b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. 2&3 Please read and take BRIEF notes on the following Power- Point presentation. CHAPTER Analyzing and Recording Transactions

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. The expanded basic equation is: Assets = Liabilities + Capital - Drawings + Revenues - Expenses

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Debit Credit Capital - + Equity _ RevenuesExpenses Owner’s Capital Owner’s Withdrawals + _ Debit Credit Withdrawals + - Debit Credit Expenses + - Debit Credit Revenues - + Double-Entry Accounting Exhibit 3.8

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Exhibit 3.1 Overview of the Accounting Cycle 1. Analyze transactions based on source documents Chapter 1 and 2 2. Journalize Chapter 3 3. Post Chapter 3 9. Prepare post-closing trial balance Chapter 5 8. Close Chapter 5 7. Prepare financial statements Chapter 2 through 5 6. Prepare adjusted trial balance Chapter 4 5. Adjust Chapter 4 4. Prepare unadjusted trial balance Chapter 3

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Sales Invoices Bank Statement Purchase Orders Cheques Source Documents Source documents identify and describe transactions and events and are the source of accounting information.

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Recording Transactions Entries are originally recorded in a journal. The process of recording the transactions is called journalizing. An example follows:

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. How To Record Transactions **Please do not take notes on the following steps until the 2 nd last slide where the steps are summarized for you. Step 1 – Enter the year on the first line at the top of the first column. **Please do not take notes on the following steps until the 2 nd last slide where the steps are summarized for you. Step 1 – Enter the year on the first line at the top of the first column.

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Recording Transactions Step 2 and 3 – Enter the month in column one on the first line of the journal entry and the day in column two. Note that entries are recorded in chronological order (by date).

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Recording Transactions Step 4 – Enter the titles of accounts debited. Account titles are taken from the chart of accounts and are aligned with the left margin of the Account titles and explanation column. Accounts to be debited are always entered before accounts being credited.

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Recording Transactions Step 5 – Enter the debit amount in the Debit column on the same line as the accounts to be debited.

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Recording Transactions Step 6 – Enter the titles of accounts credited. Account titles are indented from the left margin of the Account Titles and Explanation column to distinguish them from debits.

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Recording Transactions Step 7 – Enter the credit amount in the Credit column on the same line as the accounts to be credited.

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Recording Transactions Step 8 – Write a brief explanation of the transaction on the line below the entry.

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Recording Transactions Step 9 – Skip a line between each journal entry for clarity.

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Posting Entries Entries are then posted from the journal into the general ledger on a transaction by transaction basis; first the debit, then the credit.

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Posting Entries Step 1 – Identify the ledger account that was debited in the journal entry and find it in the general ledger. Example – first entry on Jan. 1 had a debit to the cash account for $30,000.

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Posting Entries Step 2 – Enter the date of the journal entry in this ledger account.

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Posting Entries Step 3 – Enter the amount debited from the journal entry into the Debit column of the ledger account.

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Posting Entries Step 4 – Enter the source of the debit in the PR (post-reference) column. The letter G indicates the entry came from the general journal.

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Posting Entries Step 5 – Compute and enter the account’s new balance in the Balance column. Remember, a debit balance would be increased by a debit and decreased by a credit.

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Recording Transactions Step 6 – Finally, enter the ledger account number in the PR column of the journal entry.

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. A Trial Balance is a listing of all accounts and their balances at a point in time. This information is taken from the general ledger after all entries have been posted from the general journal. It ensures that Dr = Cr Exhibit 3.14

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Posting Steps Summarized  General Journal Entry – Steps: Record the date Account debited – record amount Account credited – record amount Brief explanation of transaction Skip a line before next entry  General Ledger Entry – Steps: Find the ledger account affected – the debit account then the credit account and then do the following: Record date Record amount Record source in PR column (G indicates from GJ) Calculate the new ledger account balance Enter the ledger account number in the PR column of the journal entry

b a c kn e x t h o m e Copyright  2001 McGraw-Hill Ryerson Limited. All rights reserved. Accounting Cycle Step #3 ä Prepare an unadjusted trial balance sheet. ä This is the end of Chapters 2 & 3. ä Next we will: l Take the 10 min. quiz l Review GAAPS l Review the 3 adjusting entries you learned last year and introduce 2 new entries!