1. The Recording Process

2. 3-1 Three Parts of an Account (1) ACCOUNT TITLE (Left Side) (2) DEBIT (Right Side) (3) CREDIT Total Debits > Total Credits = Debit Balance Total Credits > Total Debits = Credit Balance Total Debits = Total Credits = Zero Balance

3. 3-1 Three Parts of an Account (continued) CASH ACCOUNTS PAYABLE 9/1 Balance12,000 9/5 2,000 9/30Balance11,000 9/102,000 9/201,000 9/63,000 9/212,000 9/1Balance6,000 9/179,000 9/30Balance 10,000 Example: (Debit Balance) (Credit Balance) Debits & Credits http://www.youtube.com/watch?v=mUcq0yIzTIY

4. Double-Entry Accounting “ Double-entry accounting is based on a simple concept: each party in a business transaction will receive something and give something in return. In bookkeeping terms, what is received is a debit and what is given is a credit. The T account is a representation of a scale or balance.” Luca Pacioli Developer of Double-Entry Accounting Scale or Balance Receive DEBIT Give CREDIT T account Left Side Receive DEBIT Right Side Give CREDIT

5. 3-2 Double Entry Recording Rules ASSETS DIVIDENDS EXPENSES REVENUES RETAINED EARNINGS COMMON STOCK LIABILITIES Increase Account by DEBIT Decrease Account by DEBIT Increase Account by CREDIT Decrease Account by CREDIT Normal Balance

6. 3-2 Double Entry Recording Rules (continued) DebitCredit ASSETSIncrease (N)Decrease LIABILITIESDecreaseIncrease (N) COMMON STOCKDecreaseIncrease (N) RETAINED EARNININGSDecreaseIncrease (N) DIVIDENDSIncrease (N)Decrease REVENUESDecreaseIncrease (N) EXPENSESIncrease (N)Decrease SUMMARY Double Entry Accounting http://www.youtube.com/watch?v=36JJ2hggZJY

7. 3-4 The Recording Process ANALYZE Business Transactions (for effects on specific accounts) RECORD Transactions entered in a Journal (book of original entry) TRANSFER Journal Information transferred to Ledger Accounts Business Documents Journalizing Posting The Recording Process http://www.youtube.com/watch?v=Hb3822CGMj8

8. ∙ The journal - A journal details all the financial transactions of a business and which accounts these transactions affect. - All business transaction are initially recorded in a journal using the double-entry method or single- entry method of bookkeeping. - An accounting journal is created by entering information from receipts, sales tickets, cash register tapes, invoices, and other data sources that show financial transactions. - Business transactions should be recorded so that they can be presented in the journal in chronological order.

9. 3-5 Journalizing DateAccount Titles and ExplanationRef.DebitCredit 2008 Sept. 1 Cash15,000 Common Stock15,000 (To record sale of stock) Key: 1.Enter date in Date Column. 2.Enter debit account title(s) at left margin of Account Titles and Explanation Column and amounts in Debit Column. 3.Enter credit account title(s) [Indent Credit Account Title(s)] and amounts in Credit Column. 4.Enter explanation under account titles. 5.Ref. Column is left blank until posting. 1. 2. 3. 4. 5. General Journal

10. 3-6 Analyzing and Journalizing Transactions Steps in the Recording Process Instructions: Analyze and journalize the transactions provided. Sept.1Stockholders Invested $5,000 in his video services corporation. 2The corporation paid $500 cash for the store rent. 5The corporation purchased video supplies of $1,000. 9The corporation purchased video equipment for $12,000 paying $2,000 in cash and signed a $10,000 twenty-four month 9% note payable. 12The corporation provided video services and collected cash of $3,000. 15Declared and paid a $500 cash dived to stockholders.

11. 3-6 Analyzing and Journalizing Transactions (continued) DateAccount Titles and ExplanationRef.DebitCredit 2008 Sept. 1 Cash Common Stock (Shares of stock issued for cash) 5,000 2Rent Expense Cash (Paid rent) 500 5Supplies Cash (Paid cash for supplies) 1,000 9Equipment Cash Notes payable (Purchased equipment, paying cash and issuing notes payable) 12,000 2,000 10,000 12Cash Service Revenue (Collected cash for services provided) 3,000 15Dividends Cash (Declared and paid a cash dividend) 500 General Journal

12. Illustrate Step 2- Journalizing Accounting for the Hospitality Industry Elisa S. Moncarz and Nestor de Portocarrero ©2004 Pearson Education, Inc. Upper Saddle River, NJ 07458

13. Expanded Accounting Equation “ The basic accounting equation can be expanded to include all five financial categories indicating what has been received and given.” DEBITS received CREDITS given =

14. ABC Restaurant buys land for $20,000. Business Transactions receive Debit give Credit ABC (buyer) Land Cash Land Owner (seller) give Credit Entry B. General Journal DateDescriptionDebitCredit 11/5Land 20,000 Cash 20,000

15. ABC Restaurant buys supplies for $1,350, agreeing to pay in the near future. Business Transactions receive Debit give Credit ABC (buyer) Supplies Supplier (seller) give Credit Entry C. A promise to pay later General Journal DateDescriptionDebitCredit 11/10Supplies 1,350 Accounts Payable 1,350

16. ABC Restaurant earns fees of $7,500, receiving cash. Business Transactions receive Debit give Credit ABC (seller) Cash Customer (buyer) give Credit Entry D. Services General Journal DateDescriptionDebitCredit 11/18Cash 7,500 Fees Earned 7,500

17. DateDescriptionDebitCredit 11/18 Wages Expense2,125 Rent Expense800 Utilities Expense450 Misc. Expense275 Cash 3,650 ABC Restaurant paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. Business Transactions General Journal receive Debit give Credit ABC (buyer) Services, benefits Various suppliers give Credit Entry E. Cash

18. At the end of the month, the cost of supplies on hand is $550. Business Transactions receive Debit give Credit ABC (user) Use of supplies Internal Transaction (no external entity) give Credit Entry G. Supplies General Journal DateDescriptionDebitCredit 11/30Supplies Expense 800 Supplies 800 Balance of Supplies account $1,350 less $550 on hand = $800 used

19. Business Transactions Additional Example receive Debit give Credit ABC (payor) Reduction in obligation Chris Clark (stockholder) give Credit Entry H. Cash General Journal DateDescriptionDebitCredit 11/30Dividends 2,000 Cash 2,000 ABC Restaurant paid dividends of $2,000.

20. 3-7 Forms of Accounts and Balances 1.Tabular 2.Account (or T-Account) 3.Three-Column All forms must show increases and decreases to the account in order to determine the account balances (amounts are assumed). Cash 9/1 Bal. 12,000 9/5 500 9/102,000 9/201,500 9/30 Bal. 9,000 101 Cash 9/1Bal.+ 12,000 9/5+ 500 9/10- 2,000 9/20- 1,500 9/30Bal. 9,000 Three-Column Account Form Cash No. 101 DateExplanationRef.DebitCreditBalance 2008 Sept. 1 Balance12,000 5Jl50012,500 10Jl2,00010,500 20Jl1,5009,000 30Balance9,000 POSTING

21. ∙ Ledger - A ledger is the principal book or computer file for recording and totaling monetary transactions by account, with debits and credits in separate columns and a beginning balance and ending balance for each account. - The ledger is a permanent summary of all amounts entered in supporting journals which list individual transactions by date. - General ledger representing the 5 main account types: assets, liabilities, income, expenses, and equity.

22. Account:Account No. DateItemPost. RefDebit Credit Balance DebitCredit ∙ Below is a sample of an account ledger. - Every transaction flows from a journal to one or more ledgers. - A company's financial statements are generated from summary totals in the ledgers.

23. ∙ Posting - posting is the method of transferring the credit and debit entries from the journal entries to the ledger. - In the ledger a separate account is opened in every account. - All the credit and debit entries are accordingly entered or recorded.

24. ∙ Posting steps: 1. Enter the date of the journal entry in the date column of the ledger. 2. In the posting reference column, write a "G" for general journal, followed by the page number of the journal that the entry came from. Ex: page 1 of the general journal would be abbreviated as G1. 3. Enter the amount of the debit or credit in the respective column.

25. 4. Calculate the new balance. Keep in mind what the normal balance is for the account. If the account has a normal debit balance and the entry is for a debit, you would add the two together to get the new debit balance. If the account has a normal debit balance and the entry is for a credit, you would subtract the amount of the entry from the prior balance to get your new debit balance. The same concept applies to accounts with normal credit balances. 5. Once you have filled in all of the information in the ledger, you need to take the account number of the account that you are working on and write it in the posting reference column on the journal on the line of the entry that you have just completed posting.

26. 3-8 Steps in Posting Instructions: Post the first two entries recorded in the General Journal. DateAccount Titles and ExplanationRef.DebitCredit 2009 Sept. 1 Cash Common Stock (Issued shares of stock for cash) 101 340 5,000 2Rent Expense Cash (Paid rent) 560 101 500 Cash DateExplanationRef.DebitCreditBalance 2009, Sept. 1Jl5,000 2Jl5004,500 DateExplanationRef.DebitCreditBalance 2009, Sept. 1Jl5,000 General Journal Common Stock Rent Expense DateExplanationRef.DebitCreditBalance 2009, Sept. 2Jl500 Jl No. 101 No. 340 No. 560

27. ABC Restaurant Trial Balance November 30, 2002 11Cash5,900 14Supplies550 17Land20,000 21Accounts Payable400 31Capital Stock25,000 33Dividends2,000 41Fees Earned7,500 51Wages Expense2,125 52Rent Expense800 54Utilities Expense450 55Supplies Expense800 59Miscellaneous Expense27532,900 …and do not forget that all debits should equal all credits…! Journalizing and Posting http://www.youtube.com/watch?v=nGEKy6KGhSM