Lecture Principles of financial accouting - Chapter 2: Analyzing and recording transactions

Chapter 2

Analyzing and Recording
Transactions

PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
Winston Kwok, Ph.D., CPA
McGraw­Hill/Irwin

        Copyright © 2011 by The McGraw­Hill Companies, Inc. All rights reserved.


2 ­ 2

C 1

Analyzing and Recording Process

Analyze each transaction and
event from source documents

Prepare and analyze
the trial balance

Record relevant transactions
and events in a journal

Post journal information
to ledger accounts


2 ­ 3

C 1

Source Documents
Checks
Employee
Earnings
Records

Bills from
Suppliers

Purchase
Orders
Bank
Statements
Sales
Tickets


2 ­ 4

C 2

The Account and its Analysis

An
An account
account is
is aa
record
record of
of
increases
increases and
and
decreases
decreases in
in aa
specific
specific asset,
asset,
liability,
liability, equity,
equity,
revenue,
revenue, or
or
expense
expense item.
item.

The
The general
general
ledger

ledger is
is aa record
record
containing
containing all
all
accounts
accounts used
used by
by
the
the company.
company.


2 ­ 5

C 2

The Account and its Analysis

Owner,
Owner, Capital
Capital
Owner,
Owner, Withdrawals
Withdrawals


2 ­ 6

C 2

Asset Accounts
Cash
Cash
Land
Land

Buildings
Buildings

Asset
Asset
Accounts
Accounts

Equipment
Equipment
Supplies
Supplies

Accounts
Accounts
Receivable
Receivable
Notes
Notes
Receivable
Receivable

Prepaid
Prepaid
Accounts
Accounts


2 ­ 7

C 2

Liability Accounts
Accounts
Accounts
Payable
Payable

Notes
Notes
Payable
Payable

Liability
Liability
Accounts
Accounts
Accrued
Accrued
Liabilities
Liabilities

Unearned
Unearned
Revenue
Revenue


2 ­ 8

C 2

Equity Accounts
Owner’s
Owner’s
Capital
Capital

Owner’s
Owner’s
Withdrawals
Withdrawals

Equity
Accounts
Revenues
Revenues

Expenses
Expenses

2 ­ 9

C 2

The Account and its Analysis
Assets

=

Liabilities

+

Equity


2 ­ 10

C 3

Ledger and Chart of Accounts
The
The ledger
ledger is
is aa collection
collection of
of all
all accounts
accounts for
for an

an
information
information system.
system. A
A company
company’s
’s size
size and
and diversity
diversity
of
of operations
operations affect
affect the
the number
number of
of accounts
accounts needed.
needed.
The chart of accounts is a list of all accounts and includes an
identifying number for each account.
Account Number
101
106
126
128
167
201
236
301

Account Name
Cash
Accounts receivable
Supplies
Prepaid insurance
Equipment
Accounts payable
Unearned revenue
C. Taylor, Capital

Account Number
302
403
406
622
637
640
652
690

Account Name
C. Taylor, Withdrawals
Revenues
Rental revenue
Salaries expense
Insurance expense
Rent expense
Supplies expense
Utilities expense

2 ­ 11

C 4

Debits and Credits
A T-account represents a ledger account and
is a tool used to understand the effects of
one or more transactions.
Account Title
(Left side)
(Right side)
Debit
Credit


2 ­ 12

C 4

Double-Entry Accounting
Assets
ASSETS

Debit      Credit

  +        ­

Normal

Normal

=

Liabilities
LIABILITIES

Debit      Credit

   ­       +

Normal
Normal

+

Equity
EQUITIES

Debit      Credit

   ­       +

Normal
Normal


2 ­ 13

C 4

Double-Entry Accounting

Equity
Owner’s
’s
Owner
Capital
Capital

_

Owner's
Owner's
Withdrawals
Withdrawals

+

Revenues
Revenues

Owner’s
Capital

Owner's
Withdrawals

Revenues

Debit   Credit

Debit   Credit

Debit   Credit

  ­     +

  +      ­

  ­     +

_ Expenses
Expenses
Expenses

Debit   Credit

  +      ­


2 ­ 14

C 4

Double-Entry Accounting
An account balance is the difference between the increases
and decreases in an account. Notice the T-Account.

2 ­ 15

P 1

JOURNALIZING &
POSTING TRANSACTIONS
Assets
Assets

=

Liabilities
Liabilities

+

Equity
Equity

T- Account
(Left side)
(Right side)
Debit
Credit

Step 1: Analyze 
transactions and source 
documents.

ACCOUNT NAME:

Date

Step 2: Apply double­
entry accounting

ACCOUNT No.
Description

PR

Debit

Credit

Balance

Step 4: Post entry to ledger

Step 3: Record journal entry


2 ­ 16

P 1

Journalizing Transactions

Transaction
Transaction
Date

Date

Date
2011
Dec. 1 Cash


Titles
Titles of
of Affected
Affected
Accounts
Accounts

Description

Debit

Credit

30,000
C. Taylor, Capital
Investment by owner

Dec. 2 Supplies
Cash
Purchased supplies for cash


Transaction

Transaction
explanation
explanation

30,000

2,500
2,500


Dollar
Dollar amount
amount of
of debits
debits
and
and credits
credits


2 ­ 17

P 1

Balance Column Account
T-accounts are useful illustrations, but balance
column ledger accounts are used in practice.


2 ­ 18

P 1

Posting Journal Entries
2011
Dec. 1 Cash

30,000
C. Taylor, Capital
Investment by owner

11

Identify the debit account in ledger.

30,000


2 ­ 19

P 1

Posting Journal Entries
2011
Dec. 1 Cash

30,000
C. Taylor, Capital
Investment by owner

22

Enter the date.

30,000


2 ­ 20

P 1

Posting Journal Entries
2011
Dec. 1 Cash

30,000
C. Taylor, Capital
Investment by owner

33

Enter the amount and description.

30,000


2 ­ 21

P 1

Posting Journal Entries
2011
Dec. 1 Cash

30,000
C. Taylor, Capital
Investment by owner

44

Enter the journal reference.

30,000


2 ­ 22

P 1

Posting Journal Entries
2011
Dec. 1 Cash

30,000
C. Taylor, Capital
Investment by owner

55

Compute the balance.

30,000


2 ­ 23

P 1

Posting Journal Entries
2011
Dec. 1 Cash

101
C. Taylor, Capital
Investment by owner

66

Enter the ledger reference.

30,000
30,000


2 ­ 24

A 1

Analyzing Transactions
Analysis:

Posting:
(1)

Cash
30,000

101

C. Taylor, Capital
(1)

301 301
30,000


2 ­ 25

A 1

Analyzing Transactions
Analysis:

Double entry:
(2)

Supplies
Cash

126

101

2,500
2,500

Posting:
(2)

Supplies
2,500

126

(1)

Cash
30,000

101

(2)

2,500