chapter two t accounts, debits and credits, trial balance, and financial statements

Chapter Two

T Accounts, Debits and Credits, Trial

Balance, and Financial Statements

Copyright © Houghton Mifflin Company. All rights reserved. 2 - 2

Performance Objectives

1. Determine balances of T accounts having entries recorded on both sides of the accounts

2. Present the fundamental accounting equation with the T account form, and label the plus and minus sides



3. Present the fundamental accounting equation with the T account form, and label the debit and credit sides

4. Record directly in T accounts a group of business transactions involving changes in asset, liability, owner’s equity, revenue, and expense accounts for a service business



5. Prepare a trial balance

6. Prepare:– Income statement– Statement of owner’s equity– Balance sheet

7. Recognize the effect of transpositions and slides on account balances


Performance Objective 1

Determine balances of T accounts having entries recorded on both sides of the accounts


T Account Form

• Shaped like the letter T

• Two sides to the form

• One side for increases (+) to the account

• The other side for decreases (-) to the account

34,120


Compare Account Column to T Account

34,120


T Accounts

• Footings– The totals of the

amounts listed on both sides of a T account recorded in small, penciled-in figures.

34,120


T Accounts

• Balance– Record transactions

for a period of time– Subtract the smaller

footing on one side from the larger footing on the other side

– Record the balance on the side having the larger footing 34,120


T Accounts

• Normal Balance– The increase (plus) side

of any T account.

• Normally, the footing on the increase (plus) side of an account will be larger than the footing on the decrease (minus) side of an account.

34,120


T Accounts

• Assets– The plus side for

assets is placed on the left

– The minus side is placed on the right

+ -Left Right

Assets


T Accounts

• Liabilities and owner’s equity– These classifications

are placed on the opposite side of the equals sign

– The plus and minus signs are therefore placed on the opposite sides of the T (switched around)

- +Left Right

Liabilities

- +Left Right

Owner's Equity


T Accounts

• Revenue and expenses are under the umbrella of owner’s equity

• Revenue increases owner’s equity

• Expenses decrease owner’s equity



Present the fundamental accounting equation with the T account form, and label the plus and minus sides


Fundamental Accounting Equation


Label the Plus and Minus Sides



Present the fundamental accounting equation with the T account form, and label the debit and credit sides


Debits and Credits

• What does debit mean?– Forget what you

know about debit cards!

• Debit means left• Debit is abbreviated

“DR”

• What does credit mean?– Forget what you

know about credit cards!

• Credit means right• Credit is abbreviated

“CR”


Debits and Credits


Fundamental Accounting Equation with Debits and Credits

The amount placed on the debit side of one or more accounts MUST equal the amount placed on the credit side of another account or accounts


Debits and Credits


Drawing Account

• Drawing is placed under the umbrella of the Capital account



Record directly in T accounts a group of business transactions involving changes in asset, liability, owner’s equity, revenue, and expense accounts for a service business


Steps in Analyzing Transactions

Step 1– Which accounts are

involved?

Step 2– How should you classify

the accounts?• Asset• Liability• Capital• Revenue• Expenses

Step 3– Are the accounts

increased or decreased?

Step 4– Which accounts are

debited and which accounts are credited?

Step 5– Balance the equations:– DR = CR– A = L + OE


Recording Business Transactions for a Service Business

We will be recording business transactions for a company with the following details:

Owner name: L. P. ArchBusiness name: Arch Copy Co.Business type: Sole proprietorship

(one-person business)


= + + –

a) 70,000 a) 70,000

Utilities Expense+ –

Debit Credit

Advertising Expense+ –

Debit Credit

Supplies Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit

Income from Services– +

Debit CreditCredit

L.P. Arch, Drawing+ -

Accounts Payable– +

Debit Credit– +

Debit

L.P. Arch, Capital

Equipment+ –

Debit Credit

Prepaid Insurance+ –

Debit Credit

Accounts Receivable+ –

Debit Credit

Cash+ –

Debit Credit

+ –Debit Credit Debit Credit Debit Credit Debit Credit

Revenue

– + – +Debit Credit

Expenses

+ – – +

Assets Liabilities Owner's Equity

Transaction (a): Arch deposited $70,000 in a bank account in name of business.


= + + –

a) 70,000 b) 33,000 a) 70,000

b) 33,000

Debit Credit

Expenses

+ – – +

Assets Liabilities Owner's Equity Revenue

– + – + + –Debit Credit Debit Credit Debit Credit Debit Credit

Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit

L.P. Arch, Capital

Debit Credit


Debit CreditCredit

L.P. Arch, Drawing+

Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Transaction (b): Bought equipment, paying cash, $33,000.


= + + –

a) 70,000 b) 33,000 c) 7,000 a) 70,000

b) 33,000c) 7,000


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit

L.P. Arch, Capital

Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (c): Bought equipment on account from Melton Office Supply, $7,000.


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000d) 2,000

b) 33,000c) 7,000

Debit Credit

Expenses

+ – – +



Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit

L.P. Arch, Capital

Debit Credit


Debit CreditCredit

L.P. Arch, Drawing+

Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Transaction (d): Paid Melton Office Supply, a creditor, $2,000.


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000d) 2,000 e) 6,200

b) 33,000c) 7,000e) 6,200


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit

L.P. Arch, Capital

Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (e): Arch invested her personal computer equipment having a fair market value of $6,200 in Arch Copy Co.


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 e) 6,200

b) 33,000c) 7,000e) 6,200

Debit Credit

Expenses

+ – – +



Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit

L.P. Arch, Capital

Debit Credit


Debit CreditCredit

L.P. Arch, Drawing+

Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Transaction (f): Arch Copy Co. sold services for cash, $2,520.


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 e) 6,200

g) 700

g) 700

b) 33,000c) 7,000e) 6,200


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit

L.P. Arch, Capital

Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (g): Paid rent for the month, $700.


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 h) 600 e) 6,200

g) 700

g) 700

h) 600

b) 33,000c) 7,000e) 6,200

Debit Credit

Expenses

+ – – +



Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit

L.P. Arch, Capital

Debit Credit


Debit CreditCredit

L.P. Arch, Drawing+

Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Transaction (h): Bought supplies (toner and paper) on credit. These supplies are used immediately; therefore, they are recorded as an expense ($600).


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 h) 600 e) 6,200

g) 700

i) 360

g) 700

h) 600

i) 360

b) 33,000c) 7,000e) 6,200


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit

L.P. Arch, Capital

Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (i): Arch Copy Co. paid $360 for a one-year liability insurance policy.


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 h) 600 e) 6,200

g) 700 j) 200

i) 360

g) 700

h) 600

j) 200

i) 360

b) 33,000c) 7,000e) 6,200

Debit Credit

Expenses

+ – – +



Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit

L.P. Arch, Capital

Debit Credit


Debit CreditCredit

L.P. Arch, Drawing+

Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Transaction (j): Received bill for newspaper advertising, $200.


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 h) 600 e) 6,200 k) 1,050

g) 700 j) 200

i) 360

g) 700

h) 600

j) 200k) 1,050

i) 360

b) 33,000c) 7,000e) 6,200


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit

L.P. Arch, Capital

Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (k): Arch Copy Co. completed a printing job and billed Walker Company $1,050 for services performed.


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050

g) 700 j) 200

i) 360

l) 1,800

g) 700

h) 600

j) 200k) 1,050

i) 360

b) 33,000c) 7,000e) 6,200

Debit Credit

Expenses

+ – – +



Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit

L.P. Arch, Capital

Debit Credit


Debit CreditCredit

L.P. Arch, Drawing+

Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Transaction (l): Arch Copy Co. paid $1,800 to Melton Office Supply, its creditor, as part payment on account.


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050

g) 700 j) 200

i) 360

l) 1,800

m) 160 g) 700

h) 600

j) 200k) 1,050

m) 160

i) 360

b) 33,000c) 7,000e) 6,200


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit

L.P. Arch, Capital

Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (m): Arch Copy Co. received and paid electric bill, $160.


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050

g) 700 n) 200 j) 200

i) 360

l) 1,800

m) 160 g) 700

n) 200

h) 600

j) 200k) 1,050

m) 160

i) 360

b) 33,000c) 7,000e) 6,200

Debit Credit

Expenses

+ – – +



Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit

L.P. Arch, Capital

Debit Credit


Debit CreditCredit

L.P. Arch, Drawing+

Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Transaction (n): Arch Copy Co. paid on account $200 to City News for advertising.


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520 o) 2,130f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050

g) 700 n) 200 j) 200

i) 360

l) 1,800

m) 160 g) 700

n) 200

o) 2,130

h) 600

j) 200k) 1,050

m) 160

i) 360

b) 33,000c) 7,000e) 6,200


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit

L.P. Arch, Capital

Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (o): Arch Copy Co. paid wages of a part-time employee, $2,130.


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520 o) 2,130f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050

g) 700 n) 200 j) 200

i) 360 p) 2,900

l) 1,800

m) 160 g) 700

n) 200

o) 2,130

p) 620

h) 600

j) 200k) 1,050

m) 160

i) 360

b) 33,000c) 7,000e) 6,200p) 3,520

Debit Credit

Expenses

+ – – +



Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit

L.P. Arch, Capital

Debit Credit


Debit CreditCredit

L.P. Arch, Drawing+

Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Transaction (p): Bought additional equipment from Melton Office Supply, $3,520, paying $620 down with the remaining $2,900 on account.


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520 o) 2,130f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050

q) 850 g) 700 n) 200 j) 200

i) 360 p) 2,900

l) 1,800

m) 160 g) 700

n) 200

o) 2,130

p) 620

h) 600

j) 200k) 1,050 q) 850

m) 160

i) 360

b) 33,000c) 7,000e) 6,200p) 3,520


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit

L.P. Arch, Capital

Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (q): Arch Copy Co. received $850 cash on account from a credit customer.


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520 o) 2,130f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050

q) 850 g) 700 n) 200 j) 200 r) 4,220

r) 4,220 i) 360 p) 2,900

l) 1,800

m) 160 g) 700

n) 200

o) 2,130

p) 620

h) 600

j) 200k) 1,050 q) 850

m) 160

i) 360

b) 33,000c) 7,000e) 6,200p) 3,520

Debit Credit

Expenses

+ – – +



Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit

L.P. Arch, Capital

Debit Credit


Debit CreditCredit

L.P. Arch, Drawing+

Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Transaction (r): Arch Copy Co. received revenue from cash customers for the rest of the month, $4,220.


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520 o) 2,130f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050

q) 850 g) 700 n) 200 j) 200 r) 4,220

r) 4,220 i) 360 p) 2,900

l) 1,800

m) 160 g) 700

n) 200

o) 2,130 s) 2,500

p) 620

s) 2,500h) 600

j) 200k) 1,050 q) 850

m) 160

i) 360

b) 33,000c) 7,000e) 6,200p) 3,520


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit

L.P. Arch, Capital

Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (s): Arch withdrew $2,500 in cash from the business for her personal use.


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520 o) 2,130f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050

q) 850 g) 700 n) 200 j) 200 76,200 r) 4,220

r) 4,220 i) 360 4,000 p) 2,900 7,790

77,590 l) 1,800 10,700

m) 160 g) 700

n) 200

o) 2,130 s) 2,500

p) 620

s) 2,50043,470 h) 600

j) 200k) 1,050 q) 850

m) 160

i) 360

b) 33,000c) 7,000e) 6,200p) 3,520

49,720

Debit Credit

Expenses

+ – – +



Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit

L.P. Arch, Capital

Debit Credit


Debit CreditCredit

L.P. Arch, Drawing+

Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Footing


= + + –

a) 70,000 b) 33,000 d) 2,000 c) 7,000 a) 70,000 f) 2,520 o) 2,130f) 2,520 d) 2,000 l) 1,800 h) 600 e) 6,200 k) 1,050

q) 850 g) 700 n) 200 j) 200 Bal. 76,200 r) 4,220

r) 4,220 i) 360 4,000 p) 2,900 Bal. 7,790

77,590 l) 1,800 10,700

m) 160 Bal. 6,700 g) 700

n) 200

o) 2,130 s) 2,500

p) 620

s) 2,500Bal. 34,120 43,470 h) 600

j) 200k) 1,050 q) 850

Bal. 200

m) 160

i) 360

b) 33,000c) 7,000e) 6,200p) 3,520Bal. 49,720


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit

L.P. Arch, Capital

Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Balances



Prepare a trial balance


Prepare a Trial Balance

• List the account balances in two columns– Left column = Debits– Right column = Credits

• List the accounts in the same order as the chart of accounts– First the balance sheet accounts– Then the income statement accounts


Trial Balance• A trial run to prove that DR = CR• If DR = CR, then A = L + OE


Trial Balance• Not a financial statement• Don’t use dollar signs • Use a single underline under the list of figures

to be added• Use a double underline under column totals


Accounting

Process of:

• Analyzing

• Classifying

• Recording

• Summarizing

• Interpreting business transactions

Summarizing means Summarizing means preparing financial preparing financial

statementsstatements



Prepare – Income statement– Statement of owner’s equity– Balance sheet


All Financial Statements

• Summarize useful financial information for users of accounting information:– Owners/investors– Managers– Creditors– Government agencies


All Financial Statements

• Have a three-line title– Who: Name of the company (or owner)– What: Title of financial statement– When: Period of time or date

Income StatementOr

Statement of OEBalance Sheet


Income Statement

Total Revenue – Total Expenses = Net Income (or Net Loss)


Income Statement

• Answers the questions– How profitable was the

company over the past period?– How much net income did the

entity earn?

RevenuesRevenues – Expenses– ExpensesNet IncomeNet Income


What the Income Statement Tells Us• Is the business profitable?• What is the net income?

– Revenue > Expenses

• What is the net loss?– Expenses > Revenue


Income Statement—Also Known As

• Statement of income and expenses

• Profit and loss statement

• Results of operations


Net Income—Also Known As

• Profit

• Earnings


Net Income

• Use the net income figure on the income statement to complete the statement of owner’s equity


Statement of Owner’s Equity

Beg. Bal. Capital + Investments + Net Income (or - Net Loss) – Drawing = Ending Capital


Statement of Owner’s Equity• Prepared after you finish the income statement• Answers the questions

– How did the owner’s equity change over the last period?– How and why did the Capital account change?

• Provides ending Capital amount for use on the balance sheet

00


Additional Investment in the Company

• Can you invest assets other than cash?– Tools?– Trucks?– Equipment?

• Yes!– They must be recorded at their fair market

value (what they would be sold for on the open market)


Balance Sheet


Balance Sheet

• Answers the questions– What is the entity’s financial position on the last

day of the period?– What assets, liabilities, and equities does the

entity have on the last day of the period?

• Uses the ending capital figure shown on the statement of owner’s equity

• Resembles a snapshot—shows a point in time

• Be careful of the date!


Balance Sheet• List accounts in the same order as the chart of accounts• Why?

– Listed in order of liquidity– Liquidity: How quickly it can be turned into cash

• Report Form– Balance Sheet presentation where Assets are above Liabilities and

Owner’s Equity


Errors Exposed by the Trial Balance

• DR ≠ CR?• Arithmetic error

– Trial balance columns added correctly?

– Accounts added correctly?

• Half an entry– DR without a CR?– Example: If Trial Balance

is off by $100, did you record the DR without the CR?

• DR ≠ CR?• Both sides of an entry

on one side (two DRs)– Example: If the Trial

Balance is off by $200, divide by 2 to get $100 and look for transactions for the amount $100 ($100 DR to Cash and $100 DR to Revenue)

• Recording amounts incorrectly– Look back to original

receipt, source document, or problem


Errors Exposed by the Trial Balance

When DR = CR, there can still be an error if you:

– Forgot to record a transaction– Recorded the transaction twice– Recorded the transaction for an incorrect

amount– Recorded the amount in the incorrect

account


How Do You Find the Errors?

• Pay careful attention as you record transactions.

• Look to see if a normal balance was placed in the wrong column.

• Re-add the columns.• Check to see if account totals were

transferred correctly.• Recalculate the footings and balances

in the accounts.



Recognize the effect of transpositions and slides on account balances


Transpositions and Slides

• Transposition error– Digits have been transposed (switched around)

• Slide error– The decimal point in an amount has been

misplaced– “Slide the decimal place”

Error Type Original Number Mistakenly written as Difference Evenly divided by 9?

Transp

osition 96 69 27 3

549 945 -396 -44197 791 -594 -66513 315 198 22Tra

nspositi

on

Slide

27430 2743 24687 2743230 23 207 2344 440 -396 -44Slid

e

Both 430 34 396 4464390 9436 54954 6106Both


Transpositions and Slides

• Finding an error– Divide the difference between two trial

balance totals by 2, or multiply by 2. See if the result matches a transaction amount.

– Errors divisible by 9: If an error exists and the amount of difference between the totals of the trial balance is evenly divisible by 9, the error consists of either a transposition or a slide or both.


Demonstration Problem

We will be recording business transactions for a company with the following details:

Owner name: R. P. NelsonBusiness name: WindSport Boomerang & Kite DemosBusiness type: Sole proprietorship

(one-person business)


= + + –

a) 43,000 a) 43,000

Traveling Expense+ –

Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit

Income from Demos– +

Debit CreditCredit

R. P. Nelson, Drawing+ -


Debit Credit– +

Debit

R. P. Nelson, Capital

Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (a): Nelson deposited $43,000 in a bank account in the name of business.


= + + –

a) 43,000 b) 23,000 a) 43,000

b) 23,000

Debit Credit

Expenses

+ – – +



Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit


Debit Credit


Debit CreditCredit

R. P. Nelson, Drawing+

Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Transaction (b): Bought truck, paying cash, $23,000.


= + + –

a) 43,000 b) 23,000 c) 2,500 a) 43,000

b) 23,000c) 2,500


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit


Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (c): Bought camper shell for truck on account from Louie's Trucks & Campers, $2,500.


= + + –

a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000d) 1,500

b) 23,000c) 2,500

Debit Credit

Expenses

+ – – +



Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit


Debit Credit


Debit CreditCredit


Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Transaction (d): Paid Louie's Trucks & Campers, a creditor, $1,500.


= + + –

a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000d) 1,500 e) 3,400

b) 23,000c) 2,500e) 3,400


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit


Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (e): Nelson invested his own personal computer equipment, having a fair market value of $3,400, in WindSport Boomerang & Kite Demos.


= + + –

a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500f) 2,500 d) 1,500 e) 3,400

b) 23,000c) 2,500e) 3,400

Debit Credit

Expenses

+ – – +



Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit


Debit Credit


Debit CreditCredit


Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Transaction (f): Nelson and employee performed boomerang & kite demo for Girl Scouts and received cash, $2,500.


= + + –

a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500f) 2,500 d) 1,500 e) 3,400

g) 700

g) 700

b) 23,000c) 2,500e) 3,400


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit


Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (g): Paid rent for the month, $700.


= + + –

a) 43,000b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500.0f) 2,500 d) 1,500 h) 600 e) 3,400

g) 700

g) 700

h) 600

b) 23,000c) 2,500e) 3,400

Debit Credit

Expenses+ – – +

Assets Liabilities Owner's Equity Revenue– + – + + –

Debit Credit Debit Credit Debit Credit Debit Credit

Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit


Debit Credit


Debit CreditCredit


Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Transaction (h): WindSport B&K Demos bought supplies (toner and paper) on credit. These supplies are used immediately so they are recorded as an expense ($600).


= + + –

a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500f) 2,500 d) 1,500 h) 600 e) 3,400

g) 700

i) 2,000

g) 700

h) 600

i) 2,000

b) 23,000c) 2,500e) 3,400


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit


Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue– + – +

Debit Credit

Expenses+ – – +


Transaction (i): WindSport B & K Demos paid $2,000 for a one-year liability insurance policy.


= + + –

a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500f) 2,500 d) 1,500 h) 600 e) 3,400

g) 700 j) 200

i) 2,000

g) 700

h) 600

j) 200

i) 2,000

b) 23,000c) 2,500e) 3,400

Debit Credit

Expenses+ – – +

Assets Liabilities Owner's Equity Revenue– + – + + –

Debit Credit Debit Credit Debit Credit Debit Credit

Cash+ –

Debit Credit

Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit


Debit Credit


Debit CreditCredit


Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit CreditPrepaid Insurance+ –

Debit

Transaction (j): WindSport B & K Demos received an advertising bill from City News for advertising, $200.


= + + –

a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500f) 2,500 d) 1,500 h) 600 e) 3,400 k) 2,500

g) 700 j) 200

i) 2,000

g) 700

h) 600

j) 200k) 2,500

i) 2,000

b) 23,000c) 2,500e) 3,400


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit


Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (k): Nelson and employee performed boomerang & kite demo for Boy Scouts and earned income on account ("sold services on account"), $2,500.


= + + –

a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500

g) 700 j) 200

i) 2,000

l) 1,000

g) 700

h) 600

j) 200k) 2,500

i) 2,000

b) 23,000c) 2,500e) 3,400

Debit Credit

Expenses

+ – – +



Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit


Debit Credit


Debit CreditCredit


Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Transaction (l): WindSport B & K Demos paid $1,000 to Louie's Trucks & Campers, its creditor, as final payment on account.


= + + –

a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500

g) 700 j) 200

i) 2,000

l) 1,000

m) 160 g) 700

h) 600

j) 200k) 2,500

m) 160

i) 2,000

b) 23,000c) 2,500e) 3,400


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit


Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (m): WindSport B & K Demos received and paid the gas card bill, $160 (Traveling Expense).


= + + –

a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500

g) 700 n) 200 j) 200

i) 2,000

l) 1,000

m) 160 g) 700

n) 200

h) 600

j) 200k) 2,500

m) 160

i) 2,000

b) 23,000c) 2,500e) 3,400

Debit Credit

Expenses

+ – – +



Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit


Debit Credit


Debit CreditCredit


Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Transaction (n): WindSport B & K Demos pays $200 on account to City News for advertising.


= + + –

a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500 o) 1,030f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500

g) 700 n) 200 j) 200

i) 2,000

l) 1,000

m) 160 g) 700

n) 200

o) 1,030

h) 600

j) 200k) 2,500

m) 160

i) 2,000

b) 23,000c) 2,500e) 3,400


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit


Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (o): WindSport B & K Demos pays wages for a part-time employee, $1,030.


= + + –

a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500 o) 1,030f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500

g) 700 n) 200 j) 200

i) 2,000 p) 1,500

l) 1,000

m) 160 g) 700

n) 200

o) 1,030

p) 620

h) 600

j) 200k) 2,500

m) 160

i) 2,000

b) 23,000c) 2,500e) 3,400p) 2,120

Debit Credit

Expenses

+ – – +



Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit


Debit Credit


Debit CreditCredit


Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Transaction (p): WindSport B&K Demos buysa trailer from Louie's Trucks & Campers for $2,120, paying $620 down with the remaining $1,500 on account (Equipment, A/P, and Cash accounts).


= + + –

a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500 o) 1,030f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500

q) 850 g) 700 n) 200 j) 200

i) 2,000 p) 1,500

l) 1,000

m) 160 g) 700

n) 200

o) 1,030

p) 620

h) 600

j) 200k) 2,500 q) 850

m) 160

i) 2,000

b) 23,000c) 2,500e) 3,400p) 2,120


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit


Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (q): WindSport B & K Demos receives $850 cash on account from a credit customer.


= + + –

a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500 o) 1,030f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500

q) 850 g) 700 n) 200 j) 200 r) 4,220

r) 4,220 i) 2,000 p) 1,500

l) 1,000

m) 160 g) 700

n) 200

o) 1,030

p) 620

h) 600

j) 200k) 2,500 q) 850

m) 160

i) 2,000

b) 23,000c) 2,500e) 3,400p) 2,120

Debit Credit

Expenses

+ – – +



Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit


Debit Credit


Debit CreditCredit


Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Transaction (r): WindSport B & K Demos receives revenue from cash customers for the rest of the month, $4,220.


= + + –

a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500 o) 1,030f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500

q) 850 g) 700 n) 200 j) 200 r) 4,220

r) 4,220 i) 2,000 p) 1,500

l) 1,000

m) 160 g) 700

n) 200

o) 1,030 s) 2,500

p) 620

s) 2,500h) 600

j) 200k) 2,500 q) 850

m) 160

i) 2,000

b) 23,000c) 2,500e) 3,400p) 2,120


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit


Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Transaction (s): Nelson withdraws $2,500 in cash from the business for his personal living costs.


= + + –

a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500 o) 1,030f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500

q) 850 g) 700 n) 200 j) 200 46,400 r) 4,220

r) 4,220 i) 2,000 2,700 p) 1,500 9,220

50,570 l) 1,000 4,800

m) 160 g) 700

n) 200

o) 1,030 s) 2,500

p) 620

s) 2,50032,710 h) 600

j) 200k) 2,500 q) 850

m) 160

i) 2,000

b) 23,000c) 2,500e) 3,400p) 2,120

31,020

Debit Credit

Expenses

+ – – +



Cash+ –

Debit Credit


Debit Credit


Debit Credit

Equipment+ –

Debit Credit

-


Debit Credit– +

Debit


Debit Credit


Debit CreditCredit


Wages Expense+ –

Debit Credit

Rent Expense+ –

Debit Credit


Debit Credit


Debit Credit


Debit Credit

Footing


= + + –

a) 43,000 b) 23,000 d) 1,500 c) 2,500 a) 43,000 f) 2,500 o) 1,030f) 2,500 d) 1,500 l) 1,000 h) 600 e) 3,400 k) 2,500

q) 850 g) 700 n) 200 j) 200 Bal. 46,400 r) 4,220

r) 4,220 i) 2,000 2,700 p) 1,500 Bal. 9,220

50,570 l) 1,000 4,800

m) 160 Bal. 2,100 g) 700

n) 200

o) 1,030 s) 2,500

p) 620

s) 2,500Bal. 17,860 32,710 h) 600

j) 200k) 2,500 q) 850

Bal. 1,650

m) 160

i) 2,000

b) 23,000c) 2,500e) 3,400p) 2,120Bal. 31,020


Debit Credit


Debit Credit


Debit Credit

Rent Expense+ –

Debit Credit

Wages Expense+ –

Debit Credit

Debit Credit


Debit CreditCredit



Debit Credit– +

Debit


Equipment+ –

Debit Credit


Debit Credit


Debit Credit

Cash+ –

Debit Credit


Revenue


Expenses

+ – – +


Balances


Trial Balance

17,860 1,650 2,000

31,020 2,100

46,400 2,500

9,220 1,030

700 600 200 160

57,720 57,720

Rent ExpenseSupplies ExpenseAdvertising ExpenseTraveling Expense

R. P. Nelson, CapitalR. P. Nelson, DrawingIncome from DemosWages Expense

Accounts ReceivablePrepaid InsuranceEquipmentAccounts Payable

WindSport Boomerang & Kite DemosTrial BalanceJune 30, 2003

Cash


Income Statement

9,220$

1,030$ 700 600 200 160

2,690 6,530$

Traveling Expense

Wages ExpenseRent ExpenseSupplies ExpenseAdvertising Expense

For Month Ended June 30, 2003

Revenues:Income from Demos

Expenses:

WindSport Boomerang & Kite DemosIncome Statement


Statement of Owner’s Equity

46,400$ 6,530$ 2,500

4,030 50,430$

Less Withdrawals for JuneIncrease in CapitalR. P. Nelson, Capital, June 30, 2003

Statement of Owner's EquityFor Month Ended June 30, 2003

R. P. Nelson, Capital, June 1, 2003Net Income for June

WindSport Boomerang & Kite Demos


Balance Sheet

17,860$ 1,650 2,000

31,020 52,530$

2,100$

50,430 52,530$

Owner's EquityR. P. Nelson, CapitalTotal Liabilities and Owner's Equity

LiabilitiesAccounts Payable

CashAccounts ReceivablePrepaid InsuranceEquipment

June 30, 2003

Assets

WindSport Boomerang & Kite DemosBalance Sheet

chapter two t accounts, debits and credits, trial balance, and financial statements

Documents

t account form

t accounts revenue

balances of t accounts

t accounts assets

t accounts liabilities

t accounts footings

letter t

t accounts normal balance