copyright © 2012 pearson education 1 record transactions in the journal copy (post) to the ledger...

Copyright © 2012 Pearson Education1

Recordtransactions

in the journal

Copy (post) tothe ledger

Prepare thetrial balance

Copyright © 2012 Pearson Education

Basic summary deviceDetailed record of all changes that have occurred in a particular asset, liability, or owner’s equityCovers a specific period of timeGrouped in three broad categories

AssetsLiabilitiesOwner’s Equity

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JournalChronological record of transactionsOrganized by date

LedgerThe book holding all the accounts and their balancesOrganized by account

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Listing of all accounts and their balances

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ASSETS LIABILITIES EQUITY

EconomicResources

Claims to EconomicResources


Economic resources that will benefit the business in the future:

CashAccounts receivableNotes receivablePrepaid expensesLandBuildingEquipment, Furniture, Fixtures

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A debt (something owed):Accounts payableNotes payableAccrued liabilities

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Owner’s claim to the assets:CapitalDrawingRevenues Expenses

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Asset, Liability, and Owner’s Equity Accounts

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List of all accounts used by a company

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Record dual effects of each transactionEach transaction has a:

Receiving sideGiving side

Examples:Company purchases supplies (receiving) with cash (giving)Company issues stock (giving) and receives cash (receiving)

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Tool for analyzing and determining the balance in a given account

DrDebit

CrCreditCr

Credit


Whether an account is increased by debit or a credit is determined by the account type

Asset, liability, or equity

Debits are not good or badNeither are credits

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The account category governs the increase side or decrease side

Increases are recorded on one sideDecreases are recorded on the opposite side

Rules of debits and credits


Match the accounting terms on the left with the corresponding definitions on the right.

1. _____Posting2. _____ Receivable3. _____ Debit4. _____ Journal5. _____ Expense6. _____ Net Income7. _____ Normal Balance8. _____ Ledger9. _____ Payable10._____ Equity

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A. Using up assets in the course of operating a business

B. Book of accountsC. An assetD. Record of transactionsE. Left side of an accountF. Side of an account where

increases are recordedG. Copying data from the journal to

the ledgerH. Always a liabilityI. Revenues – Expenses =J. Assets – Liabilities =

GCEDAIFBHJ


Use the rules of debit and

credit


Journalize the first transaction of Smart Touch—the receipt of $30,000 cash and issuance of Capital.

The accounts affected are Cash and Capital. Cash is an asset. Capital is equity.Both accounts increase by $30,000. Assets increase with debits. Equity increases with credits.

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Journal Page 1

Date Description Debit Credit

Apr 1 Cash 30,000

Bright, capital 30,000

Owner investment.

Transaction date Accounts affected

Dollar amounts of debits and credits

Explanation of transaction


Ned Brown opened a medical practice in San Diego, California.

1. Record the preceding transactions in the journal of Ned Brown, M.D., P.C. Include an explanation.

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Jan 1 The business received $29,000 cash and issued common stock.

2 Purchased medical supplies on account, $14,000.

2 Paid monthly office rent of $2,600.

3 Recorded $8,000 revenue for service rendered to patients on account.


Jan. 1: The business received $29,000 cash and issued common stock.

Cash received indicates cash increases.Cash is an Asset, Assets increase with debits

Issued common stock, indicates equity is increasingIncrease equity with credits

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GENERAL JOURNALDATE DESCRIPTION REF DEBIT CREDIT

Jan 1 Cash 29,000

Brown, capital 29,000

Issued stock.


Jan. 2: Purchased medical supplies on account, $14,000.

Medical Supplies, an asset, is increasing.Assets increase with debits

On account, increases accounts payable, a liabilityIncrease liabilities with credits

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Jan 1 Medical supplies 14,000

Accounts payable 14,000

Purchased supplies on account.


Jan. 2: Paid monthly office rent of $2,600.Paid rent, an expense, expense is increasing

Expenses increase with debits

Paid cash, cash is an asset.Increase assets with debits

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Jan 2 Rent Expense 2,600

Cash 2,600

Paid office rent.


Jan. 3: Recorded $8,000 revenue for service rendered to patients on account.

On account indicates Accounts receivable increase.Accounts receivable is an Asset, Assets increase with debits

Rendered services, services are revenues, indicates revenues are increasing

Increase revenues with credits

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Jan 1 Accounts receivable 8,000

Service revenue 8,000

Performed service on account.


Copying amounts from the journal to the ledger

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Origin of accounting transactionsExamples:

Bank deposit ticketsInvoicesChecksStock certificates

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Cash Capital

GENERAL JOURNAL

DATE DESCRIPTION REF

DEBIT CREDIT

Cash 30,000

Bright, capital 30,000

Issued capital.

30,000 30,000


Cash CapitalLand

GENERAL JOURNAL

DATE DESCRIPTION REF DEBIT CREDIT

Land 20,000

Cash 20,000Bought land.

30,000 30,00020,000 20,000

10,000


Cash Accounts payableOffice supplies

GENERAL JOURNAL


Office supplies 500

Accounts payable 500Purchased supplies.

30,000 20,000

Cash

30,000 20,000

10,000

500500


Cash Service revenue

GENERAL JOURNAL


Cash 5,500

Service revenue 5,500Received payment on account.

30,000 20,000

Cash

30,000 20,000

5,500

5,500


Texas Sales Consultants completed the following transactions during the latter part of January:

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Jan 22 Performed service for customers on account, $8,000.

30 Received cash on account from customers, $7,000.

31 Received a utility bill, $180, which will be paid during February.

31 Paid monthly salary to salesman, $2,000.

31 Paid advertising expense of $700.


Jan 22: Performed service for customers on account, $8,000

“On account” indicates Accounts receivableAccounts receivable is an asset accountIncrease an asset with a debit

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GENERAL JOURNAL


Service revenue 8,000

Jan 22 Accounts receivable 8,000


Jan. 30:Cash is received

Increase cash, an assetAssets are increased by debits

The payment is “on account”Decrease Accounts receivable with a credit

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Accounts receivable 7,000

Received payment on account.

Jan 30 Cash 7,000


Jan. 31:A utility bill is an expense

Expenses are increased by debitsThe bill will be paid later–creating an account payable

Liabilities are increased by credits

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GENERAL JOURNALDATE DESCRIPTION RE

FDEBIT CREDIT

Received utility bill.

Jan 31 Utilities expense 180

Accounts payable 180


Jan. 31:Salaries to employees are an expense

Expenses are increased by debitsThe salary was paid in cash

Cash, an asset, decreases, Assets are decreased by credits

Rent Expense is an expense account. Increase an expense with a debit

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Cash 2,000

Paid salaries.

Mar 31 Salaries expense 2,000


March 31:Advertising is another expense Cash is paid

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Mar 31 Advertising expense 700

Cash 700

Paid advertising.


Summary of the ledgerLists all accounts with their balancesAccuracy check

Debits should equal credits

NOT a balance sheet

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Think of the account, journal, ledger (T-account), and chart as matching tools. Businesses are just matching the business transaction to the account description that best captures the specific event that occurred.The accounting equation must always balance after each transaction is recorded. To achieve this balance, we record transactions using a double entry accounting system. In that system, debits are on the left and credits are on the right. Debits always equal credits.

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A transaction occurs and is recorded on a source document. Then, we identify the account names affected by the transaction and determine whether the accounts increased or decreased using the rules of debit and credit for the six main account types. Next, we record the transaction in the journal, listing the debits first. We then post all transactions to the ledger (T-account).

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Once the ledger (T-account) balances are calculated, the ending balance for each account is transferred to the trial balance. Recall that the trial balance is a listing of all accounts and their balances on a specific date. Total debits must always equal total credits on the trial balance. If they do not, then review the correcting trial balance errors section on Page 81 of the textbook.

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