Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Chapter 2 1

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 2 Explain accounts, journals, and ledgers as they relate to recording transactions and describe common accounts Define debits, credits, and normal account balances and use double-entry accounting and T-accounts List the steps of the transaction recording process

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 3 Journalize and post sample transactions to the ledger Prepare the trial balance from the T-accounts

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Explain accounts, journals, and ledgers as they relate to recording transactions and describe common accounts 4 1 1

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 5 Record transactions in the journal Copy (post) to the ledger Prepare the trial balance

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Basic summary device Detailed record of all changes that have occurred in a particular asset, liability, or owner’s equity Covers a specific period of time Grouped in three broad categories Assets Liabilities Owner’s Equity 6

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Journal Ledger 7

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Listing of all accounts and their balances 8

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 9 ASSETSLIABILITIESEQUITY Economic Resources Claims to Economic Resources

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Economic resources that will benefit the business in the future: Cash Accounts receivable Notes receivable Prepaid expenses Land Building Equipment, Furniture, Fixtures 10

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. A debt (something owed): Accounts payable Notes payable Accrued liabilities 11

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Owner’s claim to the assets: Capital Drawing Revenues Expenses 12

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Asset, Liability, and Owner’s Equity Accounts 13

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. List of all accounts used by a company 14

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Define debits, credits, and normal account balances and use double-entry accounting and T-accounts 15 2

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Record dual effects of each transaction Each transaction has a: Receiving side Giving side 16

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 17 Tool for analyzing and determining the balance in a given account Account Name (Left Side) (Right Side)

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Whether an account is increased by debit or a credit is determined by the account type Debits are not good or bad 18

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 19 The account category governs the increase side or decrease side Rules of debits and credits

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Illustrate Debits and Credits The first transaction involves receiving $30,000 cash and issuing Capital The second transaction is a $20,000 purchase of land for cash 20

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Match the accounting terms on the left with the corresponding definitions on the right. 1._____Posting 2._____ Receivable 3._____ Debit 4._____ Journal 5._____ Expense 6._____ Net Income 7._____ Normal Balance 8._____ Ledger 9._____ Payable 10._____ Equity 21 A.Using up assets in the course of operating a business B.Book of accounts C.An asset D.Record of transactions E.Left side of an account F.Side of an account where increases are recorded G.Copying data from the journal to the ledger H.Always a liability I.Revenues – Expenses = J.Assets – Liabilities =

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Margaret Alves is tutoring Timothy Johnson, who is taking introductory accounting. Margaret explains to Timothy that debits are used to record increases in accounts and credits record decreases. Timothy is confused and seeks your advice. 1.When are debits increases? When are debits decreases? 2. When are credits increases? When are credits decreases? 22

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. List the steps of the transaction recording process 23 3

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Identify each account affected and its type Determine if each account is increased or decreased Record transaction in the journal 24 Use the rules of debit and credit

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Journalize the first transaction of Smart Touch— the receipt of $30,000 cash and issuance of Capital. The accounts affected are Cash and Capital. Cash is an asset. Capital is equity. Both accounts increase by $30,000. Assets increase with debits. Equity increases with credits. 25

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Four parts: a)Date of transaction b)Title of account debited with dollar amount c)Title of account credited with dollar amount d)Brief explanation of transaction 26

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 27 Journal Page 1 DateDescriptionDebitCredit Apr 1Cash30,000 Bright, capital30,000 Owner investment.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Ned Brown opened a medical practice in San Diego, California. 1. Record the preceding transactions in the journal of Ned Brown, M.D., P.C. Include an explanation. 28 Jan 1The business received $29,000 cash and issued common stock. 2Purchased medical supplies on account, $14,000. 2Paid monthly office rent of $2,600. 3Recorded $8,000 revenue for service rendered to patients on account.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Jan. 1: The business received $29,000 cash and issued common stock. 29 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Jan. 2: Purchased medical supplies on account, $14, GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Jan. 2: Paid monthly office rent of $2, GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Jan. 3: Recorded $8,000 revenue for service rendered to patients on account. 32 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Copying amounts from the journal to the ledger 33

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Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Origin of accounting transactions 38

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Journalize and post sample transactions to the ledger 39 4

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 40 Cash Capital GENERAL JOURNAL DATEDESCRIPTION RE F DEBITCREDIT Cash30,000 Bright, capital30,000 Issued capital.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 41 Cash Capital Land GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Land20,000 Cash20,000 Bought land.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 42 CashAccounts payable Office supplies GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Office supplies500 Accounts payable500 Purchased supplies. Cash

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 43 CashService revenue GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Cash5,500 Service revenue5,500 Received payment on account. Cash

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 44

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Oakland Floor Coverings reported the following summarized data at December 31, Accounts appear in no particular order. 45 Revenues$34,000Other liabilities$18,000 Equipment45,000Cash12,000 Accounts payable2,000Expenses19,000 Oakland, capital22,000

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 46 Oakland Floor Coverings Trial Balance December 31, 2012 Cash Equipment Accounts payable Other liabilities Oakland, capital Revenues Expenses

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Texas Sales Consultants completed the following transactions during the latter part of January: 47 Jan 22Performed service for customers on account, $8, Received cash on account from customers, $7, Received a utility bill, $180, which will be paid during February. 31Paid monthly salary to salesman, $2, Paid advertising expense of $700.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Jan 22: Performed service for customers on account, $8,000 “On account” indicates Accounts receivable Accounts receivable is an asset account Increase an asset with a debit 48 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Jan. 30: Cash is received Increase cash, an asset Assets are increased by debits The payment is “on account” Decrease Accounts receivable with a credit 49 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Jan. 31: A utility bill is an expense Expenses are increased by debits The bill will be paid later–creating an account payable Liabilities are increased by credits 50 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Jan. 31: Salaries to employees are an expense Expenses are increased by debits The salary was paid in cash Cash, an asset, decreases, Assets are decreased by credits Rent Expense is an expense account. Increase an expense with a debit 51 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. March 31: Advertising is another expense Cash is paid 52 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Prepare the trial balance from the T-accounts 53 5

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Summary of the ledger Lists all accounts with their balances Accuracy check NOT a balance sheet 54

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Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Search for missing account Divide the difference between total debits and total credits by two Divide out-of-balance amount by nine 56

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Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 60 Copyright All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.