Recording Transactions.ppt

1、Recording Transactions,Lecture 3,Learning Objectives (LO),After studying this chapter, you should be able to Use double-entry accounting Describe the five steps in the recording process Analyze and journalize transactions and post journal entries to the ledgers Prepare and use a trial balance Close

2、revenue and expense accounts and update retained earnings Correct erroneous journal entries and describe how errors affect accounts Explain how computers have transformed the processing of accounting data,2 of 37,LO 1 Double-Entry System,Basic accounting equation + specific accounts (Act.) ASSETS =

3、LIABILITIES + OWNERS EQUITY CashAccounts Payable Paid in Capital Accounts ReceivableNotes Payable Retained Earnings Prepaid items Revenue Equipment Expenses BuildingGains (later) LandLosses (later) Distributions to owners Dividends At least two entries required to maintain equality,3 of 37,NET INCOM

4、E,LO 1 Double-Entry System,Analyze transactions, events, circumstances looking for three things Which accounts are affected? What amounts are involved? In which direction did the accounts change? Up = +; Down = “”Debits and credits Analogy check register for cash (the account),4 of 37,LO 1 Double-En

5、try System,T-account = visualization of every account,5 of 37,EVERY ACCOUNT,Left side DEBIT Increase (+) or decrease ()?,Right side CREDIT Increase (+) or Decrease ()?,Assets,=,Liabilities,+,Owners Equity,Paid in Capital,Retained Earnings,Revenue,(Expense),(Dividend),D,D,D,D,D,D,C,C,C,C,C,C,LO 1 Dou

6、ble-Entry System,T-account = visualization of every account,6 of 37,EVERY ACCOUNT,Left side DEBIT Increase (+) or decrease ()?,Right side CREDIT Increase (+) or Decrease ()?,Assets,=,Liabilities,+,Owners Equity,Paid in Capital,Retained Earnings,Revenue,(Expense),(Dividend),D +,D ,D ,D ,D ,D ,C ,C +,

7、C +,C +,C +,C +,LO 1 Double-Entry System,7 of 37,At least two entries are required to keep the accounting equation in balance,Debits increase these accounts but they also reduce owners equity,LO 2 Recording Process,Transaction Documentation - original records underlying transactions, events, circums

8、tances are analyzed to determine the amounts, accounts, and direction (up/down) each caused Journal chronological listing of events (diary) Ledger grouping like events into one record, e.g. cash in minus cash out = cash balance Trial Balance ledger acts. collectively balance,8 of 37,Transactions Doc

9、umentation,Journal,Ledger,Trial Balance,Financial Statements,LO 2 Recording Process,9 of 37,Analyze each transaction to find Accounts Chart of accounts used in the business,Amounts given/obvious or have to back into Beg.(10) + Purchase (5) less Used (?) = End (4),Direction - Debit Assets Liabilities

10、/owners equity - Credit Assets Liabilities/owners equity,LO 3 Posting to Ledger Accounts,Posting = copying amounts from the journal to the ledger At least two postings per transaction For complex events, could involve many accounts (called compound journal entries) Cross-referencing - using numberin

11、g, dating, and/or some other identification in the ledger to trace it back to the appropriate journal entry or vice versa,10 of 37,LO 3 Posting to Ledger Accounts,11 of 37,Ledger formats may differ,LO 3 Journal/Ledger Examples,Sale of merchandise on credit (Part 1),12 of 37,Transaction: Customer cha

12、rged purchase $180,000; paid later in full Analysis: Accounts Receivable and ultimately Cash increase Stockholders equity increases because Revenue was earned at the time of sale Journal Entry: Accounts Receivable 180,000 Revenue 180,000 Cash 180,000 Accounts Receivable 180,000 Posting:,Cash Account

13、s Receivable Revenue,180,000,180,000,180,000,180,000,LO 3 Journal/Ledger Examples,Sale of merchandise on credit (Part 2),13 of 37,Transaction: Cost of merchandise sold, $100,000 Analysis: Merchandise Inventory decreases Stockholders equity decreases because an expense account Cost of Goods Sold (a n

14、egative stockholders account) increases Journal Entry: Cost of Goods Sold 100,000 Merchandise Inventory 100,000 Posting:,Merchandise Inventory Cost of Goods Sold,100,000,100,000,LO 3 Journal/Ledger Examples,Sale of merchandise on credit (Part 3),14 of 37,Transaction: Customer pays for charged purcha

15、se $180,000 Analysis: Accounts Receivable decreases and Cash increases Journal Entry: Cash 180,000 Accounts Receivable 180,000,Cash Accounts Receivable Revenue,180,000,180,000,180,000,180,000,Posting:,LO 3 Journal/Ledger Examples,Cash is received before it is earned,15 of 37,Transaction: Customer pa

16、id $5,000 in advance, service later performed Analysis: Cash increases Unearned Revenue (liability) increases then decreases Stockholders equity increases when Revenue is earned Journal Entry: Cash5,000 Unearned Revenue5,000 Unearned Revenue5,000 Revenue5,000 Posting:,Cash Unearned Revenue Revenue,5

17、,000,5,000,5,000,5,000,LO 3 Journal/Ledger Examples,Purchased an asset before consuming 1/3 of it,16 of 37,Transaction: Cost of assets acquired = $6,000; consumed = $2,000 Analysis: Prepaid Rent increases then decreases when consumed Cash decreases Stockholders equity decreases because an expense ac

18、count Rent Expense (a negative stockholders account) increases Journal Entry: Prepaid Rent 6,000 Cash 6,000 Rent Expense 2,000 Prepaid Rent2,000 Posting:,Cash Prepaid RentRent Expense,6,000,6,000,2,000,2,000,LO 3 Journal/Ledger Examples,Purchase an asset and depreciate it (Part 1) “Matching” suggest

19、s expenses include only those costs that contribute to the production of revenue To deduct total cost of multi-year asset in first year is poor matching Alternative approach deduct some each year Cost ($1,000) less its salvage value ($0) = amount allocated Estimated useful life (10 years) each year

20、($100),17 of 37,LO 3 Journal/Ledger Examples,Purchase an asset and depreciate it (Part 2),18 of 37,Transaction: Buy equipment $10,000; 10 year life; zero salvage value Analysis: Cash decrease, Equipment increases then decreases Stockholders equity decreases because an expense account Depreciation Expense (a negative stockholders account) increases Journal Entry: Equipment 10,000 Cash 10,000 Depreciation Expense * 1,000 Equipment 1,000 * 10,000 0) / 10 year life = 1,000 / year Posting:,Cash EquipmentDepreciation Exp.,10,000,10,000,1,000,1,000,LO 3 Journal/Ledger Examples,Purchase an asset an