BSAD 221 Introductory Financial Accounting Donna Gunn, CA

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Trial Balance Listing of all accounts and their balances at a given point in time 3 Account DebitCredit Cash80,000 Accounts Receivable72,000 Advertising Supplies25,000 Prepaid Insurance 6,000 Office Equipment50,000 Notes Payable 50,000 Accounts Payable 25,000 Unearned Service Revenue 12,000 Common Shares 80,000 Retained Earnings 20,000 Service Revenue100,000 Salaries Expense45,000 Rent Expense 9,000 TOTALS 287,000287,000

Transaction A transaction is any event that has financial impact on the business Can be measured Provides objective information Must be able to assign $ amount to transaction

Recording Transactions ÊEvery transaction affects at least two accounts (duality of effects). ËThe accounting equation must remain in balance after each transaction. A = L + SE What the company owns What the company owes What the owners have invested

2 - The Account Assets are economic resources that benefit the business now and in the future Cash Accounts receivable Inventory Notes receivable Prepaid expenses Land Buildings Equipment, furniture, and fixtures

2 - The Account Liabilities are the debts of the company. Bank loan Notes payable Accounts payable Accrued liabilities (for expenses incurred but not paid) Long-term liabilities (bonds and mortgages)

2 - The Account Shareholders’ (owners’) equity is the owners’ investment in a corporation. Contributed Capital Retained Earnings - impacted by Revenues and Expenses Dividends

Recording Transactions  Accounts and effects Identify the accounts affected and classify them by type of account (A, L, SE). Determine the direction of the effect (increase or decrease) on each account.  Balancing Verify that the accounting equation (A=L+SE) remains in balance.

The Debit-Credit Framework Debits and credits affect the Balance Sheet Model as follows: A = L + SE ASSETS Debit for Increase Credit for Decrease EQUITIES Debit for Decrease Credit for Increase LIABILITIES Debit for Decrease Credit for Increase

Trial Balance Listing of all accounts and their balances at a given point in time 11 Account DebitCredit Cash80,000 Accounts Receivable72,000 Advertising Supplies25,000 Prepaid Insurance 6,000 Office Equipment50,000 Notes Payable 50,000 Accounts Payable 25,000 Unearned Service Revenue 12,000 Common Shares 80,000 Retained Earnings 20,000 Service Revenue100,000 Salaries Expense45,000 Rent Expense 9,000 TOTALS 287,000287,000

How Do Companies Keep Track of Account Balances? A T-account is a tool used to represent an account. Account Name LeftRight

How Do Companies Keep Track of Account Balances? Journal entries T-accounts

How Do Companies Keep Track of Account Balances? Account Name LeftRight DebitCredit The left side of the T-account is always the debit side. The right side of the T-account is als the credit side. The right side of the T-account is always the credit side.

T-Accounts and the Trial Balance 15 Cash 80,000 Revenue 100,000 Dividends 5,000 Notes Payable 50,000 Account DebitCredit Cash80,000 Accounts Receivable72,000 Advertising Supplies25,000 Prepaid Insurance 6,000 Office Equipment50,000 Notes Payable 50,000 Accounts Payable 25,000 Unearned Service Revenue 12,000 Common Shares100,000 Dividends 5,000 Service Revenue100,000 Salaries Expense40,000 Rent Expense 9,000 TOTALS 287,000287,000

Journal Entry Company X provides $1,000 of services and is paid in cash. Cash is received so cash will be increased. As cash is an asset the increase is shown as a debit. Revenue is earned, so revenue will be increased. Revenues are an increase to equity, therefore the increase is shown as a credit. Dr.Cash$1,000 Cr. Revenue$1,000 To record service revenue of $1,000

T-Accounts and the Trial Balance 17 Cash 80,000 1,000 81,000 Revenue 100,000 1, ,000 Account DebitCredit Cash 81,000 Accounts Receivable72,000 Advertising Supplies25,000 Prepaid Insurance 6,000 Office Equipment50,000 Notes Payable 50,000 Accounts Payable 25,000 Unearned Service Revenue 12,000 Common Shares100,000 Dividends 5,000 Service Revenue 101,000 Salaries Expense40,000 Rent Expense 9,000 TOTALS 288,000288,000