Introduction to Accounting Preparing for a User’s Perspective Analyze Transactions and Record Journal Entries Debits and Credits Trainer By Kevin C. Kimball, CPA with support from www.canvas.net Free Jan. 2014 Available on the Google Play Store

The Full Accounting Cycle Original Transaction Entries Identify Analyze Record Post Prepare Pre-adjusted TB Adjusting Entries Identify Analyze Record Post Prepare Adjusted TB Financial Statements Closing Entries Identify Analyze Record Post Prepare Post-Closing TB

+ - - - + + = + ASSETS LIABILITIES EQUITY Date Account + or – in $ Step 2: the impact of the economic transaction information on the company’s accounts by determining the answer to the following four questions: Analyze a) What accounts were affected? Hint: Use the balance sheet equation to think. ASSETS = LIABILITIES + EQUITY + - - + - + b) For each affected account, did the account increase or decrease? c) What is the account’s increase or decrease amount? d) Will the accounts need to be debited or credited? Date Account + or – in $ Debit Credit

Date Account G/L Acct # Debit Credit Step 3: Record the journal entry(ies) to reflect the impact of the information on the company’s accounts determined above in a manner that keeps the balance sheet equation in balance. Date Account G/L Acct # Debit Credit This is the same information that you entered in Step 2. Each account has its own G/L Acct # for reference purposes. This is the same information that you entered in Step 2.

Original Transaction Entries Background On March 1, 20X1, Sue Per Vantastic started a new retail business named Suepervantastic Toy Co. (STC) that buys close-out model toys at steeply discounted prices and resells them through a variety of sales channels. During the month of March 20X1, Sue identified multiple economic transactions (as per Step 1 in the full accounting cycle) but has asked for our help to analyze (Step 2) and record them (Step 3). Original Transaction Entries Identify Analyze Record

+ - - - + + = + ASSETS LIABILITIES EQUITY Date Account + or – in $ March 1, X1: Suepervantastic Toy Co. (STC) received a $98,000 cash contribution and a new $2,000 computer in exchange for 1,000 shares of no-par, common stock. ASSETS = LIABILITIES + EQUITY + - - + - + Date Account + or – in $ Debit Credit

+ - - - + + = + ASSETS LIABILITIES EQUITY Date Account + or – in $ March 1, X1: STC purchased a building for $200,000 by paying $40,000 of cash and borrowing the remaining $160,000 under a 10 year note payable with simple interest to be charged at 5% per year to be paid annually. The full principal of the loan is to be repaid at the end of the 10 year period.  ASSETS = LIABILITIES + EQUITY + - - - + + Date Account + or – in $ Debit Credit

+ - - - + + = + ASSETS LIABILITIES EQUITY Date Account + or – in $ March 1, 20X1: Paid $12,000 to insure its building for the next 12 months.      ASSETS = LIABILITIES + EQUITY + - - + - + Date Account + or – in $ Debit Credit

+ - - - + + = + ASSETS LIABILITIES EQUITY Date Account + or – in $ March 2, 20X1: Purchased inventory costing $7,000 on account. ASSETS = LIABILITIES + EQUITY + - - + - + Date Account + or – in $ Debit Credit

+ - - - + + = + ASSETS LIABILITIES EQUITY Date Account + or – in $ March 4, 20X1: Purchased $1,000 of office supplies for cash. ASSETS = LIABILITIES + EQUITY + - - + - + Date Account + or – in $ Debit Credit

+ - - - + + - + - + - - + + - = + ASSETS LIABILITIES EQUITY Date March 6, 20X1: Sold inventory costing $3,000 to a customer on account for $5,000. ASSETS = LIABILITIES + EQUITY + - - + - + RETAINED EARNINGS - + Date Account + or – in $ Debit Credit Net Income - + - REVENUES EXPENSES - + + -

+ - - - + + - + - + + - - = + ASSETS LIABILITIES EQUITY 100 100 100 + March 7, 20X1: Incurred, but didn’t pay yet, a $100 sales commission (i.e. 2% of the sale) to the independent sales contractor who helped generate the March 6th sale. ASSETS = LIABILITIES + EQUITY + - - + - + 100 100 RETAINED EARNINGS - + Date Account + or – in $ Debit Credit 100 + 100 100 3/7 Commission Exp. Net Income - + + 100 100 Commission Pay. 100 - EXPENSES + - 100

+ - - - + + = + ASSETS LIABILITIES EQUITY Date Account + or – in $ March 8, 20X1: Paid off $4,000 of the accounts payable it owed from the March 2 inventory purchase. ASSETS = LIABILITIES + EQUITY + - - + - + Date Account + or – in $ Debit Credit

+ - - - + + = + ASSETS LIABILITIES EQUITY Date Account + or – in $ March 10, 20X1: Collected $4,000 from the sale made to the customer on March 6. ASSETS = LIABILITIES + EQUITY + - - + - + Date Account + or – in $ Debit Credit

+ - - - + + = + ASSETS LIABILITIES EQUITY Date Account + or – in $ March 13, 20X1: Invested $5,000 in the stock of ABC Co, a toy manufacturer. ASSETS = LIABILITIES + EQUITY + - - + - + Date Account + or – in $ Debit Credit

+ - - - + + - + - + - + = + ASSETS LIABILITIES EQUITY Date Account March 28, 20X1: Received a $200 dividend check from ABC Co. ASSETS = LIABILITIES + EQUITY + - - + - + RETAINED EARNINGS - + Date Account + or – in $ Debit Credit Net Income - + REVENUES - +

+ - - - + + - + + - - = + ASSETS LIABILITIES EQUITY Date Account March 30, 20X1: STC declared and paid a $100 dividend to its stockholder (Sue). ASSETS = LIABILITIES + EQUITY + - - + - + RETAINED EARNINGS - + Date Account + or – in $ Debit Credit - DIVIDENDs + -

+ - - - + + - + - + + - - = + ASSETS LIABILITIES EQUITY Date Account March 31, 20X1: Received a $500 utility bill for the month of March, but to conserve cash, STC has decided not to pay it off until the April 15, 20X1 payment deadline. ASSETS = LIABILITIES + EQUITY + - - + - + RETAINED EARNINGS - + Date Account + or – in $ Debit Credit Net Income - + - EXPENSES + -

Introduction to Accounting Preparing for a User’s Perspective Analyze Transactions and Record Journal Entries Debits and Credits Trainer By Kevin C. Kimball, CPA with support from www.canvas.net Free Jan. 2014 Available on the Google Play Store