jan Trucks 9,500
Cash 100 9,500to record purchase of truck
Posting to the GLPosting to the GLExampleExample
ACCOUNT NAME: CASH ACCOUNT No. 100Date Description PR Debit Credit Balance
Beginning Balance 0 01-JanLoan from bank G1 10,000 10,000
Record the account reference.
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GENERAL JOURNALPage: 3
Date Description PR Debit Credit15-Jan Trucks 9,500
Cash 100 9,500to record purchase of truck
ACCOUNT NAME: CASH ACCOUNT No. 100Date Description PR Debit Credit Balance
Beginning Balance 0 01-JanLoan from bank G1 10,000 10,000
15-JanPurchase of truck G3 9,500
Posting to the GLPosting to the GLExampleExample
Post the entry to the GL.
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GENERAL JOURNALPage: 3
Date Description PR Debit Credit15-Jan Trucks 9,500
Cash 100 9,500to record purchase of truck
ACCOUNT NAME: CASH ACCOUNT No. 100Date Description PR Debit Credit Balance
Beginning Balance 0 01-JanLoan from bank G1 10,000 10,000
15-JanPurchase of truck G3 9,500 500
Posting to the GLPosting to the GLExampleExample
Update the General Ledger balance.
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TRIAL BALANCETRIAL BALANCE Used to periodically test whether the
General Ledger is in balance.
Consists of a listing of each account with its balance as of a specific date. All Debit balances are in one column. All Credit balances are in another column.
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Trial Balance IllustrationTrial Balance Illustration(Text example is on p. 79)(Text example is on p. 79)
First CompanyTrial Balance
12/31/X8
Debits CreditsCash 500$
Accounts Receivable 1,200 Equipment 3,800 Accounts Payable 700$ Notes Payable 1,450 Capital Stock 3,000 Retained Earnings - 1/1/X8 -
Dividends 250 Revenues 11,000 Salary Expense 5,000 Utility Expense 3,000 Rent Expense 2,400
16,150$ 16,150$
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First CompanyTrial Balance
12/31/X8
Debits CreditsCash 500$
Accounts Receivable 1,200 Equipment 3,800 Accounts Payable 700$ Notes Payable 1,450 Capital Stock 3,000 Retained Earnings - 1/1/X8 -
Dividends 250 Revenues 11,000 Salary Expense 5,000 Utility Expense 3,000 Rent Expense 2,400
16,150$ 16,150$
Notice that Total Debits are equal to Total
Credits.
Trial Balance IllustrationTrial Balance Illustration(Text example is on p. 79)(Text example is on p. 79)
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Trial Balance ErrorsTrial Balance Errors
Click picture to view videoClick picture to view video
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Loose EndsLoose Ends Questions on the 15
transactions on pp. 64-71?
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Loose EndsLoose Ends Questions on the 15
transactions on pp. 64-71? Don’t read the chapter!
First full par. on p. 75
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Loose EndsLoose Ends Questions on the 15
transactions on pp. 64-71? Don’t read the chapter!
First full par. on p. 75 Skip Analyzing and Using the
Financial Results p. 81
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Loose EndsLoose Ends Questions on the 15 transactions
on pp. 64-71? Don’t read the chapter!
First full par. on p. 75 Skip Analyzing and Using the
Financial Results p. 81
The Dividends account is not a primary type of account as implied on pp. 58-59!
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The DividendsDividends account is a contra account to Retained Earnings. Therefore, it is
affected by debits and credits as follows:
DIVIDENDSDIVIDENDS
Debit for
Increase
Credit for
Decrease
Dividends AccountDividends Account
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Have you ever had that “I’ve-just-been-run-
over-by-a-train” feeling?