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Chapter 2

Chapter 2. Recording Business Transactions. Key Words. Source documents 原始凭证 Journal 日记账 Ledger 分类账 Post 过账 Account 账户 Accrued liabilities 应计负债 Double-entry accounting 复式记账会计 Debit 借方（借记） Credit 贷方（贷记）. Record relevant transactions and events in a journal.

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Chapter 2

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  1. Chapter 2 Recording Business Transactions

  2. Key Words • Source documents 原始凭证 • Journal 日记账 • Ledger 分类账 • Post 过账 • Account 账户 • Accrued liabilities 应计负债 • Double-entry accounting 复式记账会计 • Debit 借方（借记） • Credit 贷方（贷记）

  3. Record relevant transactions and events in a journal Analyze each transaction and event from source documents Postjournal information to ledgeraccounts Prepare and analyze the trial balance Analyzing and Recording Process C 1

  4. TECHNIQUE OF JOURNALIZING

  5. Ledger(CASH)

  6. A TRIAL BALANCE Lyon, CPA The total debits must equal the total credits. Trial Balance Sep.30, 2006 Debit Credit Cash $ 33,300 Accounts receivable 2,000 Office supplies 500 land 18,000 100 Accounts Payable service Revenue 8,500 2,700 expenses Lyon, withdrawals 2,100 Lyon, capital 50,000 $ 58,600 $ 58,600

  7. Use accounting terms Objective 1

  8. The Account and its Analysis C 3 An account is Detailed record of increases and decreases in specific assets, liabilities, or owner’s equity during a period • .Gay Gillen invests $30,000 to begin Gay Gillen eTravel. • .Gillen purchases an office location, paying $20,000 in cash.

  9. Asset Accounts Cash (1) 30,000 (2) 20,000 Bal. 10,000

  10. The Ledger and its Analysis C 3 The ledger is the record holding all the accounts If ledger is like a book,account is like pages of the book.

  11. Cash Notes Payable Accounts Payable Ledger Accounts Receivable Revenues C. Lapp, Capital All Individual Accounts Combined Make Up the Ledger

  12. Asset Accounts C 3 Cash Accounts Receivable Land AssetAccounts Notes Receivable Buildings Prepaid Expenses Equipment Supplies

  13. Assets are divided into • ---current and non-current assets • ---tangible and intangible assets

  14. Current assets are cash and assets that are expected to be converted into cash or used up in the near future,usually within one year. Non-current assets are expected to be useful for longer than one future year.

  15. Types of Assets • Current Assets: Cash, Short-Term Investments, Accounts Receivable, Inventory, and Prepaid Expenses • Property,Building, Plant & Equipment • Long-Term Investments • Intangible Assets • Other Assets

  16. Cash is money on hand and money in bank accounts that can be withdrawn at any time. An account receivable is an amount that is owed to the business,usually by one of its customers,as a result of the ordinary extension of credit.

  17. Inventories are goods being held for sales,as well as supplies,raw materials,and partially finished products that will be sold upon completion. Prepaid Expenses is the name for intangible assets that will be used up in the near future. Intangible assets are assets that can not be touched;They have no physical substance.Such as patents,trademarks,goodwill.

  18. Eg. Groceries on the shelves of a grocery store ____[are/are not] current assets. The store building _____ [is/is not] a current assets Some assets,such as automobiles, are a property,which are ___[tangible/intangible]and others,such as goodwill, is a property right,which is ___[tangible/intangible]

  19. Liability Accounts C 3 Accounts Payable Notes Payable LiabilityAccounts Accrued Liabilities

  20. Liabilities • Liabilities are divided into two main categories • ---current liabilities and long-term liabilities Examples: Accounts Payable Notes Payable Interest Payable Salaries Payable ………

  21. Eg. Current liabilities are claims that become due within a ____[short/long]time,usually within _____ (how long ). ______ are the opposite of accounts receivable,they are amounts that____[the company owes to its suppliers/are owed to the company by its customers]. one year Accounts payable

  22. Eg. In December 10, 1999, Smith Company sold a personal computer to Brown Company for $3000.Brown Company agreed to pay for it within 60 days. On their December 31,1999, Smith Company would report the $3000 as Accounts _____[receivable/payable]and Brown Company would report the $3000 as Accounts _____[receivable/payable].

  23. Equity Accounts C 3 Owner’s Withdrawals Owner’s Capital EquityAccounts Revenues Expenses

  24. John’s Gas Station Example • Assume that the business sold $5,000 worth of gasoline on a given day and performed $3,000 of repair services. • How much revenue did the business earn that day? • $8,000

  25. John’s Gas Station Example • Revenues increase John’s equity in the business. • The business had to pay mechanics and vendors $3,750 for the work performed that day.

  26. John’s Gas Station Example • Expenses decrease John’s equity in the business. • How much was the net increase in John’s equity that day? • $4,250

  27. Chart of Accounts • List of all accounts used by a company along with the account numbers

  28. Apply the Rules of Debit and Credit. Objective 2

  29. Double Entry System • Record dual effects of each transaction • Each transaction affects at least two accounts • Each transaction is recorded with at least • One debit • One credit • Total debits must equal total credits

  30. A T-account represents a ledger account and is a tool used to understand the effects of one or more transactions. Debits and Credits C 5

  31. Rules of Debit and Credit Assets Liabilities Owner’s Equity = + Debit + Credit – Debit – Credit + Debit – Credit +

  32. – – + + Owner’s Capital Owner's Withdrawals Revenues Expenses Remember accounting equation C 3 = + Assets Liabilities Equity

  33. _ _ Owner’s Capital Owner's Withdrawals + Revenues Expenses Capital Owner's Withdrawals Revenues Expenses Debit Credit Debit Credit Debit Credit Debit Credit - + +- - + +- Double-Entry Accounting C 5 Equity

  34. Double-Entry Accounting C 5 An account balance is the difference between the increases and decreases in an account. Notice the T-Account

  35. Normal Account Balances • The side where we expect increases to be recorded is the normal balance side.

  36. Debit Credit Debit Credit Debit Credit + - - + - + = + Normal Balance Normal Balance Normal Balance Assets Liabilities Equity Normal Balances

  37. Normal Balance Normal Balance Normal Balance Normal Balance Normal Balances Owner’s Equity _ _ Owner’s Capital Owner’s Withdrawals + Revenues Expenses Debit Credit Debit Credit Debit Credit Debit Credit - + + - - + + -

  38. DEBITS & CREDITS Debits Credits Balance Assets Increases Decreases Debit Liabilities Decreases Increases Credit Capital Decreases Increases Credit Revenue Decreases Increases Credit Expenses Increases Decreases Debit Withdrawals Increases Decreases Debit

  39. Normal Balance • Debit • Credit • Credit • Debit • Credit • Debit • Assets • Liabilities • Capital • Withdrawals • Revenue • Expenses

  40. Lyon,CPA Example • Transaction1 Lyon invests $50,000 of his money to begin the business

  41. Lyon,CPA Example cash Capital Debit Credit Dr. Cr. +50,000 +50,000

  42. Record Transactions in the Journal. Objective 3

  43. Journal • Chronological record of the transactions • Consists of at least one debit and one credit

  44. Journalizing Transactions • Identify each account affected and its type • Determine whether each account is increased or decreased. Use the rules of debit and credit • Record transaction in journal, including a brief explanation • Debit side of entry is entered first • Total debits should always equal total credits

  45. Titles of Affected Accounts • Transaction Date • Transaction explanation • Dollar amount of debits and credits Journalizing Transactions P1

  46. General Journal Style conventions that must be followed: • Year is entered at the top of each page • The month is only entered for the first entry on a page unless the month changes in the middle of the page. The month may be abbreviated • Enter numerical date for each transaction, even if there are many entries on same date

  47. General Journal • Debits are ALWAYS entered first in an entry. Use the EXACT account title and do not abbreviate • Credits are INDENTED and listed second • Do not use dollar signs • SKIP A LINE between each entry • Never split an entry between two pages

  48. TECHNIQUE OF JOURNALIZING

  49. Recording Transactions • On April 2, Gay Gillen invested $30,000 in Gay Gillen eTravel. • What is the journal entry? • April 2 Cash 30,000 Gay Gillen, Capital 30,000 Received initial investment from owner

  50. Journals • What does a journal entry include? • date of the transaction • title of the account debited • title of the account credited • amount of the debit and credit • description of the transaction

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