Professional Documents
Culture Documents
Chapter 2
C1
C2
SOURCE DOCUMENTS
Checks Employee Earnings Records Bills from Suppliers Purchase Orders
McGraw-Hill/Irwin
Slide 3
C3
The general ledger is a record containing all accounts used by the company.
Slide 4
C3
McGraw-Hill/Irwin
Slide 5
C3
ASSET ACCOUNTS
Cash Land Accounts Receivable
Buildings
Asset Accounts
Supplies
Notes Receivable
Equipment
Prepaid Accounts
McGraw-Hill/Irwin
Slide 6
C3
LIABILITY ACCOUNTS
Accounts Payable Notes Payable
Liability Accounts
Accrued Liabilities
McGraw-Hill/Irwin
Unearned Revenue
Slide 7
C3
EQUITY ACCOUNTS
Owners Equity Owners Withdrawals
Equity Accounts
Revenues Expenses Owners Capital
Slide 8
McGraw-Hill/Irwin
C3
Assets
Liabilities
+
+
Equity
+
Owners Capital
Owner's Withdrawals
Expenses
Revenues
McGraw-Hill/Irwin
Slide 9
C4
Account Name Cash Accounts receivable Supplies Prepaid insurance Equipment Accounting payable Unearned revenue C. Taylor, Capital
Accounting Number 302 403 406 622 637 640 652 690
Accounting Name C. Taylor, Withdrawals Revenues Rental revenue Salaries expense Insurance expense Rent expense Supplies expense Utilities expense
Slide 10
C5
McGraw-Hill/Irwin
Slide 11
C5
DOUBLE-ENTRY ACCOUNTING
Assets
ASSETS
Liabilities
LIABILITIES
Equity
EQUITIES
Debit
Credit
Debit
Credit
Debit
Credit
McGraw-Hill/Irwin
Slide 12
C5
DOUBLE-ENTRY ACCOUNTING
Equity
Owners Capital
Owners Capital
Owner's Withdrawals
Owner's Withdrawals
Revenues
Revenues
_ Expenses
Expenses
Debit Credit
Debit Credit
Debit Credit
Debit Credit
McGraw-Hill/Irwin
Slide 13
C5
DOUBLE-ENTRY ACCOUNTING
An account balance is the difference between the increases and decreases in an account. Notice the T-Account.
Cash
Investment by owner Consulting services revenues earned Collection of accounts receivable 30,000 Purchase of supplies 4,200 Purchase of equipment 1,900 Payment of rent Payment of salary Payment of account payable Withdrawal by owner 36,100 Total decreases 4,800 2,500 26,000 1,000 700 900 200 31,300
Slide 14
P1
Liabilities
Equity
ACCOUNT NAME:
Date Description PR
ACCOUNT No.
Debit Credit Balance
GENERAL JOURNAL
Date Description Post. Ref.
Page
Debit
123
Credit
P1
JOURNALIZING TRANSACTIONS
Transaction Date Titles of Affected Accounts
GENERAL JOURNAL
Date 2009 Dec. 1 Cash Description PR Debit 30,000 C. Taylor, Capital Investment by owner
Page 1
Credit
30,000
McGraw-Hill/Irwin
Transaction Dec. 2 Supplies Dollar amount2,500 of debits explanation and credits Cash 2,500 Purchased supplies for cash
Slide 16
P1
McGraw-Hill/Irwin
Slide 17
P1
Page 1
Credit
in ledger.
ACCOUNT No.
PR Debit Credit
2,500
CASH
101
Balance
Date 2009
Description
McGraw-Hill/Irwin
Dec. 3
Dec. 10
G1 G1
20,000.00 2,200.00
P1
Page 1
Credit
ACCOUNT No.
PR Debit Credit
101
Balance
Description
Dec. 3
Purchased equipment
G1
20,000.00
Slide ######## 19
P1
Page 1
Credit
description.
2,500 2,500
ACCOUNT No.
PR Debit Credit
101
Balance
Description
30,000 20,000
Slide 20 (20,000)
Dec. 3
P1
Page 1
Credit
ACCOUNT No.
Debit Credit
101
Balance
Description
PR G1 G1 G1
McGraw-Hill/Irwin
Dec. 10
P1
Page 1
Credit
ACCOUNT No.
PR G1 G1 Debit Credit
101
Balance
Description
30,000 20,000
30,000
Slide 22 (20,000)
Dec. 3
P1
Page 1
Credit
ACCOUNT No.
Debit Credit
101
Balance
Description
PR G1 G1 G1
30,000
Slide 23 (20,000) (17,800)
McGraw-Hill/Irwin
Dec. 10
A1
ANALYZING TRANSACTIONS
Transaction: Owner invested $30,000 in FastForward on Dec. 1.
Analysis:
Assets Cash 30,000 = Liabilities + Equity Capital 30,000
Double entry:
(1) Cash C. Taylor, Capital 101 301 30,000 30,000
301 301 30,000
Posting:
(1) Cash 30,000
101
McGraw-Hill/Irwin
Slide 24
A1
ANALYZING TRANSACTIONS
Transaction: FastForward purchases supplies by paying $2,500 cash.
Analysis:
Cash (2,500) Assets Supplies 2,500 = Liabilities + Equity Capital
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
McGraw-Hill/Irwin
Slide 25
A1
ANALYZING TRANSACTIONS
Transaction: FastForward purchases equipment by paying $26,000 cash.
Analysis:
Assets Cash Equipment (26,000) 26,000 = Liabilities + Equity Capital
Double entry:
(3) Equipment Cash 167 101 26,000 26,000
Posting:
(3) Equipment 26,000
167
(1)
Cash 30,000
101
(2) (3)
2,500 26,000
Slide 26
McGraw-Hill/Irwin
A1
ANALYZING TRANSACTIONS
Transaction: FastForward purchases $7,100 of supplies on credit.
Analysis:
Assets Supplies 7,100 = Liabilities Accounts Payable 7,100 + Equity Capital
Double entry:
(4) Supplies Accounts payable 126 201 7,100 7,100
Posting:
(2) (4)
McGraw-Hill/Irwin
126
201
7,100
Slide 27
A1
ANALYZING TRANSACTIONS
Transaction: FastForward provides consulting services and immediately collects $4,200 cash.
Analysis:
Assets Cash 4,200 = Liabilities + Equity Revenue 4,200
Double entry:
(5) Cash Consulting Revenue 101 403 4,200 4,200
Posting:
(1) (5)
McGraw-Hill/Irwin
403
(2) (3)
2,500 26,000
Slide 28
P2
After processing its remaining transactions for December, FastForwards Trial Balance is prepared.
FastForward Trial Balance December 31, 2009 Cash Accounts receivable Supplies Prepaid Insurance Equipment Accounts payable Unearned consulting revenue C. Taylor, Capital Owner's Withdrawals Consulting revenue Rental revenue Salaries expense Rent expense Utilities expense Total Debits $ 4,350 9,720 2,400 26,000 Credits
The trial balance lists all account balances in the general ledger. If the books are in balance, the total debits will equal the total credits.
200
McGraw-Hill/Irwin
P2
McGraw-Hill/Irwin
Slide 30
P2
Make sure the trial balance columns are correctly added. Make sure account balances are correctly entered from the ledger. See if debit or credit accounts are mistakenly placed on the trial balance.
McGraw-Hill/Irwin
Re-compute each account balance in the ledger. Verify that each journal entry is posted correctly. Verify that each original journal entry has equal debits and credits.
Slide 31
P3
Point in Time
Income Statement
McGraw-Hill/Irwin
Slide 32
P3
INCOME STATEMENT
FASTFORWARD Income Statement For the Month Ended December 31, 2009 Revenues: Consulting revenue $ 5,800 Rental revenue 300 Total revenues $ 6,100 Expenses: Rent expense 1,000 Salaries expense 1,400 Utilities expense 230 Total expenses 2,630 Net income $ 3,470
McGraw-Hill/Irwin
Slide 33
P3
Connections
FASTFORWARD Income Statement For the Month Ended December 31, 2009 Revenues: Consulting revenue $ 5,800 Rental revenue 300 Total revenues $ Expenses: Rent expense 1,000 Salaries expense 1,400 Utilities expense 230 Total expenses Net income $
McGraw-Hill/Irwin
C. Taylor, Capital 12/1/09 Net income for December Plus: Investments by Owner Less: Owner Withdrawals . C. Taylor, Capital, 12/31/09
6,100
2,630 3,470
Slide 34
P3
BALANCE SHEET
Statement of Owner's Equity For the Month Ended December 31, 2009
C. Taylor, Capital 12/1/09 Net income for December Plus: Investments by Owner Less: Owner Withdrawals C. Taylor, Capital, 12/31/09
Connections
Cash Supplies Prepaid insurance Equipment Total assets Liabilities Accounts payable Unearned revenue Total liabilities Equity
$ $
$ $
P3
PRESENTATION ISSUES
1. Dollar signs are not used in journals and ledgers. 2. Dollar signs appear in financial statements and other reports such as trial balances. The usual practice is to put dollar signs beside only the first and last numbers in a column. 3. When amount are entered in the journal, ledger, or trial balance, commas are optional to indicate thousands, millions, and so forth. 4. Commas are always used in financial statements. 5. Companies commonly round amounts in reports to the nearest dollar, or even to a higher level.
McGraw-Hill/Irwin
Slide 36
A2
END OF CHAPTER 2
McGraw-Hill/Irwin
Slide 38