© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. T ACCOUNTS, DEBITS AND CREDITS, TRIAL BALANCE AND FINANCIAL STATEMENTS Chapter 2

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective – 1

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The T-Account Form Step 2:109,070 – 53,180 = 55,890 Step 1: Add Step 3: Placement Footings

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The T-Account Form Normally, the footing on the increase (plus) side of an account will be larger than the footing

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 1

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Asset T Accounts The T account has a ___________ (such as _________). (continued) Assets ________ on the left side. Assets _________on the right side. Cash

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Liability T Accounts (continued) Liabilities __________ on the left side. Liabilities __________ on the right side. Accounts Payable

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Owner’s Equity T Accounts Drawing and expenses cause a ___________ in owner’s equity Owner’s investments (capital) and revenues cause an ___________ in owner’s equity

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Expanded Fundamental Accounting Equation

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 2

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  What does debit mean?  Debit means “________”  Debit is abbreviated “_______”  What does credit mean?  Credit means “_________”  Credit is abbreviated “______” What is a: … Debit … Credit

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The T Account with Debits and Credits

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ________

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The critical rule to remember is … __

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 3

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Recording Business Transactions in T Accounts Steps: 3. Are the accounts increased or decreased? Answer: 3. _____________________________ _____________________________ _____________________________ (a) Transaction (a): Conner deposited $90,000 in a bank account in the name of the business. 2. What are the classifications of the accounts involved (asset, liability, capital, drawing, revenue, expense)? 1. What accounts are involved? 2. _____________________________ _____________________________ _____________________________ 1. ___________________________

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Recording Business Transactions in T Accounts Steps: 4. Write the transaction as a debit to one account (or accounts) and a credit to another account (accounts). Answer: 5. _____________________________ _____________________________ _____________________________ Transaction: Conner deposited $90,000 in a bank account in the name of the business. 5. Is the equation in balance after the transaction has been recorded? 4. _____________________________ _____________________________ _____________________________

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (a) Transaction (a) in T Account Form

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (b) Transaction (b): Conner’s Whitewater Adventures bought equipment, paying cash of $38,000.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (c) Transaction (c): Conner’s Whitewater Adventures bought equipment, on account, for $4,320.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (d) Transaction (d): Conner’s Whitewater Adventures paid a creditor, Signal Products, $2,000.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (e) Transaction (e): Conner invests her personal computer, fair market value $5,200, in the business.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (a) - (e) Summary - Transactions (a) - (e)

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Let’s pause to see if the debits are equal to the credits by listing the balances of the accounts. Equal

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (f) Transaction (f): Conner’s Whitewater Adventures sold rafting tours for cash, $8,000.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (g) Transaction (g): Conner’s Whitewater Adventures paid rent for the month, $1,250.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (h) Transaction (h): Conner’s Whitewater Adventures bought computer paper, ink cartridges, invoice pads, pens and pencils, folders, filing cabinets, and 10-key calculators on account, $675.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (i) Transaction (i): Conner’s Whitewater Adventures bought a three- month liability insurance policy, $1,875.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (j) Transaction (j): Conner’s Whitewater Adventures received a bill for newspaper advertisement from the Times, $620.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (k) Transaction (k): Conner’s Whitewater Adventures signs a contract with Crystal River Lodge to provide rafting adventures for guests. Conner’s Whitewater Adventures provides 27 one-day rafting tours and bills Crystal River Lodge for $6,750.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transaction (l): Conner’s Whitewater Adventures pays on account to Signal Products, $1,500.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (m) Transaction (m): Conner’s Whitewater Adventures received and paid Solar Power, Inc. for the electric bill, $225.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (n) Transaction (n): Conner’s Whitewater Adventures paid on account to the Times, $620.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (o) Transaction (o): Conner’s Whitewater Adventures paid the wages of a part-time employee, $2,360.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (p) Transaction (p): Conner’s Whitewater Adventures bought additional equipment from Signal Products, $3,780, paying $1,850 in cash and placing the balance on account. This is a ___________ ________

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (q) Transaction (q): Conner’s Whitewater Adventures received $2,500 cash from Crystal River Lodge to apply against the amount billed in transaction (k).

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (r) Transaction (r): Conner’s Whitewater Adventures sold tours for cash, $8,570.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (s) Transaction (s): J. Conner withdrew cash for her personal use, $3,500.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Summary of Transactions continued

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Summary of Transactions

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Practice Exercise 4

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 4 – Complete the T accounts

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  List the account balances in two columns. –Left column = ____________ –Right column = _____________  List the accounts in the same order as the chart of accounts. Prepare a Trial Balance _____________

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The normal balance of each account is on its _________ side.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 2: Trial Balance

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 5

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 5 – Complete the trial balance

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Income Statement  The _________________ shows total revenue minus total expenses, which yields the net income or net loss.  The income statement reports how the business has performed ________________, usually a ______ or a ________.  When total revenue exceeds total expenses over the period, the result is a _____________ or _________.  When the total revenue is less than total expenses, the result is a ____________.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 3

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  The ___________________________ shows how— and why—the __________ or ______________ has changed over a stated period of time.  This statement is prepared after the accountant has determined the _______________ or ___________ on the income statement. The Statement of Owner’s Equity

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 4

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Balance Sheet  The ___________________ shows the financial condition of a business’s assets offset by claims against them _________________________.  The balance sheet ____________ the balances of the _______, __________, and ______________ accounts on a given date (usually the end of a ______ or _______). It is a “_________” of the financial condition of the business at that particular time.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 5

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 6

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (continued) Practice Exercise 6 (a) – complete the income statement

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (continued) Practice Exercise 6 (b) – complete the statement of owner’s equity

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (continued) Practice Exercise 6 (c) – complete the balance sheet

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. If the debit and credit columns in the trial balance are not equal, then it is evident that there is an error. Possible mistakes include: ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ Errors Exposed by the Trial Balance

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The best method of locating errors is to do everything in reverse, as follows: ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ Procedure for Locating Errors

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transpositions and Slides  A _____________ means that the digits have been _________, or __________ around when the numbers were copied from one place to another. Example: ______________________________________  A __________ is an _______ in placing the ___________. Example: ______________________________________  Combination of a __________ and a ___________. Example: ______________________________________

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 7

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.