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UNIT-3 Acct - 103

UNIT-3 Acct - 103. College of Business Administration, Al-Kharj Salman Bin Abdulaziz University KINGDOM OF SAUDI ARABIA. Syllabus Trial Balance: Meaning, Importance and Preparation of Trial Balance. Objective of This Unit.

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UNIT-3 Acct - 103

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  1. UNIT-3Acct - 103

    College of Business Administration, Al-Kharj Salman Bin Abdulaziz University KINGDOM OF SAUDI ARABIA
  2. Syllabus Trial Balance: Meaning, Importance and Preparation of Trial Balance. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  3. Objective of This Unit 1 Explain what an account is and how it helps in the recording process 2 Define debits and credits and explain how they are used to record business transactions 3 Identify the basic steps in the recording process 4 Explain what a journal is and how it helps in the recording process 5 Explain what a ledger is and how it helps in the recording process 6 Explain what posting is and how it helps in the recording process DrMasharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  4. THE RECORDING PROCESS 1 Analyze each transaction (+, -) 2 Enter transaction in a journal 3 Transfer journal information to ledger accounts Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  5. THE JOURNAL Transactions Are initially recorded in chronological order before they are transferred to the ledger accounts. Steps in journal; Spaces for dates Account titles and explanations References Two amount columns Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  6. THE JOURNAL Ajournal makes several contributions to recording process: 1 discloses in one place the complete effect of a transaction 2 provides a chronological record of transactions 3 helps to prevent or locate errors as debit and credit amounts for each entry can be compared Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  7. JOURNALIZING Entering transaction data in the journal is known as journalizing. Separate journal entries are made for each transaction. A complete entry consists of:1 the date of the transaction,2 the accounts and amounts to be debited and credited,3 a brief explanation of transaction. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  8. Liabilities Assets Owner’s Equity = + Owner’s Capital Owner’s Drawing = + - Assets Liabilities Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. + - - + - + + - + Revenues - Expenses Dr. Cr. Dr. Cr. - + + - EXPANDED BASIC EQUATION & RULES OF DEBIT (Dr) /CREDIT (Cr) & EFFECTS Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  9. J1 GENERAL JOURNAL Date Account Titles and Explanation Ref. Debit Credit 2005 Sept. 1 Cash 15,000 R. Neal, Capital 15,000 (Invested cash in business) TECHNIQUE OF JOURNALIZING The date of the transaction is entered into the date column. 1 Computer Equipment 7,000 Cash 7,000 (Purchased equipment for cash) Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  10. J1 GENERAL JOURNAL Date Account Titles and Explanation Ref. Debit Credit 2005 Sept. 1 Cash 15,000 R. Neal, Capital 15,000 (Invested cash in business) TECHNIQUE OF JOURNALIZING The debit account title is entered at the extreme left margin of the Account Titles and Explanation column. The credit account title is indented on the next line. 1 Computer Equipment 7,000 Cash 7,000 (Purchased equipment for cash) Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  11. TECHNIQUE OF JOURNALIZING The amounts for the debits are recorded in the Debit column and the amounts for the credits are recorded in the Credit column. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  12. TECHNIQUE OF JOURNALIZING A brief explanation of the transaction is given. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  13. TECHNIQUE OF JOURNALIZING A space is left between journal entries. The blank space separates individual journal entries and makes the entire journal easier to read. J1 GENERAL JOURNAL Date Account Titles and Explanation Ref. Debit Credit 2005 Sept. 1 Cash 15,000 R. Neal, Capital 15,000 (Invested cash in business) 1 Computer Equipment 7,000 Cash 7,000 (Purchased equipment for cash) Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  14. TECHNIQUE OF JOURNALIZING The column entitled Ref. is left blank at the time journal entry is made and is used later when the journal entries are transferred to the ledger accounts. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  15. THE ACCOUNT OR THE LEDGER An account is an individual accounting recording of increase and decrease in a specific asset, liability, expenses revenue, or owner’s equity item. A Group of accounts maintained by a company is called the ledger. There are separate accounts for the items we used in transactions such as Cash, Salaries Expense, Sales Purchase etc. A ledger contains all the assets, liabilities, and owner’s equity, cash, salaries accounts Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  16. Title of Account Left or debit side Right or credit side Debit balance Credit balance BASIC FORM OF ACCOUNT STUDY OBJECTIVE 2 The simplest form an account consists of The title of the account Left or debit side Right or credit side The alignment of these parts resembles the letter T = T account Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  17. DEBITS AND CREDITS Debit indicates left and Credit indicates right Recording SR. on the left side of an account is debiting (Dr) the account Recording SR. on the right side is crediting (Cr) the account If the total of debit amounts is bigger than credits, the account has a debit balance If the total of credit amounts is bigger than debits, the account has a credit balance Balance of Accounts: Either will be; Dr OR Cr Debit (Dr) = Excess of DEBIT balance over CREDIT balance, Gives Debit Balance of the concern accounts. Example; Debit ˃ Credit = Debit (Dr) Balance Credit (Cr) = Excess of CREDIT balance over DEBIT balance, Gives Credit balance of the concern accounts. Example; Credit ˃ Debit = Credit (Cr) Balance Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  18. DOUBLE-ENTRY SYSTEM Equal debits and credits made accounts for each transaction Total debits always equal the total credits Accounting equation always stays in balance Assets Liabilities Equity Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  19. DEBIT AND CREDIT EFFECTS — ASSETS AND LIABILITIES Increase assetsDecrease assets Decrease liabilitiesIncrease liabilities Debits Credits Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  20. Assets Increase Decrease Debit Credit Liabilities Decrease Increase Debit Credit NORMAL BALANCES — ASSETS AND LIABILITIES Normal Balance Normal Balance Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  21. DEBIT AND CREDIT EFFECTS — OWNER’S CAPITAL Decrease owner’s capital Increase owner’s capital Debits Credits Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  22. NORMAL BALANCE — OWNER’S CAPITAL Normal Balance Owner’s Capital Decrease Increase Debit Credit Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  23. DEBIT AND CREDIT EFFECTS — OWNER’S DRAWING Increase owner’s drawing Decrease owner’s drawing Debits Credits Remember, Drawing is a contra-account – an account that is backwards from the account it accompanies (the Capital account). Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  24. NORMAL BALANCE — OWNER’S DRAWING Normal Balance Owner’s Drawing Increase Decrease Debit Credit Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  25. DEBIT AND CREDIT EFFECTS — REVENUES AND EXPENSES Decrease revenues Increase revenues Increase expenses Decrease expenses Debits Credits Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  26. Revenues Decrease Increase Debit Credit Expenses Increase Decrease Debit Credit NORMAL BALANCES — REVENUES AND EXPENSES NormalBalance NormalBalance Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  27. POSTING A JOURNAL ENTRY In the ledger, enter in the appropriate columns of the account(s) debited the date, journal page, and debit amount shown in the journal. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  28. POSTING A JOURNAL ENTRY In the reference column of the journal, write the account number to which the debit amount was posted. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  29. GENERAL LEDGER NO. 10 CASH Date Explanation Ref. Debit Credit Balance 2005 Sept. 1 J1 15,000 15,000 POSTING A JOURNAL ENTRY In the ledger, enter in the appropriate columns of the account(s) credited the date, journal page, and credit amount shown in the journal. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  30. POSTING A JOURNAL ENTRY In the reference column of the journal, write the account number to which the credit amount was posted. Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  31. October 3, office rent for October is paid in cash, SR.900. Transaction Basic Analysis The expense Rent is increased SR.900 Payment pertains only to the current month Asset Cash is decreased SR.900. Debit-Credit Analysis Debits increase expenses: debit Rent Expense SR.900. Credits decrease assets: credit Cash SR.900. PAYMENT OF MONTHLY RENT Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  32. October 4, SR.600 Paid one-year insurance policy-expires next year on September 30. Transaction -Asset Prepaid Insurance increases SR.600 -Payment extends to more than the current month -Asset Cash is decreased SR.600. -Payments of expenses benefiting more than one period are prepaid expenses or prepayments. Basic Analysis Debit-Credit Analysis Debits increase assets: debit Prepaid Insurance SR.600. Credits decrease assets:credit Cash SR.600. PAYMENT FOR INSURANCE Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  33. October 20, C. R. Byrd withdraws SR.500 cash for personal use. Transaction Basic Analysis The owner’s equity account C. R. Byrd, Drawing is increased SR.500. The asset Cash is decreased SR.500. Debits increase drawings: debit C. R. Byrd, Drawing SR.500. Credits decrease assets: credit Cash SR.500. Debit-Credit Analysis WITHDRAWAL OF CASH BY OWNER Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  34. WITHDRAWAL OF CASH BY OWNER JOURNAL ENTRY POSTING Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  35. October 26, employee salaries of SR.4,000 are owed and paid in cash. (See October 9 transaction.) Transaction Basic Analysis The expense account Salaries Expense is increased SR.4,000; the asset Cash is decreased SR.4,000. Debit-Credit Analysis Debits increase expenses: debit Salaries Expense SR.4,000. Credits decrease assets: credit Cash SR.4,000. PAYMENT OF SALARIES Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  36. PAYMENT OF SALARIES JOURNAL ENTRY POSTING Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  37. October 31, received SR.10,000 in cash from Copa Company for advertising services rendered in October. Transaction Basic Analysis The asset Cash is increased SR.10,000; the revenue Fees Earned is increased SR.10,000. Debit-Credit Analysis Debits increase assets: debit Cash SR.10,000. Credits increase revenues: credit Fees Earned SR.10,000. RECEIPT OF CASH FOR FEES EARNED Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  38. RECEIPT OF CASH FOR FEES EARNED JOURNAL ENTRY POSTING Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK

  39. Practical Problems

    : Journalise the following transactions: On September 1, Mr.Fahad invested SR.15,000 cash in the business, and Soft byte purchased computer equipment for SR.7,000 cash. Solution: General Journal
  40. on July 1, Butler Company purchases a delivery truck costing SR.14,000. It pays SR.8,000 cash now and agrees to pay the remaining SR.6,000 on account (to be paid later). Make a compound entry for the above transactions. Solution: General Journal Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  41. Kashif engaged in the following activities in establishing his salon, Hair It Is: 1. Opened a bank account in the name of Hair It Is and deposited SR.20,000 of her own money in this account as her initial investment. 2. Purchased equipment on account (to be paid in 30 days) for a total cost of SR.4,800. Prepare the entries to record the transactions. Solution: General Journal Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  42. On October 1, C. R. Byrd invests SR.10,000 cash in an advertising company called Pioneer Advertising Agency. Make Journal entry of this transaction and post it in the ledger. Solution: Journal Entry Posting Cash CR.Byrd Capital Oct.1 10.000 Oct.1 10,000 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  43. On October 2, Pioneer receives a SR.1,200 cash advance from R. Knox, a client, for advertising services that are expected to be completed by December 31. Cash Unearned Revenue Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  44. On October 3, Pioneer pays office rent for October in cash, SR.900. On October 4, Pioneer pays SR.600 for a one-year insurance policy that will expire next year on September 30. Make Journal entries of above transactions and post then into ledger. Solution: Journal Entries Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  45. Cash Rent Expense Oct 3 900 Oct 3 900 Oct 4 600 PrepaidInsurance Oct 4 600 Dr Masharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
  46. Which one of the following represents the expanded basic accounting equation? Assets = Liabilities + Owner’s Capital + Owner’s Drawings – Revenue - Expenses. Assets + Owner’s Drawings + Expenses = Liabilities + Owner’s Capital + Revenue. Assets – Liabilities – Owner’s Drawings = Owner’s Capital + Revenue – Expenses. Assets = Revenue + Expenses – Liabilities. Deptt. of Accounting, CBAK
  47. HOME ASSIGNMENT - 3 Mr. Bob opened a shop on September 1, 2010. During the first month of operations the following transactions occurred. Sept. 1 Invested SR.20,000 cash in the business. 2 Paid SR.1,000 cash for store rent for September. 3 Purchased washers and dryers for SR.25,000, paying SR.10,000 in cash and signing a SR.15,000, 6-month, 12% note payable. 4 Paid SR.1,200 for a one-year accident insurance policy. 10 Received a bill from the Daily News for advertising the opening of the Laundromat SR.200. 20 Withdrew SR.700 cash for personal use. 30 Determined that cash receipts for laundry services for the month were SR.6,200. Instructions (a) Journalize the September transactions. (Use J1 for the journal page number.) (b) Open ledger accounts and post the September transactions DrMasharique Ahmad Asst. Prof, Deptt. of Accounting, CBAK
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