1. External and Internal Events External events: interaction between entity and outside environment LO1 Internal events: Event occurs entirely within the entity © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

2. Source Documents Evidence needed in an accounting system to record transactions Purchase Invoice Cash Register Tape Sales Invoice Receiving Document Payroll Records Shipping Document Checks LO2 © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

3. The accounting equation must always remain in balance Issue Capital Stock for Cash LO3 1/2012 Transactions for Glengarry Health Club © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

4. Purchase of Property in Exchange for Notes Payable Increase on left has corresponding increase on right © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

5. requires assets such as equipment be recorded at cost to acquire and continue to report this amount until asset is sold these assets are not carried at market value (only few exceptions) Cost Principle © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

6. Revenue – Expenses = Net Income or (Net Loss) Income Statement Statement of Retained Earnings Beg. R/E + Net Income OR ( – Net Loss) – Dividends = End. R/E Effect of Revenue and Expenses on Retained Earnings © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

7. Identify and Analyze What type of activity? operating, financing or investing What accounts are affected and are the accounts increased or decreased? at least two accounts are always affected Which financial statements are affected? just the balance sheet or balance sheet and income statement © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

8. Sell Monthly Memberships on Account © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

9. Payment of Wages and Salaries Payment of Wages and Salaries: Operating activity Two accounts are affected: Cash is decreased and Wage and Salary Expense is increased This transaction affects both the Balance Sheet and the Income Statement © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

10. Payment of Wages and Salaries © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

11. Appendix: The T Account Account Name Representation of one account in the general ledger Debits are entered on left Credits are entered on right LO5 © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

12. The T Account 900 cr. Account Name 400 dr. 500 cr. Debits and credits are netted to obtain balance in account © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

13. Debits/Credits and the Accounting Equation = ASSETS Dr.Cr. + – + LIABILITIES Dr.Cr. + – STOCKHOLDERS’ EQUITY Dr.Cr. + – Opposite sides of the accounting equation are increased/decreased in an opposite way

14. Link Between Revenues and Retained Earnings RETAINED EARNINGS Dr. Cr. REVENUES Dr. Cr. Revenues increase retained earnings (part of owners’ equity) Both accounts are increased with credits – – + + © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

15. Link Between Expenses and Dividends and Retained Earnings RETAINED EARNINGS DR.CR. + – DR.CR. EXPENSES AND DIVIDENDS + – Retained earnings is decreased with debits Use debits to record(increase) expenses and dividends Expenses and dividends decrease retained earnings

16. Normal Account Balances Assets Expenses Dividends Liabilities Stockholders’ Equity Revenues Debit Credit all increased with debits all increased with credits © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

17. Determine the Balance of the T Accounts Accounts Receivable 4,000 (8) (4) 15,000 Cash (8) 4,000 (1) 100,000 (5) 5,000 10,000 (6) 3,000 (7) 2,000 (9) 94,000 11,000 © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

18. The Journal: Chronological Record of Transactions  Book of Original Entry  Transactions recorded in the journal first and then posted to the ledger LO6 © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

19. Posting from Journal Journal (via journal entries): Dr. Cr. Cash 100,000 Capital Stock 100,000 To record the issuance of 10,000 shares Journal (via journal entries): Dr. Cr. Cash 100,000 Capital Stock 100,000 To record the issuance of 10,000 shares Transactions are entered in: Ledger Accounts Cash Capital Stock Ledger Accounts Cash Capital Stock And then posted to: © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

20. Cash Accounts Receivable Equipment Building Land Accounts Payable Notes Payable Capital Stock Membership Revenue Court Fee Revenue Wage and Salary Expense Utility Expense Dividends Totals $ 94,000 11,000 20,000 150,000 50,000 $ 20,000 200,000 100,000 15,000 5,000 10,000 3,000 2,000 $340,000 $340,000 Debits Credits Glengarry Health Club Trial Balance January 31, 2012 LO7 © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

21. End of Chapter 3