1 1.Source documents checked for accuracy, and transactions are analyzed. 9 9.A post-closing trial balance is prepared. 2 2.Transactions are recorded in a journal. 3 3.Journal entries are posted to ledgers. 4 4.Schedules of accounts payable and accounts receivable are prepared from subsidiary ledgers. 5 5.Work sheet is prepared. 6 6.Financial statements are prepared. (from general ledger) 7 7.Adjusting and closing entries are journalized. 8 8.Adjusting and closing entries are posted. Accounting 1 THE ACCOUNTING CYCLE

THE ACCOUNTING EQUATION Lesson 1-1, page 6 (RIGHT side of equation) (LEFT side of equation) Assets Things that are OWNED Liabilities Things that are OWED Owner’s Equity What’s left after the Assets are used to pay off the Liabilities =+ Equities – financial rights to the assets of a business

GENERAL JOURNAL Lesson 1-1, page 7 Right side Left side AssetsLiabilities Owner’s Equity =+ CREDIT (aka cr.) DEBIT (aka dr.) T Account (Right side)(Left side) Special Journals (used to record only 1 kind of transaction) Purchases Journal Cash Payments Journal Cash Receipts Journal Sales Journal

Journal - a form for recording transactions in chronological order Journal…Every Day Double Entry Accounting – Debit & Credit recorded – 2 parts – showing the dual effect of each transaction GENERAL JOURNAL

Lesson 5-1, page 96 Why do we “post” from the Journals to the General Ledger? To summarize all of the changes to an account in one place. To know the Balance of any account at any time. Posting to the GENERAL LEDGER

The total of all vendor account balances in the accounts payable ledger is equal to the balance of the controlling account, “Accounts Payable” SUBSIDIARY LEDGERS Lesson 1-1, page 9 Ledger – a group of accounts A/P and A/R transactions are recorded frequently to keep accounts up to date

NORMAL BALANCES OF ACCOUNTS AssetsLiabilities Owner’s Equity =+ Any Asset DEBIT CREDIT DEBIT CREDIT Any Expense DEBIT CREDIT Any Revenue DEBIT CREDIT Stockholder’s Equity DEBIT CREDIT Any Liability Lesson 1-1, page 8

NUMBERING GENERAL LEDGER ACCOUNTS – see p.3 MasterSport uses a four-digit numbering system for file maintenance of general ledger accounts – 1 ST Number indicates classification (1-Assets, 2-Liabilities, 3-Stockholders’ Equity, 4-Operating Revenue, 5-Cost of Merchandise, 6-Operating Expense, 7-Income Tax) Accounts assigned by 5s…allows room for growth Accounts (except expenses) are listed in order of liquidity Expenses are listed alphabetically 6205Depreciation Expense – Office Equipment 6210Insurance Expense Middle (of = 5) (5/2 = 2.5) ( = ) – round to 6208: 6208Equipment Repair Expense Lesson 1-1, page 10 Existing Adding a new account: Subsidiary Ledger accounts use 3 numbers and go by 10s

Work Together 1-1 (p11, wb1) (both accounts go between #2125 & #2130 – larger to smaller) & On Your Own 1-1 (p11, wb1) Work Together 1-1 (p11, wb1) (both accounts go between #2125 & #2130 – larger to smaller) & On Your Own 1-1 (p11, wb1) OYO WT

DEPARTMENTAL ACCOUNTING SYSTEM Lesson 1-2, page 12 When a business has 2 or more departments, accounting information should indicate how well each department is doing If I have to eliminate golf or tennis, which one should it be? How could I know unless I keep track of each separately? Gross profit is calculated for each department NET profit is not… NET profit is the profit earned after all has been shaken down Merchandise Inventory – Golf – Account # Merchandise Inventory – Tennis – Account #1125-2

Lesson 1-2, page 13 JOURNALIZING PURCHASES ON ACCOUNT June 1. Purchased tennis equipment on account from Tennis Warehouse, $ Purchase Invoice No TENNIS WAREHOUSE 976 CENTURY BLVD CUBLIN, CA SOLD TO MasterSport 4750 Appian Way San Jose, CA TERMS 2/10, n30 DATE May 29, 20-- OUR ORDER NO CUSTOMER’ ORDER NO. 336 SHIP VIA TRUCK GRX1 RG TAPE Graphite racquet Ready-Grip Tape Total Invoice ea. 10 dz. STOCK NO.DESCRIPTIONUNIT PRICEQUANITY TOTAL AMOUNT TENNIS DEPT. Approved D.P. 6/1/ Write approval date. 5 5.Write invoice amount. 4 4.Write invoice amount. 3 3.Record invoice number. 2 2.Write vendor name. *~*A notation is placed on the invoice to indicate which department the purchase applies to*~*

Lesson 1-2, page 14 POSTING FROM A PURCHASES JOURNAL – lines post individually 1 1.Write the date. 5 5.Write vendor number. 4 4.Calculate new account balance. 3 3.Record credit amount. 2 2.Write journal page number.

Lesson 1-2, page 15 PURCHASES JOURNAL WITH POSTING COMPLETED “Special” columns posted as totals to whatever is in the heading At month end, journals are totaled, PROVED, and ruled 1) PROVE that debits = credits 2) Draw double lines to show that you PROVED (27, = 9, ,470.00)

Lesson 1-2, page 15 POSTING THE TOTALS OF A PURCHASES JOURNAL 1 1.Write the date. 5 5.Write account number (in parentheses). 4 4.Calculate new account balance. 3 3.Write column total. 2 2.Write journal page number.

ISSUING A DEBIT MEMORANDUM FOR RETURNS Debit Memorandum - a form prepared by the customer showing the price reduction taken by the customer for returns and allowances; vendor uses as the source document for the return Acceptable reasons for returns: 1 – Unsatisfactory 2 – Not what was ordered 3 – Received in damaged condition Lesson 1-2, page 16 DEBIT CREDIT Any Liability (A/P)

CONTRA ACCOUNTS An account that reduces a related account on a financial statement is a contra account (opposite of normal) Lesson 1-2, page 16 Purchases – Tennis is a cost account Purchases Returns and Allowances – Tennis is a contra-cost account; recorded in the Purchases Returns & Allowances Journal (allows a business to determine what portion of merchandise was returned) ***Good test question, eh? If a return happens to be posted before the sale is posted, it will result in a contra balance (opposite of normal) Contra balances are shown in parenthesis to indicate that it is not “Normal”

Lesson 1-2, page 17 JOURNALIZING A DEBIT MEMORANDUM – new journal 5.Write the amount. 5 1.Write the date. 1 2.Enter vendor name. 2 June 3. Returned tennis equipment to Key Tennis Company, $54.50, from Purchase Invoice No 333. Debit Memorandum No Record debit memo number. 3 4.Write the amount. 4

Lesson 1-2, page 18 POSTING FROM A PURCHASES RETURNS AND ALLOWANCES JOURNAL Vendor transactions get posted to Accounts Payable Ledger Column totals get posted to General Ledger

WT

OYO

OYO

OYO

Rent Expense Cash June 1. Paid cash for rent expense, $ Check No RECORDING ENTRIES IN A CASH PAYMENTS JOURNAL Lesson 1-3, page 23 1.Write the date. 1 2.Enter the account title. 2 3.Record the check number Write the debit amount. 5 5.Enter the credit amount. June 1. Paid cash for office supplies, $ Check No Supplies—Office Cash

PURCHASES DISCOUNT Sellers encourage early payment by allowing a deduction from the invoice amount Vendor side: Cash Discount Customer side: Purchases Discount 2/10, n/30 2/10 = 2% discount if payment made within 10 days n/30 = payment of total must be made within 30 days of invoice Purchases discounts are CONTRA cost accounts - reduces the Purchases (cost) account Lesson 1-3, page 20

May 25 Champion Tennis Supply JOURNALIZING A PURCHASES DISCOUNT June 1. Paid cash on account to Champion Tennis Supply, $514.50, covering Purchase Invoice No. 331 for tennis equipment for $ less 2% discount, $ Check No (525*.02=10.50) Lesson 1-3, page 21 5.Record the discount amount. 5 3.Record the check number. 3 2.Enter vendor name. 2 6.Enter the credit amount. 6 4.Write the debit amount. 4 1.Write the date. 1 When we bought…

TAKING A DISCOUNT AFTER A PURCHASE RETURN Lesson 1-3, page 22 June 1. Paid cash on account to Golf-Tee, Inc., $220.50, covering Purchase Invoice No. 332 for golf equipment for $275.00, less Debit Memorandum No. 20 for $50.00, and less 2% discount, $4.50. Check No 316. Amount owed on invoice: how much did we buy and KEEP? Original Purchase Invoice Amount (P332) Purchase Invoice Amount After Return Purchases Return (DM20) –= $ – = $ – $4.50 $  2% = $4.50 $ = $ Purchases discount: you get a discount on what you KEEP Purchase Invoice Amount After Return Purchases Discount Purchases Discount Rate  = Amount due after purchases discount: Purchase Invoice Amount After Return Total Amount Due Purchases Discount –=

June 1. Paid cash on account to Golf-Tee, Inc., $220.50, covering Purchase Invoice No. 332 for golf equipment for $275.00, less Debit Memorandum No. 20 for $50.00, and less 2% discount, $4.50. Check No 316. May 25 Golf-Tee, Inc June 1 Golf-Tee, Inc

June 30. Paid cash to replenish the petty cash fund, $402.00: office supplies, $164.00; store supplies, $136.00; advertising, $56.00; miscellaneous expense, $ Check No CASH PAYMENT TO REPLENISH PETTY CASH Lesson 1-3, page 24 2.Enter the account titles. 2 3.Record check number. 3 5.Enter the credit amount. 5 1.Write the date. 1 4.Write the debit amounts. 4

June 30. Journalize Bank Service Charge, Memorandum 18. ***12.80 a month isn’t enough to warrant its own account - Miscellaneous RECORDING BANK CHARGES Lesson 1-3, page 24 2.Enter the account title. 2 3.Record memorandum number. 3 5.Enter the credit amount. 5 1.Write the date. 1 4.Write the debit amount. 4 June 30. Journalize Credit Card Fee Expense for June, Memorandum 19. ***The bank takes these charges directly out of your bank account ***No checks are written, but since cash is credited, these entries are journalized in the cash payments journal

RECONCILING A BANK STATEMENT Lesson 1-3, page 25 Date: June 30, 20-- (1) Checkbook Balance$__________ Bank Charges DescriptionAmount Service Charge (2) Deduct Total Bank Charges$__________ (3) Adj. Checkbook Balance$__________ (4) Bank Balance$__________ Outstanding Deposits DateAmount (5) Add Total Outstanding Deposits$__________ (6) Total$__________ Outstanding Checks Check NoAmount (7) Deduct Total Outstanding Checks$__________ (8) Adjusted Bank Balance$__________ 5.Enter and add outstanding deposits. 6/30 12, , Enter checkbook balance. 33, Deduct bank charges to obtain adjusted checkbook balance. 32, Enter bank balance from statement. 20, Enter and add bank charges Credit Card Fee Add outstanding deposits to balance. 33, Deduct total outstanding checks Verify adjusted checkbook balance and adjusted bank balance are the same. 32,

WT Work Together 1-3 (p27, wb7-10) & On Your Own 1-3 (p27, wb7-10) Work Together 1-3 (p27, wb7-10) & On Your Own 1-3 (p27, wb7-10)

OYO WT Work Together 1-3 (p27, wb7-10) & On Your Own 1-3 (p27, wb7-10) Work Together 1-3 (p27, wb7-10) & On Your Own 1-3 (p27, wb7-10)