1. Accounting 1
MGT 130

2. Analyzing Transactions
Lecture 03
Chapter 02
Analyzing Transactions

3. Over View of the Lecture
Types of Business Organizations
Types of Businesses
Business Stakeholders
Process of Information
Accounting System
GAAP
Transactions of Accounting equations
Financial Statements

4. Objectives
1. Explain why accounts are used to record and summarize the effects of transactions on financial statements.
2. Rules of debit and credit and the normal balances of accounts.
3. Analyze and summarize the financial statement effects of transactions.

5. Objectives
4. Prepare a trial balance and explain how it can be used to discover errors.
5. Discover errors in recording transactions and correct them.
6. Use horizontal analysis to compare financial statements from different periods.

6. Each financial statement item, called an account, is included in the ledger.

7. A group of accounts for a business entity is called a ledger.

8. A list of the accounts in a ledger is called a chart of accounts.

9. Major Account Classifications
Assets are resources owned by the business.
Liabilities are debts owed to outsiders (creditors).
Cash
Supplies
Building
Accounts receivable
Accounts payable
Notes payable
Wages payable

10. Major Account Classifications
Liabilities are often identified on the balance sheet by titles that include payable.
Assets are resources owned by the business.
Liabilities are debts owed to outsiders (creditors).
Cash
Supplies
Building
Accounts receivable
Accounts payable
Notes payable
Wages payable

11. Owner’s equity is the owner’s right to the assets of the business.
Major Account Classifications
Expenses are the using up of assets or consuming of services to generate revenue.
Owner’s equity is the owner’s right to the assets of the business.
Revenues are increases in owner’s equity as a result of selling services or products.
Javid Iqbal, Capital
Javid Iqbal, Drawing
Fees Earned
Fares Earned
Commission Revenue
Sales
Rent Expense
Salary Expense
Utilities Expense

12. To assist you in learning, an account can be drawn to resemble the letter T.

13. The T-account has a title.
Cash
The T-account has a title.

14. The left side of the account is the debit side.
The T-Account
Cash
Left side debit
The left side of the account is the debit side.

15. The right side of the account is the credit side.
The T-Account
Cash
Left side debit
Right side credit
The right side of the account is the credit side.

16. The T-Account
Cash
3,750
4,300
2,900
850
1,400
700
2,900
Typical entries

17. Balancing a T-Account

18. First, total the debit side.
Cash
First, total the debit side.
3,750
4,300
2,900
850
1,400
700
2,900
10,950

19. Cash
3,750
4,300
2,900
850
1,400
700
2,900
Next, total the
credit side.
10,950
5,850

20. Subtract total credits from total debits to obtain the account balance.
Cash
3,750
4,300
2,900
850
1,400
700
2,900
5,100
10,950
5,850

21. Transactions and Balance Sheet Accounts

22. Rules of Debit / Credit Balance Sheet Accounts
Debits
Credits
Asset accounts………. Increase (+) Decrease (-)
Liability accounts…… Decrease (-) Increase (+)
Owner’s equity (capital) accounts…. Decrease (-) Increase (+)

23. Balance Sheet Accounts
ASSETS
Asset Accounts
LIABILITIES
Liability Accounts
Debit for increases (+)
Credit for decreases (-)
Debit for decreases (-)
Credit for increases (+)
Owner’s Equity Accounts
OWNER’S EQUITY
Debit for decreases (-)
Credit for increases (+)

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

25. Rules of Debit / Credit Income Statement Accounts
Expense Accounts
Revenue Accounts
Debit for increases (+)
Credit for decreases (-)
Debit for decreases (-)
Credit for increases (+)

26. 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.”
Scale or Balance
T account
Left Side
Receive
DEBIT
Right Side
Give
CREDIT

27. Normal Balances of Accounts
Increase
(Normal Balances)
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

28. 1 2 3 4 5 Transaction authorized Transaction takes place
Document prepared 1 2 3
Entry recorded in journal
Entry posted to ledger 4 5

29. System to Analyze Transactions
1. Determine whether an asset, a liability, owner’s equity, revenue, or expense 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.

30. Journalizing
and
Posting

31. In every entry the sum of the debits always equal the sum of the credits.

32. Format of General Journal

33. Rules of Debit / Credit Balance Sheet Accounts
Debits
Credits
Asset accounts………. Increase (+) Decrease (-)
Liability accounts…… Decrease (-) Increase (+)
Owner’s equity (capital) accounts…. Decrease (-) Increase (+)

34. Balance Sheet Accounts
ASSETS
Asset Accounts
LIABILITIES
Liability Accounts
Debit for increases (+)
Credit for decreases (-)
Debit for decreases (-)
Credit for increases (+)
Owner’s Equity Accounts
OWNER’S EQUITY
Debit for decreases (-)
Credit for increases (+)

35. Format of Ledger

36. On November 1, Javid Iqbal deposits Rs
On November 1, Javid Iqbal deposits Rs. 25,000 in a bank account in the name of Opportunities Inc.
JOURNAL
Date
Description
Debit
Credit
Page 1
Post Ref.
Nov. 1
2010
Cash
Javid Iqbal, Capital
Invested cash in Opportunities.

37. Effects of this entry in the Ledger
On November 1, Javid Iqbal deposits Rs. 25,000 in a bank account in the name of Opportunities Inc.
Effects of this entry in the Ledger
Cash
Nov. Capital
Capital
Nov 1 Cash

38. On November 5, Opportunities Inc. bought land for Rs
On November 5, Opportunities Inc. bought land for Rs.20,000, paying cash. 5
Land
Cash
Purchased land for building
site.

39. Effects of this entry in the Ledger
On November 5, Opportunities Inc. bought land for Rs. 20,000, paying cash.
Effects of this entry in the Ledger
Cash
Nov. Capital
Nov 5 Land
Land
Nov 5 Cash

40. On November 10, Opportunities Inc. purchased supplies on account for Rs.1,350.
Accounts Payable
Purchased supplies on account.

41. Effects of this entry in the Ledger
On November 10, Opportunities Inc. purchased supplies on account for Rs.1,350.
Effects of this entry in the Ledger
Supplies
Nov 10. A/P
Accounts Payable
Nov Supplies

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

43. Rules of Debit / Credit Income Statement Accounts
Expense Accounts
Revenue Accounts
Debit for increases (+)
Credit for decreases (-)
Debit for decreases (-)
Credit for increases (+)

44. On November 18, Opportunities Inc. received fees of Rs
On November 18, Opportunities Inc. received fees of Rs.7,500 from customers for services provided . 18
Cash
Fees Earned
Received fees from customers.

45. Effects of this entry in the Ledger
On November 18, Opportunities Inc. received fees of Rs.7,500 from customers for services provided .
Effects of this entry in the Ledger
Cash
Nov. Capital
Nov 18 Fees
Nov 5 Land
Fees Earned
Nov 18. Cash

46. Throughout the month, Opportunities Inc
Throughout the month, Opportunities Inc. incurred the following expenses: wages, Rs.2,125; Rs.800; utilities, Rs.450; and miscellaneous, Rs.275 . 30
Wages Expense 2 125
Rent Expense 800
Utilities Expense 450
Miscellaneous Expense 275
Cash
Paid expenses.

47. Effects of this entry in the Ledger
Throughout the month, Opportunities Inc. incurred the following expenses: wages, Rs.2,125; rent, Rs.800; utilities, Rs.450; and miscellaneous, Rs.275 .
Effects of this entry in the Ledger
Cash
Nov. Capital
Nov 18 Fees
Nov 5 Land
Nov. Exp
Wages
Nov. Cash
Utilities
Nov. Cash
Rent
Nov. Cash
Misc
Nov. Cash

48. On November 30, Opportunities Inc. paid creditors on account, Rs.950.
Accounts Payable 950
Cash 950
Paid creditors on account.

49. Effects of this entry in the Ledger
On November 30, Opportunities Inc. paid creditors on account, Rs.950.
Effects of this entry in the Ledger
Cash
Nov. Capital
Nov 18 Fees
Nov 5 Land
Nov. Exp
Nov.30 A/P
Accounts Payable
Nov. Cash
Nov 10. Supplies

50. On November 30, account revealed that Rs
On November 30, account revealed that Rs.800 of the supplies inventory had been used. 30
Supplies Expense 800
Supplies 800
Supplies used during
November.

51. Effects of this entry in the Ledger
On November 30, account revealed that Rs.800 of the supplies inventory had been used.
Effects of this entry in the Ledger
Supplies
Nov 10. A/P
Nov 30. S.EXP
Supplies Expenses
Nov 30. Supplies

52. Withdrawals by the Owner

53. On November 30, Javid Iqbal withdrew Rs
On November 30, Javid Iqbal withdrew Rs.2,000 in cash from Opportunities Inc. for personal use.
JOURNAL
Date
Description
Debit
Credit
Post Ref.
Nov. 30
2010
Javid Iqbal, Drawing 2 000
Cash
Javid Iqbal withdrew cash for
personal use.

54. Effects of this entry in the Ledger
On November 30, Javid Iqbal withdrew Rs.2,000 in cash from Opportunities Inc. for personal use.
Effects of this entry in the Ledger
Cash
Nov. Capital
Nov 18 Fees
Nov 5 Land
Nov. Exp
Nov.30 A/P
Nov.30 Drawing 2000
Javid Iqbal Drawings
Nov 30. Cash 2000

55. Dec. 1. Opportunities Inc. paid a premium of Rs
Dec. 1 Opportunities Inc. paid a premium of Rs.2,400 for a comprehensive insurance policy covering two years.
JOURNAL
Date
Description
Debit
Credit
Post Ref.
Dec. 31
2010
Prepaid Insurance 2 400
Cash
Paid premium on two-year
policy.

56. Effects of this entry in the Ledger
Dec. 1 Opportunities Inc. paid a premium of Rs.2,400 for a comprehensive insurance policy covering two years.
Effects of this entry in the Ledger
Cash
Nov. Capital
Nov 18 Fees
Nov 5 Land
Nov. Exp
Nov.30 A/P
Dec. 1 Pre Ins
Prepaid Insurance
Dec 1. Cash

57. Dec. 1 Opportunities Inc. paid rent for December, Rs.800.
Rent Expense 800
Cash 800
Paid rent for December.

58. Effects of this entry in the Ledger
Dec. 1 Opportunities Inc. paid rent for December, Rs.800.
Effects of this entry in the Ledger
Cash
Nov. Capital
Nov 18 Fees
Nov 5 Land
Nov. Exp
Nov.30 A/P
Dec. 1 Pre Ins
Dec. 1 Rent
Rent Expense
Dec 1. Cash

59. Dec. 1. Opportunities Inc. receives Rs
Dec. 1 Opportunities Inc. receives Rs.360 for three month’s rent beginning December 1. 1
Cash 360
Unearned Rent 360
Received advanced payment
For three months’ rent of land.

60. Effects of this entry in the Ledger
Dec. 1 Opportunities Inc. receives Rs.360 for three month’s rent beginning December 1.
Effects of this entry in the Ledger
Cash
Nov. Capital
Nov 18 Fees
Dec 1. Rent
Nov 5 Land
Nov. Exp
Nov.30 A/P
Dec. 1 Pre Ins
Dec. 1 Rent
Rent
Dec 1. Cash

61. Dec. 4 Opportunities Inc. purchased office equipment on account from Executive Supply Co. for Rs.1,800. 4
Office Equipment
Accounts Payable
Purchased office equipment on
account.

62. Effects of this entry in the Ledger
Dec. 4 Opportunities Inc. purchased office equipment on account from Executive Supply Co. for Rs.1,800.
Effects of this entry in the Ledger
Furniture
Dec 4. A/P
Accounts Payable
Nov. Cash
Nov 10. Supplies
Dec 4. Furniture

63. Dec. 6 Opportunities Inc. paid Rs.180 for a newspaper advertisement.
Miscellaneous Expense 180
Cash 180
Paid for newspaper ad.

64. Effects of this entry in the Ledger
Dec. 6 Opportunities Inc. paid Rs.180 for a newspaper advertisement.
Effects of this entry in the Ledger
Cash
Nov. Capital
Nov 18 Fees
Dec 1. Rent
Nov 5 Land
Nov. Exp
Nov.30 A/P
Dec. 1 Pre Ins
Dec. 1 Rent
Dec. 6 Misc
Misc
Nov. Cash
Dec 6. Cash

65. Dec. 11 Opportunities Inc. paid creditors Rs.400.
Accounts Payable
Cash
Paid creditors on account.

66. Effects of this entry in the Ledger
Dec. 11 Opportunities Inc. paid creditors Rs.400.
Effects of this entry in the Ledger
Cash
Nov. Capital
Nov 18 Fees
Dec 1. Rent
Nov 5 Land
Nov. Exp
Nov.30 A/P
Dec. 1 Pre Ins
Dec. 1 Rent
Dec. 6 Misc
Dec. 11 A/P
Accounts Payable
Nov.30 Cash
Dec.11 Cash
Nov 10. Supplies
Dec 4. Furniture

67. Dec. 13 Opportunities Inc. paid a receptionist and part-time assistant Rs.950 for two weeks’ wages.
JOURNAL
Date
Description
Debit
Credit
Post Ref.
Dec. 13
2010
Wages Expense 950
Cash 950
Paid two week’s wages.

68. Effects of this entry in the Ledger
Dec. 13 Opportunities Inc. paid a receptionist and part-time assistant Rs.950 for two weeks’ wages.
Effects of this entry in the Ledger
Cash
Nov. Capital
Nov 18 Fees
Dec 1. Rent
Nov 5 Land
Nov. Exp
Nov.30 A/P
Dec. 1 Pre Ins
Dec. 1 Rent
Dec.6 Misc
Dec A/P
Dec.13 wages
Wages Expense
Nov. 30 Cash
Dec.13 Cash

69. Dec. 16. Opportunities Inc. received Rs
Dec. 16 Opportunities Inc. received Rs.3,100 from fees earned for the first half of December. 16
Cash
Fees Earned
Received fees from customers.

70. Effects of this entry in the Ledger
Dec. 16 Opportunities Inc. received Rs.3,100 from fees earned for the first half of December.
Effects of this entry in the Ledger
Cash
Nov. Capital
Nov 18 Fees
Dec 1. Rent
Dec 16. Fees
Nov 5 Land
Nov. Exp
Nov.30 A/P
Dec. 1 Pre Ins
Dec. 1 Rent
Dec.6 Misc
Dec A/P
Dec.13 wages
Fees Earned
Nov 18. Cash
Dec 16. Cash

71. Dec. 16. Fees earned on account totaled Rs
Dec. 16 Fees earned on account totaled Rs.1,750 for the first half of December. 16
Accounts Receivable
Fees Earned
Received fees from customers.

72. Effects of this entry in the Ledger
Dec. 16 Fees earned on account totaled Rs.1,750 for the first half of December.
Effects of this entry in the Ledger
Account Receivable
Dec 16. Fees
Fees Earned
Nov 18. Cash
Dec 16. A/R

73. Dec. 20. Opportunities Inc. paid Rs. 900 to Executive Supply Co
Dec. 20 Opportunities Inc. paid Rs.900 to Executive Supply Co. on the Rs.1,800 debt owed from the December 4 transaction. 20
Accounts Payable 900
Cash 900
Paid part of amount owed to
Executive Supply Co.

74. Effects of this entry in the Ledger
Dec. 20 Opportunities Inc. paid Rs.900 to Executive Supply Co. on the Rs.1,800 debt owed from the December 4 transaction.
Effects of this entry in the Ledger
Cash
Nov. Capital
Nov 18 Fees
Dec 1. Rent
Dec 16. Fees
Nov 5 Land
Nov. Exp
Nov.30 A/P
Dec. 1 Pre Ins
Dec. 1 Rent
Dec.6 Misc
Dec A/P
Dec.13 wages
Dec 20. A/P
Accounts Payable
Nov.30 Cash
Dec.11 Cash
Dec. 20. Cash 900
Nov 10. Supplies
Dec 4. Furniture

75. Dec. 21. Opportunities Inc. received Rs
Dec. 21 Opportunities Inc. received Rs.650 from customers in payment of their accounts. 21
Cash 650
Accounts Receivable 650
Received cash from customer
on account.

76. Effects of this entry in the Ledger
Dec. 21 Opportunities Inc. received Rs.650 from customers in payment of their accounts.
Effects of this entry in the Ledger
Cash
Nov. Capital
Nov 18 Fees
Dec 1. Rent
Dec 16. Fees
Dec 21. A/R
Nov 5 Land
Nov. Exp
Nov.30 A/P
Dec. 1 Pre Ins
Dec. 1 Rent
Dec.6 Misc
Dec A/P
Dec.13 wages
Dec 20. A/P
Account Receivable
Dec 16. Fees
Dec 21. Cash

77. Dec. 23 Opportunities Inc. paid Rs.1,450 for supplies.
Cash
Purchased supplies.

78. Effects of this entry in the Ledger
Dec. 23 Opportunities Inc. paid Rs.1,450 for supplies.
Effects of this entry in the Ledger
Cash
Nov. Capital
Nov 18 Fees
Dec 1. Rent
Dec 16. Fees
Dec 21. A/R
Nov 5 Land
Nov. Exp
Nov.30 A/P
Dec. 1 Pre Ins
Dec. 1 Rent
Dec.6 Misc
Dec A/P
Dec.13 wages
Dec 20. A/P
Dec 23. A/P
Supplies
Nov 10. A/P
Dec 23. Cash
Nov 30. S.EXP

79. Dec. 27 Opportunities Inc. paid the receptionist and part-time assistant Rs.1,200 for two weeks’ wages. 27
Wages Expense
Cash
Paid two weeks’ wages.

80. Effects of this entry in the Ledger
Dec. 27 Opportunities Inc. paid the receptionist and part-time assistant Rs.1,200 for two weeks’ wages.
Effects of this entry in the Ledger
Cash
Nov. Capital
Nov 18 Fees
Dec 1. Rent
Dec 16. Fees
Dec 21. A/R
Nov 5 Land
Nov. Exp
Nov.30 A/P
Dec. 1 Pre Ins
Dec. 1 Rent
Dec.6 Misc
Dec A/P
Dec.13 wages
Dec 20. A/P
Dec 23. A/P
Dec 27. wages
Wages Expense
Nov. 30 Cash
Dec.13 Cash
Dec 27. wages

81. Dec. 31. Opportunities Inc. paid its Rs
Dec. 31 Opportunities Inc. paid its Rs.310 telephone bill for the month. 31
Utilities Expense 310
Cash 310
Paid telephone bill.

82. Effects of this entry in the Ledger
Dec. 31 Opportunities Inc. paid its Rs.310 telephone bill for the month.
Effects of this entry in the Ledger
Cash
Nov. Capital
Nov 18 Fees
Dec 1. Rent
Dec 16. Fees
Dec 21. A/R
Nov 5 Land
Nov. Exp
Nov.30 A/P
Dec. 1 Pre Ins
Dec. 1 Rent
Dec.6 Misc
Dec A/P
Dec.13 wages
Dec 20. A/P
Dec 23. A/P
Dec 27. wages
Dec 31. utilities 310
Utilities
Nov 30. Cash
Dec 31. Cash

83. Dec. 31. Opportunities Inc. paid its Rs
Dec. 31 Opportunities Inc. paid its Rs.225 electric bill for the month.
JOURNAL
Date
Description
Debit
Credit
Post Ref.
Dec. 31
2005
Utilities Expense 225
Cash 225
Paid utility bill.

84. Effects of this entry in the Ledger
Dec. 31 Opportunities Inc. paid its Rs.225 electric bill for the month.
Effects of this entry in the Ledger
Cash
Nov 01. Capital 25000
Nov 18 Fees
Dec 1. Rent
Dec 16. Fees
Dec 21. A/R
Nov 5 Land
Nov. Exp
Nov.30 A/P
Dec. 1 Pre Ins
Dec. 1 Rent
Dec.6 Misc
Dec A/P
Dec.13 wages
Dec 20. A/P
Dec 23. A/P
Dec 27. wages
Dec 31. utilities 310
Dec 31. utilities 225
Utilities
Nov 30. Cash
Dec 31. Cash
Dec 31. Cash

85. Dec. 31. Opportunities Inc. received Rs
Dec. 31 Opportunities Inc. received Rs.2,870 from fees earned for the second half of December. 31
Cash
Fees Earned
Received fees from customers.

86. Effects of this entry in the Ledger
Dec. 31 Opportunities Inc. received Rs.2,870 from fees earned for the second half of December.
Effects of this entry in the Ledger
Cash
Nov 01. Capital 25000
Nov 18 Fees Dec 1. Rent
Dec 16. Fees Dec 21. A/R
Dec 31. Fees
Nov 5 Land
Nov. Exp
Nov.30 A/P
Dec. 1 Pre Ins
Dec. 1 Rent
Dec.6 Misc
Dec A/P
Dec.13 wages
Dec 20. A/P
Dec 23. A/P
Dec 27. wages
Dec 31. utilities 310
Dec 31. utilities 225
Fees Earned
Nov 18. Cash
Dec 16. A/R
Dec 31. Cash

87. Dec. 31. Opportunities Inc. earned Rs
Dec. 31 Opportunities Inc. earned Rs.1,120 on account for the second half of December. 31
Accounts Receivable
Fees Earned
Recorded fees earned on
account.

88. Effects of this entry in the Ledger
Dec. 31 Opportunities Inc. earned Rs.1,120 on account for the second half of December
Effects of this entry in the Ledger
Account Receivable
Dec 16. Fees
Dec 31. Fees
Dec 21. Cash
Fees Earned
Nov 18. Cash
Dec 16. A/R
Dec 31. Cash
Dec 31. A/R

89. Dec. 31 Javid Iqbal withdrew Rs.2,000 for personal use.
Javid Iqbal, Drawing
Cash
Javid Iqbal withdrew cash
for personal use.

90. Effects of this entry in the Ledger
Dec. 31 Javid Iqbal withdrew Rs.2,000 for personal use.
Effects of this entry in the Ledger
Cash
Nov 01. Capital 25000
Nov 18 Fees Dec 1. Rent
Dec 16. Fees Dec 21. A/R
Dec 31. Fees
Nov 5 Land
Nov. Exp
Nov.30 A/P
Dec. 1 Pre Ins
Dec. 1 Rent
Dec.6 Misc
Dec A/P
Dec.13 wages
Dec 20. A/P
Dec 23. A/P
Dec 27. wages
Dec 31. utilities 310
Dec 31. utilities 225
Dec 31.Drawings
Javid Iqbal Drawings
Nov 30. Cash 2000
Dec 31. Cash 2000

91. Balancing the Accounts
Javid Iqbal Drawings
Nov 30. Cash 2000
Dec 31. Cash 2000
Balance
Cash
Nov 01. Capital
Nov 18 Fees Dec 1. Rent
Dec 16. Fees Dec 21. A/R
Dec 31. Fees
Nov 5 Land
Nov. Exp
Nov.30 A/P
Dec. 1 Pre Ins
Dec. 1 Rent
Dec.6 Misc
Dec A/P
Dec.13 wages
Dec 20. A/P
Dec 23. A/P
Dec 27. wages
Dec 31. utilities
Dec 31. utilities
Dec 31.Drawings
Balance
total
Total
Total Total
Fees Earned
Balance
Nov 18. Cash
Dec 16. A/R
Dec 31. Cash
Dec 31. A/R
Total
Total
Account Receivable
Dec 16. Fees
Dec 31. Fees
Dec 21. Cash
Balance
Total total

92. Total 2800 Total 2800 Total 3150 Total 3150 Total 985 Total 985
Supplies
Nov 10. A/P
Dec 23. Cash
Nov 30. S.EXP
Balance
Accounts Payable
Nov.30 Cash
Dec.11 Cash
Dec. 20. Cash 900
Nov 10. Supplies
Dec 4. Furniture
Balance
Total Total
Total Total
Utilities
Nov 30. Cash
Dec 31. Cash
Dec 31. Cash
Balance
Wages Expense
Nov. 30 Cash
Dec.13 Cash
Dec 27. wages
Balance
Total Total
Total Total
Misc
Nov. Cash
Dec 6. Cash
Furniture
Dec 4. A/P
Balance
Total Total
Total

93. Total 800 Total 800 Total 800 Total 800 Total 800 Total 800
Rent Expense
Dec 1. Cash
Balance
Unearned Rent
Balance
Dec 1. Cash
Total Total
Total Total
Supplies Expenses
Nov 30. Supplies
Balance
Prepaid Insurance
Dec 1. Cash
Balance
Total Total
Total Total
Capital
Balance
Nov 1 Cash
Land
Balance
Nov 5 Cash
Total Total
Total Total

94. Trial Balance

95. Opportunities Inc. Trial Balance
December 31, 2010
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable 900
Unearned Rent 360
Javid Iqbal, Capital
Javid Iqbal, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense 985
Supplies Expense 800
Miscellaneous Expense 455

96. Opportunities Inc. Trial Balance
December 31, 2010
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable 900
Unearned Rent 360
Javid Iqbal, Capital
Javid Iqbal, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense 985
Supplies Expense 800
Miscellaneous Expense 455
Balance Sheet Items

97. Opportunities Inc. Trial Balance Statement of Owner’s Equity Item
December 31, 2010
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable 900
Unearned Rent 360
Javid Iqbal, Capital
Javid Iqbal, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense 985
Supplies Expense 800
Miscellaneous Expense 455
Statement of Owner’s Equity Item

98. Opportunities Inc. Trial Balance Income Statement Items
December 31, 2010
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable 900
Unearned Rent 360
Javid Iqbal, Capital
Javid Iqbal, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense 985
Supplies Expense 800
Miscellaneous Expense 455
Income Statement Items

99. Errors

100. Errors that will not cause the trial balance to be unequal:
1. Failure to record a transaction or to post a transaction. 2. Recording the same erroneous amount for both the debit and the credit parts of a transaction. 3. Recording the same transaction more than once. 4. Posting a part of a transaction correctly as a debit or credit but to the wrong account.

101. Correction of Errors
Error Correction Procedure
Error Correction Procedure
1. Journal entry is incorrect Draw a line through the error
but not posted. and insert correct title or
amount.

102. Correction of Errors
Error Correction Procedure
Error Correction Procedure
1. Journal entry is incorrect Draw a line through the error
but not posted. and insert correct title or
amount.
2. Journal entry is correct Draw a line through the
but posted incorrectly. posted error and post correctly.

103. Correction of Errors Journal entry is incorrect Journalize and post a
Error Correction Procedure
Error Correction Procedure
Journal entry is incorrect Journalize and post a
and posted correcting entry.

104. Correcting Errors – An Example
On May 5, a purchase of office equipment on account was incorrectly journalized and posted as shown.
Journal – As recorded and posted
Date Description Debit Credit
May 5 Supplies 12,500
Accounts Payable 12,500
What would be the necessary correcting entry?

105. Correcting Errors – An Example
On May 5, a purchase of office equipment on account was incorrectly journalized and posted as shown.
Journal – As recorded and posted
Date Description Debit Credit
May 5 Supplies 12,500
Accounts Payable 12,500
Date Description Debit Credit
May 5 Office Equipment 12,500
Supplies 12,500

106. Financial Analysis and Interpretation
Comparing an item in a current statement with the same item in prior statements is called horizontal analysis.

107. Supplies expense 2,700 3,000 (300) (10.0)%
J Holmes, Attorney-at-Law
Income Statement
For the Year Ended December 31, 2010 and 2011
Increase (Decrease)
Amount Percent
Fees earned Rs.187,500 Rs.150,000 Rs.37, %
Operating expenses:
Wages expense 60, ,000 15, %
Rent expense 15,000 12,000 3, %
Utilities expense 12,500 9,000 3, %
Supplies expense 2,700 3,000 (300) (10.0)%
Misc. expense , , %
Total operating
expenses 92, ,800 21, %
Net income 95, ,200 15, %

108. Chapter 2
The End