copyright © 2012 pearson education, inc. publishing as prentice hall. record dual effects of each...

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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 transaction Each transaction has a: Receiving side Giving side Examples: Company purchases supplies (receiving) with cash (giving) Company issues stock (giving) and receives cash (receiving) 1

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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)

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Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.

T-Account

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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

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Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.

Rules of Debit and Credit

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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

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

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Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.

Complete Rules of Debit and Credit

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Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.

Normal Balance of an Account

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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.

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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

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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:

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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.

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

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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

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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

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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

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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

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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

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Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall.

Trial Balance

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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)

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