1. Learning Objectives Using Accounting Principles and Records Explain the relationship between the accounting equation and accounting records. Explain the relationship between a subsidiary ledger and a controlling account.

2. © 2015 Cengage Learning. All Rights Reserved. Financial Reporting for Departments ●Financial information for a business can be recorded, summarized, and reported in a variety of ways. ●If managers of individual departments want to use financial statements to assist in making decisions, information for each department must be recorded separately. SLIDE 2 Lesson 1-1

3. © 2015 Cengage Learning. All Rights Reserved. Accounting Equation Lesson 1-1 SLIDE 3 © 2015 Cengage Learning. All Rights Reserved. Anything of value that is owned is called an asset. An amount owed by a business is called a liability. Financial rights to the assets of a business are called equities. The owners’ equity in a corporation is called stockholders’ equity.

4. © 2015 Cengage Learning. All Rights Reserved. Accounting Records ●Accounting records show changes and the current account balance of each asset, liability, and owners’ equity (or stockholders’ equity) account. ●Business papers from which information is obtained for a journal entry are called source documents. ●The source document is the original business paper indicating that the transaction did occur and that the amounts recorded in the accounting records are accurate and true. Lesson 1-1 SLIDE 4 © 2015 Cengage Learning. All Rights Reserved.

5. General Journal ●The recording of debit and credit parts of a transaction is called double-entry accounting. ●A form for recording transactions in chronological order is called a journal. ●A journal used to record only one kind of transaction is called a special journal. ●A general journal may be used to record all business transactions. Lesson 1-1 SLIDE 5 © 2015 Cengage Learning. All Rights Reserved.

6. Normal Balances of Accounts Lesson 1-1 SLIDE 6 © 2015 Cengage Learning. All Rights Reserved. A record that summarizes all the transactions pertaining to a single item in the accounting equation is called an account.

7. © 2015 Cengage Learning. All Rights Reserved. General and Subsidiary Ledgers ●A group of accounts is called a ledger. ●A ledger that contains all accounts needed to prepare financial statements is called a general ledger. ●A ledger that is summarized in a single general ledger account is called a subsidiary ledger. ●An account in a general ledger that summarizes all accounts in a subsidiary ledger is called a controlling account. Lesson 1-1 SLIDE 7 © 2015 Cengage Learning. All Rights Reserved.

8. General and Subsidiary Ledger File Maintenance SLIDE 8 1 1 2 2 3 3 Lesson 1-1 © 2015 Cengage Learning. All Rights Reserved. The procedure for arranging accounts in a general ledger, assigning account numbers, and keeping records current is called file maintenance.

9. © 2015 Cengage Learning. All Rights Reserved. Lesson 1-1 Audit Your Understanding 1.How is the accounting equation stated most commonly? SLIDE 9 ANSWER Assets = Liabilities + Owners’ Equity. Lesson 1-1

10. © 2015 Cengage Learning. All Rights Reserved. Lesson 1-1 Audit Your Understanding 2.What is the normal balance of an asset account? A revenue account? SLIDE 10 ANSWER An asset account has a normal debit balance; a revenue account has a normal credit balance. Lesson 1-1 © 2015 Cengage Learning. All Rights Reserved.

11. Lesson 1-1 Audit Your Understanding 3.What are the three needs met by Whiley’s account numbering system? SLIDE 11 ANSWER (a) A separate numeric listing is provided for each ledger division. (b) A predesigned arrangement of numbers is provided within each ledger division. (c) Account number digits are spaced to allow the addition of new accounts. Lesson 1-1 © 2015 Cengage Learning. All Rights Reserved.

12. Learning Objectives © 2015 Cengage Learning. All Rights Reserved.  Explain the purpose of a departmental accounting system.  Journalize departmental purchases of merchandise on account using a purchases journal.  Post merchandise purchases to an accounts payable ledger and a general ledger.  Journalize departmental purchases returns and allowances. Journalizing and Posting Purchases and Purchases Returns

13. © 2015 Cengage Learning. All Rights Reserved. Learning Objectives © 2015 Cengage Learning. All Rights Reserved.  Explain the purpose of a departmental accounting system.  Journalize departmental purchases of merchandise on account using a purchases journal.  Post merchandise purchases to an accounts payable ledger and a general ledger.  Journalize departmental purchases returns and allowances. Journalizing and Posting Purchases and Purchases Returns

14. © 2015 Cengage Learning. All Rights Reserved. Departmental Accounting System ●An accounting system showing accounting information for two or more departments is called a departmental accounting system. ●A business that purchases and sells goods is called a merchandising business. ●All departmental purchases of merchandise on account are recorded in a purchases journal and can be traced to a purchase invoice. Lesson 1-2 SLIDE 14 © 2015 Cengage Learning. All Rights Reserved. LO3

15. © 2015 Cengage Learning. All Rights Reserved. Journalizing Purchases on Account Lesson 1-2 SLIDE 15 © 2015 Cengage Learning. All Rights Reserved. LO4 Approval Date 1 1 2 2 Vendor Name Invoice Number 3 3 Invoice Amount Sales Department 4 4 5 5 May 1. Purchased furniture on account from Backyard Furniture Mfg., $1,869.35. Purchase Invoice No. 675.

16. © 2015 Cengage Learning. All Rights Reserved. Posting the Totals of a Purchases Journal LO5 Lesson 1-2 SLIDE 16 © 2015 Cengage Learning. All Rights Reserved. Date Journal Page Number 1 1 2 2 Column Total Account Number Account Balance 5 5 4 4 3 3

17. © 2015 Cengage Learning. All Rights Reserved. Journalizing Purchase Returns and Allowances LO6 Lesson 1-2 SLIDE 17 © 2015 Cengage Learning. All Rights Reserved. When merchandise is returned to a vendor, the vendor’s account and Accounts Payable are reduced by a debit. An account that reduces a related account on a financial statement is called a contra account. Purchases Returns and Allowances is a contra account to the purchases account.

18. © 2015 Cengage Learning. All Rights Reserved. Debit Memorandum ●A form prepared by the customer showing the price deduction taken by the customer for a return or an allowance is called a debit memorandum. LO6 Lesson 1-2 SLIDE 18 © 2015 Cengage Learning. All Rights Reserved.

19. Lesson 1-2 Audit Your Understanding 1.When Whiley’s grills department purchases merchandise on account, which general ledger accounts are affected, and how? SLIDE 19 ANSWER Purchases—Grills is debited; Accounts Payable is credited. Lesson 1-2 © 2015 Cengage Learning. All Rights Reserved.

20. Lesson 1-2 Audit Your Understanding 2.Which general ledger accounts are affected, and how, by a return of furniture department merchandise? ANSWER Accounts Payable is debited; Purchases Returns and Allowances—Furniture is credited. Lesson 1-2 © 2015 Cengage Learning. All Rights Reserved.

21. Departmental Accounting System ●An accounting system showing accounting information for two or more departments is called a departmental accounting system. ●A business that purchases and sells goods is called a merchandising business. ●All departmental purchases of merchandise on account are recorded in a purchases journal and can be traced to a purchase invoice. Lesson 1-2 SLIDE 21 © 2015 Cengage Learning. All Rights Reserved. LO3

22. © 2015 Cengage Learning. All Rights Reserved. Journalizing Purchases on Account Lesson 1-2 SLIDE 22 © 2015 Cengage Learning. All Rights Reserved. LO4 Approval Date 1 1 2 2 Vendor Name Invoice Number 3 3 Invoice Amount Sales Department 4 4 5 5 May 1. Purchased furniture on account from Backyard Furniture Mfg., $1,869.35. Purchase Invoice No. 675.

23. © 2015 Cengage Learning. All Rights Reserved. Posting the Totals of a Purchases Journal LO5 Lesson 1-2 SLIDE 23 © 2015 Cengage Learning. All Rights Reserved. Date Journal Page Number 1 1 2 2 Column Total Account Number Account Balance 5 5 4 4 3 3

24. © 2015 Cengage Learning. All Rights Reserved. Journalizing Purchase Returns and Allowances LO6 Lesson 1-2 SLIDE 24 © 2015 Cengage Learning. All Rights Reserved. When merchandise is returned to a vendor, the vendor’s account and Accounts Payable are reduced by a debit. An account that reduces a related account on a financial statement is called a contra account. Purchases Returns and Allowances is a contra account to the purchases account.

25. © 2015 Cengage Learning. All Rights Reserved. Debit Memorandum ●A form prepared by the customer showing the price deduction taken by the customer for a return or an allowance is called a debit memorandum. LO6 Lesson 1-2 SLIDE 25 © 2015 Cengage Learning. All Rights Reserved.

26. Lesson 1-2 Audit Your Understanding 1.When Whiley’s grills department purchases merchandise on account, which general ledger accounts are affected, and how? SLIDE 26 ANSWER Purchases—Grills is debited; Accounts Payable is credited. Lesson 1-2 © 2015 Cengage Learning. All Rights Reserved.

27. Lesson 1-2 Audit Your Understanding 2.Which general ledger accounts are affected, and how, by a return of furniture department merchandise? ANSWER Accounts Payable is debited; Purchases Returns and Allowances—Furniture is credited. Lesson 1-2 © 2015 Cengage Learning. All Rights Reserved.