copyright © 2012 pearson education, inc. publishing as prentice hall. record dual effects of each...
TRANSCRIPT
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
Double Entry System
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)
1
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
T-Account
2
Tool for analyzing and determining the balance in a given account
Account Name
(Left Side) (Right Side)
DrDebit
CrCredit
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
Increases and Decreases in Accounts
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
3
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
Rules of Debit and Credit
4
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
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
Illustrate Debits and CreditsThe first transaction involves receiving $30,000 cash and issuing Capital The second transaction is a $20,000 purchase of land for cash
5
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
Complete Rules of Debit and Credit
6
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
Normal Balance of an Account
7
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
S2-10: PREPARING A TRIAL BALANCE
Oakland Floor Coverings reported the following summarized data at December 31, 2012. Accounts appear in no particular order.
8
Revenues $34,000 Other liabilities $18,000
Equipment 45,000 Cash 12,000
Accounts payable 2,000 Expenses 19,000
Oakland, capital 22,000
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
S2-10 :PREPARING A TRIAL BALANCE
9
Oakland Floor Coverings
Trial Balance
December 31, 2012
Cash
Equipment
Accounts payable
Other liabilities
Oakland, capital
Revenues
Expenses
$ 12,000 45,000 $ 2,000
18,000 22,000 34,000 19,000 $76,000 $76,000
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
S2-6: JOURNALIZING TRANSACTIONS
Texas Sales Consultants completed the following transactions during the latter part of January:
10
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.
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
S2-6: JOURNALIZING TRANSACTIONS
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
11
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Service revenue 8,000
Jan 22 Accounts receivable 8,000
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
S2-6: JOURNALIZING TRANSACTIONS
Jan. 30:Cash is received
Increase cash, an assetAssets are increased by debits
The payment is “on account”Decrease Accounts receivable with a credit
12
GENERAL JOURNALDATE DESCRIPTION REF DEBIT CREDIT
Accounts receivable 7,000
Received payment on account.
Jan 30 Cash 7,000
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
S2-6: JOURNALIZING TRANSACTIONS
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
13
GENERAL JOURNALDATE DESCRIPTION RE
FDEBIT CREDIT
Received utility bill.
Jan 31 Utilities expense 180
Accounts payable 180
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
S2-6: JOURNALIZING TRANSACTIONS
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
14
GENERAL JOURNALDATE DESCRIPTION REF DEBIT CREDIT
Cash 2,000
Paid salaries.
Mar 31 Salaries expense 2,000
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
S2-6: JOURNALIZING TRANSACTIONS
March 31:Advertising is another expense Cash is paid
15
GENERAL JOURNALDATE DESCRIPTION REF DEBIT CREDIT
Mar 31 Advertising expense 700
Cash 700
Paid advertising.
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
Trial Balance
Summary of the ledgerLists all accounts with their balancesAccuracy check
Debits should equal credits
NOT a balance sheet
16
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
Trial Balance
17
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.
Detecting Trial Balance Errors
Search for missing accountDivide the difference between total debits and total credits by two
Is there a debit/credit balance for this amount posted in the wrong column?
Divide out-of-balance amount by nine Slide–Adding or dropping a zero ($100 instead of $1,000)Transposition–Reversing two digits ($2,100 instead of $1,200)
18