1. Analyzing Transactions2
Analyzing Transactions

2. After studying this chapter, you should be able to:
Describe the characteristics of an account and record transactions using a chart of accounts and journal.
Describe and illustrate the posting of journal entries to accounts.
Prepare an unadjusted trial balance and explain how it can be used to discover errors.
Discover and correct errors in recording transactions.

3. 2-1
Objective 1
Describe the characteristics of an account and record transactions using a chart of accounts and journal.

4. 2-1
Accounting systems are designed to show the increases and decreases in each financial statement item as a separate record. This record is called an account.

5. The T account has a title.
The T Account
2-1
Title
The T account has a title. 5

6. The left side of the account is called the debit side.
2-1
Title
Debit
The left side of the account is called the debit side. 6

7. The right side of the account is called the credit side.
2-1
Title
Debit
Credit
The right side of the account is called the credit side. 7

8. Amounts entered on the left side are debits.
2-1
Title
Debit
Credit
Amounts entered on the left side are debits. 8

9. Amounts entered on the right side are credits.
2-1
Title
Debit
Credit
Amounts entered on the right side are credits. 9

10. Cash (a) 25,000 (b) 20,000 (d) 7,500 (e) 3,650 (f) 950 (h) 2,000
2-1
(In Rp 000)
Cash
(a) 25,000 (b) 20,000
(d) 7,500 (e) 3,650
(f) 950
(h) 2,000
Balance 5,900
Balance of the account 10

11. A group of accounts for a business entity is called a ledger.
2-1
A group of accounts for a business entity is called a ledger.

12. A list of the accounts in a ledger is called a chart of accounts.
2-1
A list of the accounts in a ledger is called a chart of accounts.

13. Assets are resources owned by the business entity.
2-1
Assets are resources owned by the business entity.
Cash
Supplies
Prepaid expenses
Buildings

14. Liabilities are debts owed to outsiders (creditors).
2-1
Liabilities are debts owed to outsiders (creditors).
Accounts payable
Notes payable
Wages payable

15. 2-1
Owner’s equity is the owner’s right to the assets of the business. A drawing account represents the amount of withdrawals by the owner.

16. 2-1
Revenues are increases in owner’s equity as a result of selling services or products to customers.
Fees earned
Commission revenue
Rent revenue

17. 2-1
The using up of assets or consuming services in the process of generating revenues results in expenses.
Wages expense
Rent expense
Miscellaneous expense

18. Every transaction affects at least two accounts.
2-1
IMPORTANT NOTE
Every transaction affects at least two accounts.

19. Journalizing
2-1
This transaction is initially entered in a record called a journal. The process of recording a transaction in the journal is called journalizing.

20. Journalizing requires the following steps:
2-1
Journalizing requires the following steps:
Record the date. If this is the first entry on the page, the year is inserted above the month. As long as the month does not change, the rest of the journal entries on the require on the day be recorded.
The title of the account debited is listed in the Description column.
(Continued)

21. Enter the amount in the Debit column.
2-1
Enter the amount in the Debit column.
Record the credit account in the Description column.
Enter the amount in the Credit column.
Watch these steps take place as the entry to record Chris Clark’s deposit is presented in the next slide.

22. Balance Sheet Accounts
2-1
@solusinet
(a) On November 1, Cita Cinta opens a new business and deposits Rp. 25,000,000 in a bank account in the name of SolusiNet.

23. 2-1 23 JOURNAL Page 1 Date Description P.R. Debit Credit 1 2 3 4
2-1
JOURNAL
Page 1
Date
Description
P.R.
Debit
Credit 1 2 3 4
2007
Nov. 1
Cash
Cita Cinta, Capital
Invested cash in SolusiNet. 23

24. 2-1
The effect of this entry is shown in the accounts of SolusiNet as follows:
Cash
Cita Cinta, Capital
Nov. 1 25,000
Nov. 1 25,000
(In Rp 000)

25. 2-1
@solusinet
(b) On November 5, SolusiNet bought land for Rp 20,000,000 paying cash.

26. 2-1
5 Land
Cash
Purchased land for building site. 26

27. 2-1
@solusinet
(c) On November 10, SolusiNet purchased supplies on account for Rp1,350,000

28. 2-1 28 10 Supplies 1 350 000 Accounts Payable 1 350 000
2-1
10 Supplies
Accounts Payable
Purchased supplies on account. 28

29. (f) On November 30, SolusiNet paid creditors on account, Rp. 950,000
2-1
@solusinet
(f) On November 30, SolusiNet paid creditors on account, Rp. 950,000

30. 2-1 30 30 Accounts Payable 950 000 Cash 950 000
2-1
30 Accounts Payable
Cash
Paid creditors on account. 30

31. Balance Sheet Accounts
2-1
Balance Sheet Accounts
Debits
Credits
Asset accounts……. Increase (+) Decrease (-)
Liability accounts.… Decrease (-) Increase (+)
Owner’s equity (capital) accounts… Decrease (-) Increase (+) 31

32. Balance Sheet Accounts
2-1
Credit for decreases (–)
Debit for increases (+)
Asset Accounts
Credit for increases (+)
Debit for decreases (–)
Liability Accounts
Balance Sheet Accounts
Credit for increases (+)
Debit for decreases (–)
Owner’s Equity Accounts 32

33. For Practice: PE 2-1A, PE 2-1B
2-1
Example Exercise 2-1
Prepare a journal entry for the purchase of a truck on June 3 for Rp.42,500, 000 paying Rp.8,500,000 cash and the remainder on account.
Follow My Example 2-1
June 3 Truck Rp. 42,500,000
Cash 8,500,000
Accounts Payable 34,000,000 33
For Practice: PE 2-1A, PE 2-1B

34. 2-1
Income Statement Accounts
@solusinet
(d) On November 18, SolusiNet received fees of Rp7,500,000 from customers for services provided.

35. 2-1
30 Cash
Fees Earned
Received fees from customers. 35

36. 2-1
@solusinet
(e) Throughout the month, SolusiNet incurred the following expenses: wages, Rp. 2,125,000; rent Rp. 800,000; utilities, Rp. 450,000; and miscellaneous, Rp.275,000.

37. 2-1 37 30 Wages Expense 2 125 000 Rent Expense 800 000
2-1
30 Wages Expense
Rent Expense
Utilities Expense
Miscellaneous Expense
Cash
Paid expenses. 37

38. 2-1
@solusinet
(g) On November 30, a count revealed that Rp.800,000 of the supplies inventory had been used during the month.

39. 2-1 39 30 Supplies Expense 800 000 Supplies 800 000
2-1
30 Supplies Expense
Supplies
Supplies used during November. 39

40. Revenue accounts… Decrease (-) Increase (+)
Income Statement Accounts
2-1
Debits
Credits
Revenue accounts… Decrease (-) Increase (+)
Expense accounts… Increase (+) Decrease (-) 40

41. Income Statement Accounts
2-1
Income Statement Accounts
Credit for increases (+)
Debit for decreases (–)
Revenue Accounts
Credit for decreases (–)
Debit for increases (+)
Expense Accounts
Less 41
Continued

42. Net Income (credit > debits) increases owners’ equity (capital)
2-1
Equals
Net Income (credit > debits) increases owners’ equity (capital)
Net Loss (debits > credits) decreases owners’ equity (capital) 42

43. Aug. 7 Accounts Receivable 115,000,000 Fees Earned 115,000,000
2-1
Example Exercise 2-2
Prepare a journal entry on August 7 for the fees earned on account, Rp.115,000,000.
Follow My Example 2-2
Aug. 7 Accounts Receivable 115,000,000
Fees Earned 115,000,000 43
For Practice: PE 2-2A, PE 2-2B

44. Drawing Account
2-1
The owner of a proprietorship may withdraw cash from the business for personal use. Such withdrawals have the effect of decreasing owner’s equity.

45. 2-1
@solusinet
(h) On November 30, Cita Cinta withdrew Rp.2,000,000 in cash from SolusiNet for personal use.

46. 2-1 46 Nov 30 Cita Cinta, Drawing 2 000 000 Cash 2 000 000
2-1
Nov 30 Cita Cinta, Drawing
2007
Cash
Cita Cinta withdrew cash for personal use. 46

47. Dec. 29 Dominique Walsh, Drawing 12,000,000 Cash 12,000,000
2-1
Example Exercise 2-3
Prepare a journal entry on December 29 for the payment of Rp.12,000,000 to the owner of Smartstaff Consulting Services, Dominique Walsh, for personal use.
Follow My Example 2-3
Dec. 29 Dominique Walsh, Drawing ,000,000
Cash 12,000,000 47
For Practice: PE 2-3A, PE 2-3B

48. Increase (Normal Bal.) Decreases
2-1
Increase
(Normal Bal.)
Decreases
Balance sheet accounts:
Asset Debit Credit
Liability Credit Debit
Owner’s Equity:
Capital Credit Debit
Drawing Debit Credit
Income statement accounts:
Revenue Credit Debit
Expense Debit Credit 48

49. 2-1
Example Exercise 2-4
State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries. Also, indicate its normal balance.
Ambarwati, Drawing
Accounts Payable
Cash
Fees Earned
Supplies
Utilities Expense 49

50. Debit entries only; normal debit balance
2-1
Follow My Example 2-4
Debit entries only; normal debit balance
Debit and credit entries; normal credit balance
Debit and credit entries; normal debit balance
Credit entries only; normal credit balance 50
For Practice: PE 2-4A, PE 2-4B

51. 2-1
The equality of debits and credits for each transaction is built into the accounting equation: Assets = Liabilities + Owner’s Equity. Because of this double equality, this system is called the double-entry accounting system.

52. Transaction Analysis
2-1
1. Determine whether an asset, liability, owner’s equity, revenue, expense, or drawing account is affected by the transaction.
2. For each account affected by the transaction, determine whether the account increases or decreases.
3. Determine whether each increase or decrease should be recorded as a debit or a credit.
Continued

53. 4. Record the transaction using a journal entry.
2-1
4. Record the transaction using a journal entry.
Periodically post journal entries to the accounts in the ledger.
Prepare an unadjusted trial balance at the end of the period.

54. 2-2
Objective 2
Describe and illustrate the posting of journal entries to the accounts.

55. 2-2
The process of transferring the debits and credits from the journal entries to the accounts is called posting.

56. 2-2
@solusinet
Dec. 1 SolusiNet paid a premium of Rp.2,400,000 for a comprehensive insurance policy covering liability, theft and fire. The policy covers a one-year period.

57. 2-2
(In Rp. 000) 57

58. 2-2
@solusinet
Dec. 1 SolusiNet paid rent for December, Rp.800,000. The company from which SolusiNet is renting its store space requires the payment of rent on the first of each month, rather than at the end of the month.

59. 2-2
1 Rent Expense
Cash
Paid rent for December. 59

60. 2-2
An alternative approach is to debit Rent Expense for Rp.800,000 on December 1. This avoids having to transfer the balance to an expense account at the end of the month.

61. 2-2
SolusiNet received an offer from a local retailer to rent the land purchased on November 5. The retailer plans to use the land as a parking lot for its employees and customers. SolusiNet agreed to rent the land to the retailer for three months, with the rent payable in advance.

62. 2-2
@solusinet
Dec. 1 SolusiNet receives Rp. 360,000 for three month’s rent for use of its land beginning December 1.
1 Cash
Unearned Rent
Received advance payment for three months’ rent on land. 62

63. 2-2
@solusinet
Dec. 4 SolusiNet purchased office equipment on account from PD.Tunas Jaya. for Rp.1,800,000
4 Office Equipment
Accounts Payable
Purchased office equipment on account. 63

64. Dec. 6 SolusiNet paid Rp.180,000 for a newspaper advertisement.
2-2
@solusinet
Dec. 6 SolusiNet paid Rp.180,000 for a newspaper advertisement.
6 Miscellaneous Expense
Cash
Paid for newspaper ad. 64

65. Dec. 11 SolusiNet paid creditors Rp.400,000
2-2
@solusinet
Dec. 11 SolusiNet paid creditors Rp.400,000
11 Accounts Payable
Cash
Paid creditors on account. 65

66. 2-2
@solusinet
Dec. 13 SolusiNet paid a receptionist and part-time assistant Rp.950,000 for two weeks’ wages.
13 Wages Expense
Cash
Paid two weeks’ wages. 66

67. 2-2
@solusinet
Dec. 16 SolusiNet received Rp.3,100,000 from fees earned for the first half of December.
16 Cash
Fees Earned
Received fees from customers. 67

68. 2-2
@solusinet
Dec. 16 Fees earned on account totaled Rp.1,750,000 for the first half of December.
16 Accounts Receivable
Fees Earned
Recorded fees earned on account. 68

69. 2-2
@solusinet
Dec. 20 SolusiNet paid Rp.900,000 to Executive Supply Co. on the Rp.1,800,000 debt owed from the December 4 transaction.
20 Accounts Payable
Cash
Paid part of amount owed to Executive Supply Co. 69

70. 2-2
@solusinet
Dec. 21 SolusiNet received Rp.650,000 from customers in payment of their accounts.
21 Cash
Accounts Receivable
Received fees from customers on account. 70

71. Dec. 23 SolusiNet paid Rp 1,450,000 for supplies.
2-2
@solusinet
Dec. 23 SolusiNet paid Rp 1,450,000 for supplies.
23 Supplies
Cash
Purchased supplies. 71

72. 2-2
@solusinet
Dec. 27 SolusiNet paid the receptionist and part-time assistant Rp.1,200,000 for two weeks’ wages.
27 Wages Expense
Cash
Paid two weeks’ wages. 72

73. 2-2
@solusinet
Dec. 31 NetSolutions paid Rp.310,000 for telephone charges for the month.
31 Utilities Expense
Cash
Paid telephone charges. 73

74. Dec. 31 SolusiNet paid Rp.225,000 for electric usage for the month.
2-2
@solusinet
Dec. 31 SolusiNet paid Rp.225,000 for electric usage for the month.
JOURNAL
Page 1
Post Ref.
Date
Description
Debit
Credit
2007
Dec 31 Utilities Expense
Cash
Paid for electric usage. 74

75. 2-2
@solusinet
Dec. 31 SolusiNet received Rp.2,870,000 from fees earned for the second half of December.
31 Cash
Fees Earned
Received fees from customers. 75

76. 2-2
@solusinet
Dec. 31 NetSolutions earned Rp.1,120,000 on account for the second half of December.
31 Accounts Receivable
Fees Earned
Recorded fees earned on account. 76

77. Dec. 31 Cita Cinta withdrew Rp.2,000,000 for personal use.
2-2
@solusinet
Dec. 31 Cita Cinta withdrew Rp.2,000,000 for personal use.
31 Cita Cinta, Drawing
Cash
Cita Cinta withdrew cash for personal use. 77

78. 2-2
Example Exercise 2-5
On March 1, the cash account balance was Rp. 22,350, During March, cash receipts totaled Rp.241,880,000 and the March 31 balance was Rp.19,125,000. Determine the cash payments made during March. 78

79. In Rp.000 2-2 Follow My Example 2-5
2-2
Follow My Example 2-5
In Rp.000
Using the following T-account solve for the amount of cash payment (indicated by ? below).
Cash
Mar. 1 Bal 22,350 ? Cash payments
Cash receipts 241,880
Mar. 31 Bal. 19,125
Rp.19,125 = Rp.22,350 + Rp.241,880 – Cash payments
Cash payments = Rp.22,350 + Rp.241,880 –Rp.19,125 = Rp.245,105 79
For Practice: PE 2-5A, PE 2-5B

80. 2-3
Objective 3
Prepare an unadjusted trial balance and explain how it can be used to discover errors.

81. 2-3
The equality of debits and credits in the ledger should be proved at the end of each accounting period by preparing a trial balance. The heading should first list the name of the company, the statement’s title, and the date it is prepared.

82. 2-3 82

83. 2-3
Example Exercise 2-6
For each of the following errors, considered individually, indicate whether the error would cause the trial balance totals to be unequal. If the error would cause the trial balance total to be unequal, indicate whether the debit or credit total is higher and by how much.
Payment of a cash withdrawal of Rp.5,600,000 was journalized and posted as a debit of RP.6,500,000 to Salary Expense and a credit of RP.6,500,000 to Cash.
A fee of Rp.2,850,000 earned from a client was debited to Accounts Receivable for Rp.2,580,000 and credited to Fees Earned for Rp.2,850,000.
A payment of Rp.3,500,000 to a creditor was posted as a debit of Rp.3,500,000 to Accounts Payable and a debit of Rp.3,500,000 to Cash. 83

84. For Practice: PE 2-6A, PE 2-6B
2-3
Follow My Example 2-6
The totals are equal since both the debit and credit entries were journalized and posted for Rp.6,500,000.
The totals are unequal. The credit total is higher by Rp.270,000 (Rp.2,850,000 – Rp.2,580,000).
The totals are unequal. The debit total is higher by Rp.7,000,000 (Rp.3,500,000 + Rp.3,500,000). 84
For Practice: PE 2-6A, PE 2-6B

85. Discover and correct errors in recording transactions.
2-4
Objective 4
Discover and correct errors in recording transactions.

86. 2-4
A transposition occurs when the order of the digits is changed mistakenly, such as writing Rp.542,000 as Rp.452,000 or Rp.524,000.
In a slide, the entire number is mistakenly moved one or more spaces to the right or the left, such as writing RP as $54,200.

87. 2-4
Another type of error is a posting error. Assume that on May 5 a Rp.12,500,000 purchase of office equipment on account was incorrectly journalized and posted as a debit to Supplies and a credit to Accounts Payable for Rp.12,500,000.

88. 2-4 Entry to Correct Error 88 May 31 Office Equipment 18 12 500 000
2-4
Entry to Correct Error
May 31 Office Equipment
Supplies
To correct erroneous debit to Supplies on May 5. See invoice from Bella Office Equipment Company. 88

89. Journalize the entries to correct the errors. Omit explanations.
2-4
Example Exercise 2-7
The following errors took place in journalizing and posting transactions:
A withdrawal of Rp.6,000,000 by Roni Ahmad, owner of the business, was recorded as a debit to Office Salaries Expense and a credit to Cash.
Utilities Expense of Rp.4,500,000 paid for the current month was recorded as a debit to Miscellaneous Expense and a credit to Accounts Payable.
Journalize the entries to correct the errors. Omit explanations. 89

90. In Rp.000 2-4 Follow My Example 2-7 Cheri Ramey, Drawing 6,000
2-4
Follow My Example 2-7
In Rp.000
Cheri Ramey, Drawing 6,000
Office Salaries Expense 6,000
Accounts Payable 4,500
Miscellaneous Expense 4,500
Utilities Expense 4,500
Cash 4,500
Note: The first entry in (b) reverses the incorrect entry, and the second entry records the correct entry. 90
For Practice: PE 2-7A, PE 2-7B