ACC 499 Unit 02 Seminar Presented by: Dr. Stanley W. Self Agenda – Opening questions. – Lecture/Review – Q & A 1

Preliminary Comments Tonight will be a basic review of some familiar accounting principles. My intention is to get through the review as quickly as possible, then concentrate on your questions. I would like to expand the scope of our seminars beyond the boundaries set in the assignments and include real world and practical applications that will be of interest to you. The material covered in this seminar will relate directly to the first template homework assignment, so you might be able to resolve any homework related issues tonight.. 2

Homework Templates The homework must be submitted using the templates provided in the Doc Sharing area. The templates are not necessarily formatted correctly. You will have to correctly format all of your homework. For example: – When creating a journal entry, all Debit description lines must be left justified & Credit lines indented. – All Journal Entries must have an explanation for the entry. – At least one General Ledger Account is not included in the template, so you will have to copy & paste to create that General Ledger Account. 3

4 The T account has a title. The T Account A graphical reflection of journal entries Title 1

5 The T Account The left side of the account is called the debit side. Title Debit 1

6 The T Account Title Debit The right side of the account is called the credit side. Credit 1

7 A group of accounts for a business entity is called a ledger. 1 Chart of Accounts

8 A list of the accounts in a ledger is called a chart of accounts. 1 Chart of Accounts

9 Assets are resources owned by the business entity. Cash Supplies Accounts receivable Prepaid expenses Buildings 1 Chart of Accounts

10 Liabilities are debts owed to outsiders (creditors). Accounts payable Notes payable Wages payable 1 Chart of Accounts

11 Owner’s equity is the owner’s right to the assets of the business. A drawing account represents the amount of withdrawals by the owner. 1 Chart of Accounts – The below represents what type of business?

12 Revenues are increases in owner’s equity as a result of selling services or products to customers. Fees earned Commission revenue Rent revenue 1 Chart of Accounts

13 The using up of assets or consuming services in the process of generating revenues results in expenses. Wages expense Rent expense Miscellaneous expense 1 Chart of Accounts

14 Credit for increases (+) Debit for decreases (–) Owner’s Equity Accounts Credit for decreases (–) Debit for increases (+) Asset Accounts Credit for increases (+) Debit for decreases (–) Liability Accounts Rules of Debit and Credit Normal Balances of Accounts 2 Balance

15 Credit for increases (+) Debit for decreases (–) Revenue Accounts Credit for decreases (–) Debit for increases (+) Expense Accounts Income Statement Accounts 2

16 Credit for decreases (–) Debit for increases (+) Drawing Account Owner’s Withdrawals 2

17 Increase (Normal Bal.) Decreases Balance sheet accounts: AssetDebitCredit LiabilityCreditDebit Owner’s Equity: Capital CreditDebit DrawingDebitCredit Income statement accounts: RevenueCreditDebit ExpenseDebitCredit Normal Balances 2

18 A transaction is initially entered in a record called a journal. The process of recording a transaction in the journal is called journalizing. 2 Journalizing

19 Journalizing requires the following steps: 1.The date of the transaction is entered in the Date column. (continued) 2.The title of the account to be debited is recorded at the left-hand margin under the Description column, and the amount to be debited is entered in the Debit column. 2 Journalizing

20 3.The title of the account to be credited is listed below and to the right of the debited account title, and the amount to be credited is entered in the Credit column. 4.A brief description may be entered below the credited account. 5.The Post. Ref. (Posting Reference) column is left blank when the journal entry is initially recorded. 2

21 On November 1, Chris Clark opens a new business and deposits $25,000 in a bank account. Transaction A 2

22 Date DescriptionDebitCredit Nov Cash 25,000 Chris Clark, Capital 25,000 Invested cash P.R. JOURNALPage 1 2

23 The effect of this entry is shown in the accounts as follows: Cash Nov. 125,000 Chris Clark, Capital 2

24 The process of transferring the debits and credits from the journal entries to the accounts is called posting. 3 Posting Journal Entries to Accounts

25 Dec. 1Paid a premium of $2,400 for an insurance policy for liability, theft and fire. The policy covers a one-year period. 3

26 3 to Cash Step 1 ep 3 Step 1 Step 2 ep 3 (continued) Exhibit 4 Diagram of the Recording and Posting of a Debit and a Credit

27 3 Step 1 ep 3 Step 2 Step 1 ep 4 Step 3 Exhibit 4 Diagram of the Recording and Posting of a Debit and a Credit (continued)

28 Dec. 31Paid $225 for electric usage for the month. 3

29 Dec. 31Earned $1,120 on account for the second half of December. 3

30 3 Ledger NetSolutions Exhibit 5 Ledger

31 3 Exhibit 5 Ledger (continued)

32 3 Exhibit 5 Ledger (continued)

33 The equality of debits and credits in the ledger should be proven at the end of each accounting period by preparing a trial balance. 4 Trial Balance Preparation

34 The steps in preparing a trial balance are as follows: 1.List the name of the company, the title of the trial balance, and the date the trial balance is prepared. 2.List the accounts from the ledger and enter their debit or credit balance in the Debit or Credit column of the trial balance. 3.Total the Debit and Credit columns of the trial balance. 4.Verify that the total of the Debit column equals the total of the Credit column. 4

35 4 Exhibit 6 Trial Balance

36 A transposition occurs when the order of the digits is changed mistakenly, such as writing $542 as $452 or $524. In a slide, the entire number is mistakenly moved one or more spaces to the right or the left, such as writing $ as $54.20 or $97.50 as $ Errors

37 If an error has already been journalized and posted to the ledger, a correcting journal entry is normally prepared. 4

38 Another type of error is a posting error. Assume that on May 5 a $12,500 purchase of office equipment on account was incorrectly journalized and posted as a debit to Supplies and a credit to Accounts Payable for $12,500. Errors Not Affecting the Trial Balance 4

39 Posted Correcting Entry 4

Q & A ? 40