1 / 61

Learning Objectives

Power Notes. Chapter 2. Analyzing Transactions . 1. Usefulness of an Account 2. Characteristics of an Account 3. Analyzing and Summarizing Transactions 4. Illustration of Analyzing and Summarizing 5. Trial Balance 6. Discovery and Correction of Errors

chill
Download Presentation

Learning Objectives

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Power Notes Chapter2 Analyzing Transactions 1. Usefulness of an Account 2. Characteristics of an Account 3. Analyzing and Summarizing Transactions 4. Illustration of Analyzing and Summarizing 5. Trial Balance 6. Discovery and Correction of Errors 7. Financial Analysis and Interpretation Learning Objectives C2

  2. Note: To select a topic, type the slide # and press Enter. Power Notes Chapter2 Analyzing Transactions Slide # Power Note Topics • 3 • 11 • 36 • 40 • 43 • 50 • 57 • Double-Entry Accounting • Analyzing and Recording Transactions • Chart of Accounts, Trial Balance • Journal, Ledger, and Trial Balance • Recording and Posting an Entry • Correcting Errors • Horizontal Analysis

  3. Double-Entry Accounting “ Double-entry accounting is based on a simple concept: each party in a business transaction will receive something and give something in return. In bookkeeping terms, what is received is a debit and what is given is a credit. The T account is a representation of a scale or balance.” Scale or Balance T account Right Side Give CREDIT Left Side Receive DEBIT Luca Pacioli Developer of Double-Entry Accounting Give CREDIT Receive DEBIT

  4. Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.” DEBITS received CREDITS given =

  5. Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.” DEBITS received CREDITS given = Assets

  6. Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.” DEBITS received CREDITS given = Assets Expenses

  7. Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.” DEBITS received CREDITS given = Liabilities Assets Expenses

  8. Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.” DEBITS received CREDITS given = Liabilities Assets Owner’s Equity Expenses

  9. Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.” DEBITS received CREDITS given = Liabilities Assets Owner’s Equity Revenues Expenses

  10. Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.” DEBITS received CREDITS given = Liabilities Assets Owner’s Equity Net Income Revenues Expenses

  11. NetSolutions A Sole Proprietorship “ On November 1, 2002, I started a sole proprietorship called NetSolutions. I plan to use my knowledge of microcomputers and offer computer consulting services for a fee. The following double-entry transactions show how amounts received (debits) always equal amounts given (credits).” Chris Clark, Owner

  12. receive Debit Business Transactions Chris Clark (investor) Entry A. Chris Clark deposits $25,000 in a bank account for NetSolutions. give Credit NetSolutions (investee) give Credit General Journal Date Description Debit Credit 11/1

  13. receive Debit Business Transactions Chris Clark (investor) Entry A. Chris Clark deposits $25,000 in a bank account for NetSolutions. Cash give Credit NetSolutions (investee) give Credit General Journal Date Description Debit Credit 11/1 Cash 25,000

  14. receive Debit Business Transactions Chris Clark (investor) Entry A. Chris Clark deposits $25,000 in a bank account for NetSolutions. Cash A promise to the owner give Credit NetSolutions (investee) give Credit General Journal Date Description Debit Credit 11/1 Cash 25,000 Chris Clark, Capital 25,000

  15. receive Debit Business Transactions Land Owner (seller) Entry B. NetSolutions buys land for $20,000. give Credit NetSolutions (buyer) give Credit General Journal Date Description Debit Credit 11/5

  16. receive Debit Business Transactions Land Owner (seller) Entry B. NetSolutions buys land for $20,000. Land give Credit NetSolutions (buyer) give Credit General Journal Date Description Debit Credit 11/5 Land 20,000

  17. receive Debit Business Transactions Land Owner (seller) Entry B. NetSolutions buys land for $20,000. Land Cash give Credit NetSolutions (buyer) give Credit General Journal Date Description Debit Credit 11/5 Land 20,000 Cash 20,000

  18. receive Debit Business Transactions Supplier (seller) Entry C. NetSolutions buys supplies for $1,350, agreeing to pay in the near future. give Credit NetSolutions (buyer) give Credit General Journal Date Description Debit Credit 11/10

  19. receive Debit Business Transactions Supplier (seller) Entry C. NetSolutions buys supplies for $1,350, agreeing to pay in the near future. Supplies give Credit NetSolutions (buyer) give Credit General Journal Date Description Debit Credit 11/10 Supplies 1,350

  20. receive Debit Business Transactions Supplier (seller) Entry C. NetSolutions buys supplies for $1,350, agreeing to pay in the near future. Supplies A promise to pay later give Credit NetSolutions (buyer) give Credit General Journal Date Description Debit Credit 11/10 Supplies 1,350 Accounts Payable 1,350

  21. receive Debit Business Transactions Customer (buyer) Entry D. NetSolutions earns fees of $7,500, receiving cash. give Credit NetSolutions (seller) give Credit General Journal Date Description Debit Credit 11/18

  22. receive Debit Business Transactions Customer (buyer) Entry D. NetSolutions earns fees of $7,500, receiving cash. Cash give Credit NetSolutions (seller) give Credit General Journal Date Description Debit Credit 11/18 Cash 7,500

  23. receive Debit Business Transactions Customer (buyer) Entry D. NetSolutions earns fees of $7,500, receiving cash. Cash Services give Credit NetSolutions (seller) give Credit General Journal Date Description Debit Credit 11/18 Cash 7,500 Fees Earned 7,500

  24. receive Debit Business Transactions Various suppliers Entry E. NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. give Credit NetSolutions (buyer) give Credit General Journal Date Description Debit Credit

  25. receive Debit Business Transactions Various suppliers Entry E. NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. Services, benefits give Credit NetSolutions (buyer) give Credit General Journal Date Description Debit Credit 11/18 Wages Expense 2,125 Rent Expense 800 Utilities Expense 450 Misc. Expense 275

  26. receive Debit Business Transactions Various suppliers Entry E. NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. Services, benefits Cash give Credit NetSolutions (buyer) give Credit General Journal Date Description Debit Credit 11/18 Wages Expense 2,125 Rent Expense 800 Utilities Expense 450 Misc. Expense 275 Cash 3,650

  27. receive Debit Business Transactions Supplier (payee) Entry F. NetSolutions pays $950 to creditors on account. give Credit NetSolutions (payor) give Credit General Journal Date Description Debit Credit 11/30

  28. receive Debit Business Transactions Supplier (payee) Entry F. NetSolutions pays $950 to creditors on account. Reduction in obligation give Credit NetSolutions (payor) give Credit General Journal Date Description Debit Credit 11/30 Accounts Payable 950

  29. receive Debit Business Transactions Supplier (payee) Entry F. NetSolutions pays $950 to creditors on account. Reduction in obligation Cash give Credit NetSolutions (payor) give Credit General Journal Date Description Debit Credit 11/30 Accounts Payable 950 Cash 950

  30. receive Debit Business Transactions Entry G. Internal Transaction (no external entity) At the end of the month, the cost of supplies on hand is $550. give Credit NetSolutions (user) give Credit General Journal Date Description Debit Credit 11/30

  31. receive Debit Balance of Supplies account $1,350 less $550 on hand = $800 used Business Transactions Entry G. Internal Transaction (no external entity) At the end of the month, the cost of supplies on hand is $550. Use of supplies give Credit NetSolutions (user) give Credit General Journal Date Description Debit Credit 11/30 Supplies Expense 800

  32. receive Debit Balance of Supplies account $1,350 less $550 on hand = $800 used Business Transactions Entry G. Internal Transaction (no external entity) At the end of the month, the cost of supplies on hand is $550. Use of supplies Supplies give Credit NetSolutions (user) give Credit General Journal Date Description Debit Credit 11/30 Supplies Expense 800 Supplies 800

  33. receive Debit Business Transactions Entry H. Chris Clark (payee) Chris Clark withdraws $2,000 in cash. give Credit NetSolutions (payor) give Credit General Journal Date Description Debit Credit 11/30

  34. receive Debit Business Transactions Entry H. Chris Clark (payee) Chris Clark withdraws $2,000 in cash. Reduction in obligation give Credit NetSolutions (payor) give Credit General Journal Date Description Debit Credit 11/30 Chris Clark, Drawing 2,000

  35. receive Debit Business Transactions Entry H. Chris Clark (payee) Chris Clark withdraws $2,000 in cash. Reduction in obligation Cash give Credit NetSolutions (payor) give Credit General Journal Date Description Debit Credit 11/30 Chris Clark, Drawing 2,000 Cash 2,000

  36. NetSolutions Chart of Accounts Balance Sheet Income Statement 1. Assets 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 17 Land 18 Office Equipment 2. Liabilities 21 Accounts Payable 23 Unearned Rent 3. Owner’s Equity 31 Chris Clark, Capital 32 Chris Clark, Drawing 4. Revenue 41 Fees Earned 5. Expenses 51 Wages Expense 52 Rent Expense 54 Utilities Expense 55 Supplies Expense 59 Miscellaneous Expense

  37. NetSolutions Trial Balance November 30, 2002 11 Cash 5,900 14 Supplies 550 17 Land 20,000 21 Accounts Payable 400 31 Chris Clark, Capital 25,000 32 Chris Clark, Drawing 2,000 41 Fees Earned 7,500 51 Wages Expense 2,125 52 Rent Expense 800 54 Utilities Expense 450 55 Supplies Expense 800 59 Miscellaneous Expense 275 32,900 32,900

  38. NetSolutions Trial Balance November 30, 2002 11 Cash 5,900 14 Supplies 550 17 Land 20,000 21 Accounts Payable 400 31 Chris Clark, Capital 25,000 32 Chris Clark, Drawing 2,000 41 Fees Earned 7,500 51 Wages Expense 2,125 52 Rent Expense 800 54 Utilities Expense 450 55 Supplies Expense 800 59 Miscellaneous Expense 275 32,900 32,900 Balance Sheet

  39. NetSolutions Trial Balance November 30, 2002 11 Cash 5,900 14 Supplies 550 17 Land 20,000 21 Accounts Payable 400 31 Chris Clark, Capital 25,000 32 Chris Clark, Drawing 2,000 41 Fees Earned 7,500 51 Wages Expense 2,125 52 Rent Expense 800 54 Utilities Expense 450 55 Supplies Expense 800 59 Miscellaneous Expense 275 32,900 32,900 Income Statement

  40. Journal, Ledger, Trial Balance 1. Transactions are analyzed and recorded in journal. Documents Journal

  41. Journal, Ledger, Trial Balance 1. Transactions are analyzed and recorded in journal. Documents Journal 2. Transactions are posted from journal to ledger. Journal Ledger

  42. Trial Balance Journal, Ledger, Trial Balance 1. Transactions are analyzed and recorded in journal. Documents Journal 2. Transactions are posted from journal to ledger. Journal Ledger 3. Trial balance is prepared.

  43. Recording and Posting an Entry General Journal Page 1 Post. Date Description Ref. Debit Credit 12/1 Prepaid Insurance 2,400 Cash 2,400 1. Analyze and record the transaction as shown. 2. Post the debit side of the transaction. 3. Post the credit side of the transaction.

  44. 1 1 Recording and Posting an Entry General Journal Page 1 Post. Date Description Ref. Debit Credit 12/1 Prepaid Insurance 2,400 Cash 2,400 GeneralLedger Account: Prepaid InsuranceAccount No. 15 Post. Balance Date Item Ref. Debit Credit Debit Credit 12/1 Enter the transaction date in the ledger account.

  45. 2 2 Recording and Posting an Entry General Journal Page 1 Post. Date Description Ref. Debit Credit 12/1 Prepaid Insurance 2,400 Cash 2,400 GeneralLedger Account: Prepaid InsuranceAccount No. 15 Post. Balance Date Item Ref. Debit Credit Debit Credit 12/1 1 2,400 Enter the debit amount in the ledger debit column.

  46. 3 3 Recording and Posting an Entry General Journal Page 1 Post. Date Description Ref. Debit Credit 12/1 Prepaid Insurance 2,400 Cash 2,400 GeneralLedger Account: Prepaid InsuranceAccount No. 15 Post. Balance Date Item Ref. Debit Credit Debit Credit 12/1 1 2,400 2,400 Update the ledger account balance.

  47. 4 Recording and Posting an Entry General Journal Page 1 Post. Date Description Ref. Debit Credit 12/1 Prepaid Insurance 2,400 Cash 2,400 4 GeneralLedger Account: Prepaid InsuranceAccount No. 15 Post. Balance Date Item Ref. Debit Credit Debit Credit 12/1 1 Enter the journal page in the ledger account.

  48. 5 5 Recording and Posting an Entry General Journal Page 1 Post. Date Description Ref. Debit Credit 12/1 Prepaid Insurance 15 2,400 Cash 2,400 GeneralLedger Account: Prepaid InsuranceAccount No. 15 Post. Balance Date Item Ref. Debit Credit Debit Credit 12/1 1 2,400 2,400 Enter the ledger account number in the journal.

  49. 2 1 5 4 3 Recording and Posting an Entry General Journal Page 1 Post. Date Description Ref. Debit Credit 12/1 Prepaid Insurance 15 2,400 Cash 11 2,400 GeneralLedger Account: CashAccount No. 11 Post. Balance Date Item Ref. Debit Credit Debit Credit 11/30 Balance 5,900 12/1 1 2,400 3,500 All five parts of the credit posting are shown.

  50. Correcting Errors Three Types of Errors Journal Entry Ledger Posting Correction Procedure 1. incorrect not posted correct Journal

More Related