CHAPTER 2

A n a l y z i n g a n d R e c o r d i n g
T r a n s a c t i o n
 Analyzing and Recording Transaction

b. Analyzing and Processing

a. Analyzing and Recording
Transaction c. Trial Balance
Process
• General ledger • Trial balance preparation
• Source documents
• Double-entry accounting • Search and correction of errors
• The account and its analysis
• Journalizing and posting • Trial balance use
• Types of accounts
• An illustration
 a. Analyzing and Recording Process

Identify and describe transactions and events

Source Documents
Tickets, checks, purchase orders, bank statements, etc

A record of increase and decrease in a specific asset, liability, equity,

revenue or expense item.
The account and its analysis

analysed, summarized and presented in report financial statements.

Types of accounts Assets Accounts = Liability Accounts + Equity Accounts

 b. Analyzing and Processing Transaction

Assets Accounts = Liability Accounts + Equity Accounts

Cash accounts.
Accounts payable.

Accounts receivable Share - + -

Dividends Revenues Expanses
Capital
Note payable.
Note receivable.

Accrued liabilities.
Prepaid accounts

Supplies.

Equipment.
b. Analyzing and Processing Transaction

Collection of all accounts and their balances.

General ledger
A list of all ledger accounts : chart of accounts

Steps
Double-Entry accounting
Debits and credits.

Journalizing and Posting Transaction

Journalizing and posting
Journalizing Transaction
 b. Analyzing and Processing Transaction

Double-Entry Accounting

At least two accounts are involved, with at least one debit and one credit.

Steps The total amount debited must equal the total amount credited.

The accounting equation must not be violated.

 b. Analyzing and Processing Transaction

Debits and Credits

A T-account represents a ledger account and is tool used to un

derstand the effects of one or more transactions.

The left side of an account is called the debit side, often abbre
viated Dr and the right side is called the credit side, abbreviate
d Cr2.

The difference between total debits and total credits for an acc
ount, including any beginning balance, is the account balance.
b. Analyzing and Processing Transaction

Journalizing and Posting

Transaction

Identify transactions and source documents.

Analyze transactions using the accounting equation.

Record journal entry.

Post entry to ledger.

 b. Analyzing and Processing Transaction

Journalising Transaction

It can be used to record any transaction and inclu Four steps analyzing and processing
des the following information about each transaction :
transaction :
1. Enter titles of accounts debited and then enter a
i. Date of transaction. mounts in the debit column on the same line.
ii. Titles of affected accounts. 2. Enter titles of accounts credited and then enter a
mounts in the credit column in the same line.
iii. Dollar amount of each debit and credit.
3. Enter a brief explanation of the transaction on the
iv. Explanation of the transaction.
line below the entry.
v. Steps to record entries in a general journal :
4. When a transaction is first recorded, the posting
vi. Date the transaction. reference (PR) column is left blank.
 b. Analyzing and Processing Transaction

Analyzing Transaction

1. Identify
• June 7, The company collected revenue for completed service in value of 5.700. (cash account:10
1, Revenue accout: 401)

2. Analyzing 3. Recording

4. Posting
 c. Tr i a l B a l a n c e

• A trial balance is a list of accounts and

their balances at a point in time.

• Can be used to confirm this and to follow

up on any abnormal or unusual balances
 c. Tr i a l B a l a n c e

Preparing Trial Balance

• List each account title and its amount (from ledger) in the trial balance.
• If an account has a zero balance, list it wait a zero in its normal balance column.
• Compute the total of debit balances and the total of credit balances.
• Verify (prove) total debit balances equal total credit balance.

Searching for and Correcting Errors

 c. Tr i a l B a l a n c e

Using Trial Balance to Prepare Financial

Statements

Income Statement

Beginning Statement Statement of Changes Ending Statement

of Financial Position in Equity of Financial Position

Statement of Cash Flow

Point in Time Period of Time Point in Time

 CHAPTER 3
Adjusting Accounts and
Preparing Financial Statement
 Adjusting Account and Preparing
Finacial Statement

a. Timing and c. Preparing

b. Adjusting
Reporting Financial
Accounts
Account Statement
 a. Timing and Reporting Account
The Accounting Period
The time period assumption
presumes that an organization’s
activities can be divided into
specific time period
Ex: Month, 3 Months, 6 Month, or a Y
ear.
Accrual Basis vs Cash Basis
Accrual Basis Accounting
Recognized revenue when earned and expense
when incurred.
Cash Basis Accounting
Recognized revenue when cash is received and
expense when cash is paid.
Accrual Accounting Basis better reflects
business performance that Cash Basis
 b. Adjusting Account

Adjusting Entry is made at the end of an accounting period to reflect a transaction

or event that is not yet recorded.

Prepaid Expense
Paid (or Received) cash before expense (or
revenue) recognized
Unearned
Revenue

Adjustment
Accrued Expense
Paid (or Received) cash after expense (or
revenue) recognized
Accrued Revenue
 b. Adjusting Account

3 Steps of Adjusting Account:

1. Determined Current Balance Equals

2. Determined Current Balance Should Equals

3. Record Adjusting Entry

 b. Adjusting Account

Example:
Step 1 The current balance of Company A’s Prepaid Insurance is equal to its $2.400 payment for 2
4 months of insurance benefit that began on December 1, 2011.

Step 2 With the passage of time, the insurance benefit gradually expire and a portion of prepaid in
surance assets become expense. On Dec 31, 2011 the insurance expense is $100 ($2.400/
24 months) which leaves $2.300 prepaid insurance.

Step 3 The adjusting entry record Insurance Expense reduce the Prepaid Insurance (Assets).
T-Accounts
General Journals
Insurance Expense Prepaid Insurance
31-Dec-11 Insurance Expense 100 Dec, 31 1 Dec, 1 2.4 Dec, 31 10
Prepaid Insuranc
100
00 00 0
e Balance 2.3
00
 b. Adjusting Account

The Adjusted General Journals and T-Accounts will be the material to create an
Adjusted Trial Balance.
Company A
Trial Balance
December 31, 2011
Unadjusted Trial Balance Unadjusted Trial Balance Unadjusted Trial Balance
Account Title
Debit ($) Credit ($) Debit ($) Credit ($) Debit ($) Credit ($)
Cash 14,105 14,105
Account Receivable 30,000 30,000
Prepaid Insurance 6,000 500 5,500
Accumulated Depreciation 300 300
Account Payable 30 30
Unearned Revenue 15,000 7,500 7,500
Share Capital 156,000 156,000
Revenue 35,700 7,500 43,200
Wages Expense 1,500 1,500
Rent Car Expense 70 30 100
Maintenance Expense 675 675
Depreciation Expense 300 300
Insurance Expanse 500 500
Total 267,300 267,300 8,330 8,330 267,630 267,630
 b. Adjusting Account

Adjusted Statement Statement

Income
Trial of Changes of Financial
Statement
Balance in Equity Position
 CASE
Chapter 2 and 3 Case Study
 Shelton engineering completed the following transaction in the month of
June,
• June 2, 2018 Shana Shelton received shares for investing 105.000 cash, 6000
value of office equipment, and 45000 value of drafting equipment.
asset = liability + equity
Step 2 cash drafting eq office eq share cap
105000 45000 6000 156000
Case Study

Step 3 transaction debit credit

cash 105000
drafting eq 45000
office eq 6000
share cap 156000

Cash Drafting Equipment

Step 4 Debit Credit Debit Credit
2-Jun 105,000 2-Jun 45,000

Share Capital
Office Equipment
Debit Credit
Debit Credit
2-Jun 156,000
2-Jun 6,000
 Shelton engineering completed the following transaction in the month of
June,
• June 3, 2018 The company purchased land worth of 54.000 for a new office by
paying 5400 in cash and the rest with signing long term note payable for 48600

Step 2 asset = liability + equity

cash land note payable
Case Study

-5400 54000 48600

Step 3
transaction debit credit
land 54000
cash 5400
note payable 48600

Cash Note Payable

Step 4 Debit Credit Debit Credit
2-Jun 105,000 3-Jun 48,600
3-Jun 5,400

Land
Debit Credit
3-Jun 54,000
 Shelton engineering completed the following transaction in the month of
June,
• June 4, 2018 The company purchased portable building for 75000 in cash for 250
months depreciation (the value of the portable building turn to 0 if 250 months has
passed) - prepaid expense
Step 2 asset = liability + equity
Case Study

cash building
-75000 75000

4 june 30 june
Step 3 transaction debit credit adjustment debit credit
building 75000 accumulated depr
300
cash 75000 eciation
building 300

Step 4 Cash Accumulated Depreciation

Debit Credit Debit Credit
2-Jun 105,000 30-Jun 300
3-Jun 5,400
4-Jun 75,000
Building
Debit Credit
4-Jun 75,000
 Shelton engineering completed the following transaction in the month of
June,
• June 6, 2018 The company paid 6000 in cash in advance in may for 12 months in
surance policy - prepaid expense

Step 2 asset = liability + equity

cash prepaid insurance
-6000 6000
Case Study

Step 3 6 june 30 june

transaction debit credit adjustment debit credit
prepaid insurance 6000 prepaid insur
cash 6000 ance 500
insurance expe
nse 500

Step 4 Cash Prepaid Insurances

Debit Credit Debit Credit
2-Jun 105,000 6-Jun 6,000
3-Jun 5,400 30-Jun 500
4-Jun 75,000 Insurance Expense
6-Jun 6,000 Debit Credit
30-Jun 500
 Shelton engineering completed the following transaction in the month of
June,
• June 7, 2018 The company collected revenue for completed service in value of
5.700

Step 2 asset = liability + equity

cash revenue
5700 5700
Case Study

Step 3
transaction debit credit
cash 5700
revenue 5700

Step 4 Cash Revenue

Debit Credit Debit Credit
2-Jun 105,000 7-Jun 5,700
3-Jun 5,400
4-Jun 75,000
6-Jun 6,000
7-Jun 5,700
 Shelton engineering completed the following transaction in the month of
June,
• June 9, 2018 The company purchased 22500 of additional drafting equipment by
paying 10.500 cash and signing long term note payable for 12.000

Step 2 asset = liability + equity

cash drafting eq note payable
Case Study

-10500 22500 12000

Step 3
transaction debit credit
drafting eq 22500
cash 10500
note payable 12000
Step 4
Cash Drafting Equipment
Debit Credit Debit Credit
2-Jun 105,000 2-Jun 45,000
3-Jun 5,400 9-Jun 22,500
4-Jun 75,000
Note Payable
6-Jun 6,000
Debit Credit
7-Jun 5,700
3-Jun 48,600
9-Jun 10,500
9-Jun 12,000
 Shelton engineering completed the following transaction in the month of
June,
• June 10, 2018 The company completed 12000 worth of service but this paid later
will be received within 30 days.

Step 2 asset = liability + equity

account rec revenue
Case Study

12000 12000
Step 3
transaction debit credit
account rec 12000
revenue 12000

Step 4 Account Receivable Revenue

Debit Credit Debit Credit
10-Jun 12,000 7-Jun 5,700
14-Jun 18,000 10-Jun 12,000
 Shelton engineering completed the following transaction in the month of
June,
• June 11, 2018 The company purchased additional office equipment for 2250 on
credit

Step 2 asset = liability + equity

office eq account pay
2250 2250
Case Study

Step 3
transaction debit credit
office req 2250
account pay 2250

Step 4 Office Equipment Account Payable

Debit Credit Debit Credit
2-Jun 6,000 11-Jun 2,250
11-Jun 2,250
 Shelton engineering completed the following transaction in the month of
June,
• June 14, 2018 The company completed 18000 worth of service on credit

Step 2 asset = liability + equity

account rec revenue
Case Study

18000 18000
Step 3
transaction debit credit
account rec 18000
revenue 18000

Step 4 Revenue
Account Receivable
Debit Credit Debit Credit
10-Jun 12,000 7-Jun 5,700
14-Jun 18,000 10-Jun 12,000
14-Jun 18,000
 Shelton engineering completed the following transaction in the month of
June,
• June 18, 2018 The company received a bill for rent of equipment that was recently
used to complete the job. The cost of rent is 1200 must be paid within this month (
June)
Step 2 asset = liability + equity
account pay rent eq expense
Case Study

1200 1200

Step 3
transaction debit credit
rent eq expense 18000
account pay 18000

Step 4 Account Payable Rent of Equipment Expense

Debit Credit Debit Credit
11-Jun 2,250 18-Jun 1,200
18-Jun 1,200
 Shelton engineering completed the following transaction in the month of
June,
• June 21, 2018 The company rent an operational car $10/day and will be paid
every Wednesday (27th June, 4th July, etc) - accrued expense

Step 2 asset = liability + equity

account pay rent car expense
Case Study

50 50

Step 3 21 june 30 june

transaction debit credit adjustment debit credit
rent car expense 50 rent car expense 20
account pay 50 account pay 20

Account Payable Rent Car Expense

Step 4 Debit Credit Debit Credit
11-Jun 2,250 21-Jun 50
18-Jun 1,200 30-Jun 20
21-Jun 50
30-jun 20
 Shelton engineering completed the following transaction in the month of
June,
• June 24, 2018 The company get 15000 for 30 housing engineering project, by 30
June, the company has completed 15 housing project. All revenue paid in
advance. - Prepaid revenue
Step 2 asset = liability + equity
cash unearned rev
Case Study

15000 15000

Step 3 24 june 30 june

transaction debit credit adjustment debit credit
cash 15000 uneaned rev 7500
unearned rev 15000 revenue 7500

Cash Unearned Revenue

Debit Credit Debit Credit
Step 4
2-Jun 105,000 24-Jun 15,000
3-Jun 5,400 30-Jun 7,500
4-Jun 75,000 Revenue
6-Jun 6,000 Debit Credit
7-Jun 5,700 7-Jun 5,700
9-Jun 10,500 10-Jun 12,000
24-Jun 15,000 14-Jun 18,000
30-Jun 7,500
 Shelton engineering completed the following transaction in the month of
June,
• June 25, 2018 The company paid 1500 cash for wages)

Step 2 asset = liability + equity

cash wage exp
Case Study

-1500 1500

Step 3
transaction debit credit
wage exp 1500
cash 1500

Step 4 Cash Wages Expense

Debit Credit Debit Credit
2-Jun 105,000 25-Jun 1,500
3-Jun 5,400
4-Jun 75,000
6-Jun 6,000
7-Jun 5,700
9-Jun 10,500
24-Jun 15,000
25-Jun 1,500
 Shelton engineering completed the following transaction in the month of
June,
• June 25, 2018 The company paid 2250 to settle the account payable on
transaction June 11.

Step 2 asset = liability + equity

cash account pay
Case Study

-2250 -2250

Step 3
transaction debit credit
account pay 2250
cash 2250

Step 4 Cash Account Payable

Debit Credit Debit Credit
2-Jun 105,000 11-Jun 2,250
3-Jun 5,400 18-Jun 1,200
4-Jun 75,000 21-Jun 50
6-Jun 6,000 25-Jun 2,250
7-Jun 5,700
9-Jun 10,500
24-Jun 15,000
25-Jun 1,500
25-Jun 2,250
 Shelton engineering completed the following transaction in the month of
June,
• June 26, 2018 The company paid 675 in cash for maintenance of equipment

Step 2 asset = liability + equity

cash maint exp
675 675
Case Study

Step 3
transaction debit credit
maint exp 675
cash 675
Cash
Maintenance Expense
Step 4 Debit Credit
Debit Credit
2-Jun 105,000
26-Jun 675
3-Jun 5,400
4-Jun 75,000
6-Jun 6,000
7-Jun 5,700
9-Jun 10,500
24-Jun 15,000
25-Jun 1,500
25-Jun 2,250
26-Jun 675
 Shelton engineering completed the following transaction in the month of
June,
• June 27, 2018 The company paid 9000 dividend

Step 2 asset = liability + equity

cash dividend
-9000 9000
Case Study

Step 3 transaction debit credit

dividend 9000
cash 9000
Cash
Debit Credit
Step 4 2-Jun 105,000
Dividend
3-Jun 5,400
Debit Credit
4-Jun 75,000
27-Jun 9,000
6-Jun 6,000
7-Jun 5,700
9-Jun 10,500
24-Jun 15,000
25-Jun 1,500
25-Jun 2,250
26-Jun 675
27-Jun 9,000
 Shelton engineering completed the following transaction in the month of
June,
• June 27, 2018 The Company paid the rent car expense for period 21 – 27 June 2
018 for 70
Step 2 asset = liability + equity
cash account pay
-50 -50
Case Study

Step 3
transaction debit credit
account pay 50
cash 50
Cash
Debit Credit
Step 4
2-Jun 105,000 Account Payable
3-Jun 5,400 Debit Credit
4-Jun 75,000
11-Jun 2,250
6-Jun 6,000 18-Jun 1,200
7-Jun 5,700 21-Jun 50
9-Jun 10,500 25-Jun 2,250
24-Jun 15,000 27-Jun 1,200
25-Jun 1,500
27-Jun 50
25-Jun 2,250

26-Jun 675
27-Jun 9,000
27-Jun 70
 Cash Drafting Equipment Prepaid Insurances
Debit Credit
2-Jun 105,000
Debit Credit Debit Credit
2-Jun 45,000 6-Jun 6,000
3-Jun 5,400
9-Jun 22,500 30-Jun 500
4-Jun 75,000
Balance 67,500 Balance 5,500
6-Jun 6,000

7-Jun 5,700 Office Equipment Accumulated Depreciation

9-Jun 10,500 Debit Credit Debit Credit
24-Jun 15,000 2-Jun 6,000 30-Jun 300
25-Jun 1,500 11-Jun 2,250 Balance 300
Balance 8,250
Asset

25-Jun 2,250

26-Jun 675 Land

27-Jun 9,000 Debit Credit
3-Jun 54,000
27-Jun 70
Balance 54,000
28-Jun 1,200
Balance 14,105

Building Account Receivable

Debit Credit Debit Credit
4-Jun 75,000 10-Jun 12,000
Balance 75,000 14-Jun 18,000
Balance 30,000
 Shelton engineering completed the following transaction in the month of
June,
• June 28, 2018 The company paid 1200 for transaction June 18.

Step 2 asset = liability + equity

cash account pay
-1200 -1200
Case Study

Step 3 transaction debit credit

account pay 1200
cash 1200

Cash
Step 4 Debit Credit
2-Jun 105,000 Account Payable
3-Jun 5,400
4-Jun 75,000
Debit Credit
6-Jun 6,000 11-Jun 2,250
7-Jun 5,700 18-Jun 1,200
9-Jun 10,500 21-Jun 70
24-Jun 15,000
25-Jun 1,500
25-Jun 2,250
25-Jun 2,250 27-Jun 70
26-Jun 675 28-Jun 1,200
27-Jun 9,000
27-Jun 70
28-Jun 1,200
 Account Payable
Debit Credit
11-Jun 2,250
18-Jun 1,200
21-Jun 50
25-Jun 2,250
27-Jun 50
28-Jun 1,200
30-Jun 20
Liability

Balance 20

Note Payable
Debit Credit
3-Jun 48,600
9-Jun 12,000
Balance 60,600

Unearned Revenue
Debit Credit
24-Jun 15,000
30-Jun 7,500
Balance 7,500
 Share Capital Rent Car Expense
Debit Credit Debit Credit
2-Jun 156,000 21-Jun 50
Balance 156,000 30-Jun 20
balance 70
Dividend
Rent of Equipment Expense
Debit Credit
Debit Credit
27-Jun 9,000
18-Jun 1,200
Balance 9,000
Balance 1,200
Revenue
Equity

Maintenance Expense
Debit Credit Debit Credit
7-Jun 5,700 26-Jun 675
10-Jun 12,000 Balance 675
14-Jun 18,000 Depreciation Expense
30-Jun 7,500 Debit Credit
Balance 43,200 30-Jun 300
Balance 300
Wages Expense Insurance Expense
Debit Credit Debit Credit
25-Jun 1,500 30-Jun 500
Balance 1,500 Balance 500
 Shelton Engineering Company
Trial Balance
June 30, 2018
Debit ($) Credit ($)
Cash 14,105
Account Receivable 30,000
Prepaid Insurance 6,000
Tr i a l B a l a n c e

Office Equipments 8,250

Drifting Equipments 67,500
Building 75,000
Land 54,000
Account Payable -
Note Payable 60,600
Unearned Revenue 15,000
Share Capital 156,000
Devidends 9,000
Revenue 35,700
Wages Expense 1,500
Rent Car Expense 70
Maintenance Expense 675
Rent of Equipment Exp
ense 1,200
Total 267,300 267,300
 Shelton Engineering Company
Trial Balance
June 30, 2018
Unadjusted Trial Balance Adjustment Trial Balance Adjusted Trial Balance
Account Title
Debit ($) Credit ($) Debit ($) Credit ($) Debit ($) Credit ($)
Cash 14,105 14,105
Account Receivable 30,000 30,000
Prepaid Insurance 6,000 500 5,500
Office Equipments 8,250 8,250
Drifting Equipments 67,500 67,500
Building 75,000 75,000
Land 54,000 54,000
Accumulated Depreciation 300 300
Account Payable 20 20
Note Payable 60,600 60,600
Unearned Revenue 15,000 7,500 7,500
Share Capital 156,000 156,000
Devidends 9,000 9,000
Revenue 35,700 7,500 43,200
Wages Expense 1,500 1,500
Rent Car Expense 50 20 70
Maintenance Expense 675 675
Rent of Equipment Expense 1,200 1,200
Depreciation Expense 300 300
Insurance Expanse 500 500
Total 267,300 267,300 8,320 8,320 267,600 267,600
 • An income statement reports the revenues earned less the expenses
incurred by a business over a period of time.
Income Statement
 • The statement of changes in equity repots information about how equity
changes over the reporting period.
Change in Equity
Statement of
Financial Position
Statement of

• The statement of financial position reports the financial position of a

company at a point in time, usually at the end of a mouth, quarter or year.
 T h a n k Yo u
Chapter 2 and Chapter 3