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Recording Business Transactions

Recording Business Transactions. Chapter 2. Objective 1. Describe the role of accounts in summarizing business transactions. Account. Basic summary device Describes a category of asset, liability, or expense Example: land, cash, office supplies

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Recording Business Transactions

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  1. Recording Business Transactions Chapter 2

  2. Objective 1 Describe the role of accounts in summarizing business transactions

  3. Account • Basic summary device • Describes a category of asset, liability, or expense • Example: land, cash, office supplies • After posting is completed, an account it becomes a detailed record of increases and decreases in these categories of assets, liabilities, or owner’s equity during a period

  4. Recording Transactions in the Journal • This is when you write down (in a list) the accounts that will be increased and decreased. • Example • Increase (Debit) the Cash Account and • Increase (Credit) the Service Revenue Account

  5. Posting • This is when you go through your list of transactions, (the journal), and you record them in the accounts. • After posting is completed, an account it becomes a detailed record of increases and decreases in these categories of assets, liabilities, or owner’s equity during a period

  6. Posting Example • Journal entry • Increase (debit) cash $2,000 • Increase (credit) bank note $2,000 Cash Bank Note $2,000 $2,000

  7. Ledger • Book or printout holding all the accounts

  8. Chart of Accounts A list of accounts in the ledger is called a chart of accounts.

  9. Smart Touch Learning Chart of Accounts Balance Sheet Income Statement • 1. Assets • 101 Cash • 111 Accounts Receivable • 121 Notes Receivable • 141 Supplies • 151 Furniture • 171 Building • 191 Land • 2. Liabilities • 201 Accounts Payable • 211 Salary Payable • Interest Payable • 231 Notes Payable • 3. Owner’s Equity • 301 Sheena Bright, Capital • 311 Sheena Bright, Withdrawal • 4. Revenue • Service Revenue • 402 Interest Revenue • 5. Expenses • 501 Rent Expense, Comp. • 502 Rent Expense, Office • 505 Salary Expense • 510 Depreciation Expense • 520 Utilities Expense • Advertising Expense • 540 Supplies Expense

  10. Objective 2 Explain double entry accounting

  11. Double Entry System • Record transactions in a way that keeps the profit equation in balance. • Assets = Liabilities + Owner’s Equity • Each transaction affects at least two accounts • (This is why it is called “double entry”) • Each transaction is recorded with at least • One debit • One credit • Total debits must equal total credits

  12. Total debits = Total credits • Increase asset (debit) and then • Decrease asset (credit) • Increase liability (credit) • Increase owner’s equity (credit) • Decrease asset (credit) and then • Increase asset (debit) • Decrease liability (debit) • Decrease liability (debit)

  13. Total debits = Total credits • Increase liability (credit) and then • Increase asset (debit) • Decrease liability (debit) • Decrease owner’s equity (debit) • Decrease liability (debit) and then • Decrease asset (credit) • Increase liability (credit) • Increase owner’s (credit)

  14. Total debits = Total credits • Increase owner’s equity (credit) and then • Increase asset (debit) • Decrease liability (debit) • Decrease owner’s equity (debit) • Decrease owner’s equity (debit) and then • Decrease asset (credit) • Increase liability (credit) • Increase owner’s (credit)

  15. Tool for analyzing and determining the balance in a given account Account Name (Left Side) Debit (Right Side) Credit T-Account Liabilities and owner’s equity are normally credit Assets are normally debit

  16. = + Assets Liabilities Equity Debit Credit Debit Credit Debit Credit + - - + - + Rules of Debit and Credit

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

  18. receive Debit Business Transactions Sheena Bright(investor) Entry 1. Sheena Bright deposits $30,000 in a bank account for her business give Credit Smart Touch Learning (investee) give Credit General Journal Date Description Debit Credit Apr 1

  19. receive Debit Business Transactions Sheena Bright (investor) Apr 1. Sheena Bright Deposits $30,000 in a bank account for her business Cash give Credit Smart Touch Learning (investee) give Credit General Journal Date Description Debit Credit Apr 1 Cash 30,000

  20. receive Debit Business Transactions Sheena Bright (investor) Apr 1. Sheena Bright deposits $20,000 in a bank account for her business. Cash A promise to the owner give Credit Smart Touch Learning (investee) give Credit General Journal Date Description Debit Credit Apr 1 Cash 30,000 Sheena Bright, Capital 30,000

  21. receive Debit Business Transactions Land Owner (seller) Apr 2. Smart Touch buys Land for $20,000. give Credit Smart Touch (buyer) give Credit General Journal Date Description Debit Credit Apr 2

  22. receive Debit Business Transactions Land Owner (seller) Apr 2. Smart Agency buys Land for $20,000. Land give Credit Smart Touch (buyer) give Credit General Journal Date Description Debit Credit Apr 2 Land 20,000

  23. receive Debit Business Transactions Land Owner (seller) Apr 2. Smart Touch buys Land for $20,000. Land Cash give Credit Smart Touch (buyer) give Credit General Journal Date Description Debit Credit Apr 2 Land 20,000 Cash 20,000

  24. receive Debit Business Transactions Supplier (granter of credit) Apr 3. Smart Touch purchased Supplies on account for $500 give Credit Smart Touch (borrower) give Credit General Journal Date Description Debit Credit Apr 3

  25. receive Debit Business Transactions Supplier (Granter of credit) Apr 3. Purchased supplies on account for $500 give Credit Smart Touch (borrower) give Credit General Journal Date Description Debit Credit Apr 3 Supplies 500

  26. receive Debit Business Transactions Supplier (Granter of credit) Apr 3. Purchased supplies on account of $500 give Credit Smart Touch (borrower) give Credit General Journal Date Description Debit Credit Apr 3 Supplies 500 Accounts Payable 500

  27. Smart Touch Learning Trial Balance April 30, 2010 Cash 10,000 Supplies 500 Land 20,000 Accounts Payable 500 Sheena Bright, Capital 30,000 30,500 30,500

  28. Expanding the Rules of Debit and Credit Owner’s Equity _ _ Owner’s Capital Owner’sWithdrawals + Revenues Expenses Debit Credit Debit Credit Debit Credit Debit Credit + - + - - + - +

  29. 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 - + + - - + + -

  30. receive Debit Business Transactions Customer (buyer) Apr 8. Smart Touch received $5,500 cash for services provided. give Credit Smart Touch (seller) give Credit General Journal Date Description Debit Credit Apr 8

  31. receive Debit Business Transactions Customer (buyer) Apr 8. Smart Touch received $5,500 cash for services provided. Cash give Credit Smart Touch (seller) give Credit General Journal Date Description Debit Credit Apr 8 Cash 5,500

  32. receive Debit Business Transactions Customer (buyer) Apr 8. Smart Touch received $5,500 cash for services provided Cash Services give Credit Smart Touch (seller) give Credit General Journal Date Description Debit Credit Apr 8 Cash 5,500 Service Revenue 5,500

  33. receive Debit Business Transactions Customer (buyer) Apr 10. Smart Touch provided $3,000 of services on credit give Credit Smart Touch (seller) give Credit General Journal Date Description Debit Credit Apr 10

  34. receive Debit Business Transactions Customer (buyer) Apr 10. Smart Touch provided $3,000 of services on credit. Accounts Receivable give Credit Smart Touch (seller) give Credit General Journal Date Description Debit Credit Apr 10 Accounts Receivable 3,000

  35. receive Debit Business Transactions Customer (buyer) Apr 10. Smart Touch provided $3,000 of services on credit. Accounts Receivable Services give Credit Smart Touch (seller) give Credit General Journal Date Description Debit Credit Apr 10 Accounts Receivable 3,000 Service Revenue 3,000

  36. receive Debit Business Transactions Various suppliers Apr 15. Smart Touch paid: rent, comp. $600, rent, office $1,000, salaries, $1,200, utilities, $400. give Credit Smart Touch (buyer) give Credit General Journal Date Description Debit Credit

  37. receive Debit Business Transactions Various suppliers Apr 15 Smart Touch paid: rent, comp.$600; rent, office, $1,000; salaries, $1,200; Utilities, $400; Services, benefits give Credit Smart Touch (buyer) give Credit General Journal Date Description Debit Credit Apr 15 Rent Expense: Comp 600 Rent Expense: Office 1,000 Salary Expense 1,200 Utilities Expense 400

  38. receive Debit Business Transactions Various suppliers Apr 15 Smart Touch paid: rent, comp.$600; rent, office, $1,000; salaries, $1,200; Utilities, $400; Services, benefits give Credit Smart Touch (buyer) give Credit General Journal Date Description Debit Credit Apr 15 Rent Expense: Comp 600 Rent Expense: Office 1,000 Salary Expense 1,200 Utilities Expense 400 Cash 3,200

  39. receive Debit Business Transactions Supplier (payee) Apr 21 Smart Touch paid $300 of the $500 owed to a supplier. Reduction in obligation give Credit Smart Touch (payor) give Credit General Journal

  40. receive Debit Business Transactions Supplier (payee) Apr 21 Smart Touch paid $300 of the $500 owed to a supplier. Reduction in obligation give Credit Smart Touch (payor) give Credit General Journal Date Description Debit Credit Apr 21 Accounts Payable 300

  41. receive Debit Business Transactions Supplier (payee) Apr 21. Smart Touch paid $300 of the $500 owed to a supplier. Reduction in obligation Cash give Credit Smart Touch (payor) give Credit General Journal Date Description Debit Credit Apr 21 Accounts Payable 300 Cash 300

  42. receive Debit Business Transactions Receive cash from client Apr 22. Smart Touch received $2,000 from the client billed on the 10th. give Credit Reduction in account rec. (buyer) give Credit General Journal Date Description Debit Credit

  43. receive Debit Business Transactions Receive cash from client Apr 22. Smart Touch received $2,000 from the client billed on the 10th. give Credit Reduction in account rec. (buyer) give Credit General Journal Date Description Debit Credit Apr 22 Cash 2,000

  44. receive Debit Business Transactions Receive cash from client Apr 22. Smart Touch received $2,000 from the client billed on the 10th. give Credit Reduction in account rec. (buyer) give Credit General Journal Date Description Debit Credit Apr 22 Cash 2,000 Accounts Receivable 2,000

  45. receive Debit Business Transactions Receive cash for land sale Apr 24. Smart Touch received $9,000 for the sale of land. give Credit Purchase land (buyer) give Credit General Journal Date Description Debit Credit

  46. receive Debit Business Transactions Receive cash for land sale Apr 24. Smart Touch received $9,000 for the sale of land. give Credit Purchase land (buyer) give Credit General Journal Date Description Debit Credit Apr 24 Cash 9,000

  47. receive Debit Business Transactions Receive cash or land sale Apr 24. Smart Touch received $9,000 for sale of land give Credit Purchase of land (buyer) give Credit General Journal Date Description Debit Credit Apr 24 Cash 9,000 Land 9,000

  48. receive Debit Business Transactions Supplier (utility Co. ) Apr 30. Smart Touch received utility bill to be paid next month. $100 give Credit Smart Touch (buyer) give Credit General Journal Date Description Debit Credit Apr 30

  49. receive Debit Business Transactions Supplier (Utility Co.) Apr 30. Smart Touch received utility bill to be paid next month. $100 Supplies give Credit Smart Touch (buyer) give Credit General Journal Date Description Debit Credit Apr 30 Utilities Expense 100

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