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Recording Business Transactions
AGRICULUTURAL TECHNICAL INSTITUTE BUS TEC T101 ACCOUNTING Chapter 2 Recording Business Transactions
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The Account Equation (A=L+OE) is the basis for all accounting
CH 1: ACCT & THE BUS ENVIRONMENT REVIEW The Account Equation (A=L+OE) is the basis for all accounting FINANCIAL BUSINESS TRANSCTIONS FINANCIAL STATEMENTS ACCOUNTING
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CH 1: ACCT & THE BUS ENVIRONMENT
REVIEW 1. Terms a. Assets b. Liabilities c. Equity d. Revenue e. Expenses f. Acct Principles 2. Procedures a. Transactions b. Prepare Financial St Income St Equity St Balance Sh Cash Flow St
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ACCOUNTING CONCEPTS Business Transactions Chapter One Journal Entries
Chapter Two Posting to Ledgers Trial Balance Financial Statements
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AFTER COMPLETING THIS CHAPTER, THE STUDENT SHOULD BE ABLE TO:
CH 2: RECORDING BUS TRANSACTIONS LEARNING OBJECTIVES AFTER COMPLETING THIS CHAPTER, THE STUDENT SHOULD BE ABLE TO: 1. Define & Use Key Accounting Terms 2. Apply the Rules of Debits and Credits 3. Record Transactions in the Journal 4. Post from the Journal to the Ledger 5. Prepare & Use a Trial Balance
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1 Define & Use Key Accounting Terms Ledger Accounts 46 OBJ
Individual asset accounts All individual accounts combined make up the ledger. Cash Accounts Payable Ledger Individual liability accounts Gay Gillen, Capital Individual owner’s equity accounts
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Chart of Accounts in the Ledger
55 1 Define & Use Key Accounting Terms OBJ Chart of Accounts in the Ledger This is a listing of all accounts & related account numbers used by a business. Each account should have its own number. The numbering system should allow flexibility for changing business needs. Typically for a small business 100’s = Assets Accts 400’s = Revenue 200’s = Liability Accts 500’s = Expenses 300’s = Equity Accts
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Assets 1 Define & Use Key Accounting Terms
45 1 Define & Use Key Accounting Terms OBJ Assets What are some asset accounts? Cash (Checking Acct) Accts Receivable (Unwritten Promises to Pay) Notes Receivable (Written Promises to Pay) Prepaid Expenses (Expense Paid in Advance) Equipment Building Land In Order by Liquidity: Time to Convert to Cash
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Define & Use Key Accounting Terms
45 1 Define & Use Key Accounting Terms OBJ Assets Liabilities What are some liability accounts? Accounts Payable (Things bought on short term credit) Notes Payable (Loans longer than 1 yr) Accrued Liabilities (for expenses incurred but not paid) Long-term Liabilities (bonds)
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Define & Use Key Accounting Terms
46 1 Define & Use Key Accounting Terms OBJ Assets Liabilities Owner’s Equity What are some owner’s equity accounts? Capital or owner’s interest in the business Withdrawals by the owner Revenues from business activities Expenses related to business activities In a corporation, the owner’s equity account is called Stockholders’ Equity. Contributed Capital Retained Earnings
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Double-Entry Accounting
47 1 Define & Use Key Accounting Terms OBJ Double-Entry Accounting Double entry bookkeeping means to record the multiple effects of each business transaction. Assets = Liabilities + Owner’s Equity Assets are on the left (debit) side. Liabilities and Equity are on the right (credit) side.
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The T-Account 1 Debit Credit LEFT SIDE RIGHT SIDE
47 1 Define & Use Key Accounting Terms OBJ The T-Account Account Title Debit Credit LEFT SIDE RIGHT SIDE Debits are always on the left, and Credits on the right But their effects differs based on what account is changed
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Rules of Debit and Credit
48 Apply the rules of debit & credit. 2 OBJ Rules of Debit and Credit Assets Liabilities + Owner’s Equity = Debit + Credit - Debit - Credit + Debit - Credit + $Debits = $Credits NB NB NB Normal Account Balances The side where we expect increases (+) to be recorded is the normal balance side.
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Rules of Debit and Credit
48 Apply the rules of debit & credit. 2 OBJ Rules of Debit and Credit A = L + OE D + C + EXPENSES: D+ REVENUE: C+ WITHDRAWALS: D+ CAPITAL: C+
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The Double-Entry System
48 Apply the rules of debit & credit. 2 OBJ The Double-Entry System Each transaction is recorded with at least: One debit One credit Total debits must equal total credits. 1. For any one transaction DEBITS CREDITS 2. For any account in Ledger 3. For the Ledger as a whole 4. For the Balance Sheet
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Reviews Rules of Debits & Credits
48 Apply the rules of debit & credit. 1 OBJ Reviews Rules of Debits & Credits ACCOUNTING COMPONENT EFFECT OF DEBIT EFFECT OF CREDIT 1. Assets 2. Liabilities 3. Owner’s Equity 4. Revenue 5. Expenses
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Journals 3 Record Transactions in Journal. What is a journal?
50 3 Record Transactions in Journal. OBJ Journals What is a journal? It is a list in CHRONOLOGICAL order of all the transactions for a business. Identify transaction from source documents (sales slip, invoice, etc.) Specify accounts affected. Apply debit/credit rules. Record transaction with description.
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Journal Entry Rules Record Transactions in Journal. 3
50 Record Transactions in Journal. 3 OBJ Journal Entry Rules What does a journal entry include? date of the transaction title of the account debited (First) title of the account credited (Second) -amount of the debit and credit description of the transaction -dollar signs are omitted Date Accounts & Explanation Debit Credit Aug 2 Supplies 500 Acct Payable 500 Bought Supplies on Acct
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Record Transactions in Journal.
3 OBJ When should a transaction be recorded? a. Must effect the entity’s financial position b. Must be reliable 2. Where should the transaction be recorded? -- In the Journal 3. What to record for each transaction? -- Incr / Decr for all accounts affected 4. How should the transaction be recorded? -- Follow the rules of debits and credits
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Record Transactions in Journal.
52 Record Transactions in Journal. 3 OBJ 1. SHAY GILLIAN FORMS A BUSINESS BY TRANSFERRING $30,000 FROM A SAVING ACCT TO A BUSINESS CHECKING ACCT ON APR 2 ASSETS LIAB CAPITAL = ACCT REC CK SUPP EQP BLD = LD ACTS NOTES INV REC/EXP +30000 +30000 General Journal Page 1 Date Accounts & Explanation Debit Credit April 2 Cash 30,000 Shay Gillen, Capital 30,000 Received initial investment from owner
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Record Transactions in Journal.
52 Record Transactions in Journal. 3 OBJ 2. PAID $20,000 CASH ON 4/3 FOR LD TO BUILD AN OFFICE. ASSETS LIAB CAPITAL ACCT REC CK SUPP EQP BLD = LD ACTS NOTES INV REC/EXP +30000 +30000 +20000 -20000 General Journal Page 1 Date Accounts & Explanation Debit Credit April 2 Cash 30,000 Shay Gillen, Capital 30,000 20,000 April 3 Land 20,000 Cash Buy land for office building
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Record Transactions in G Journal
53 Record Transactions in G Journal 3 OBJ 3. BOUGHT OFFICE SUPPLIES FOR $500 ON ACCOUNT ON APR 6 ASSETS LIAB CAPITAL ACCT REC CK SUPP EQP BLD = LD ACTS NOTES INV REC/EXP +30000 +30000 +20000 -20000 +500 +500 General Journal Page 1 Date Accounts & Explanation Debit Credit Cash April 2 30,000 Shay Gillen, Capital 30,000 April 3 Land 20,000 20,000 Cash April 6 Supplies 500 Accounts Payable 500 Bought supplies on account
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Posting from Gen Journal
51 Posting from Gen Journal 4 OBJ Journal It is a list in chronological order of all the transactions for a business. Ledger It is a digest of all accounts utilized by an entity during an accounting period. It is a listing of transactions for an entity . Loose leaf pages Computer printout Bound books Cards Posting is the process of transferring of data from the journal to appropriate ledger accounts.
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Posting from Gen Journal
51 Posting from Gen Journal 4 OBJ Posting is the process of transferring of data from the journal to appropriate ledger accounts. First we’ll look at: Posting to T-accounts Then we’ll look at: Posting to a 4 column ledger
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Post from Journal to T Accts
46 Post from Journal to T Accts 4 OBJ General Journal Page 1 Date Accounts & Explanation Ref Debit Credit April 2 Cash 30,000 Shay Gillen, Capital 30,000 1 Assets Capital Liabilities Cash Gillian Equip Acct Payable 30,000 30,000 Revenue Bldg Acct Rec Notes Payable Expenses Supplies Land
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Post from Journal to T Accts
47 Post from Journal to T Accts 4 OBJ General Journal Page 1 Date Accounts & Explanation Ref Debit Credit April 3 Land 20,000 20,000 Cash 2 Assets Capital Liabilities Cash Gillian Equip Acct Payable 30,000 20,000 30,000 Revenue Bldg Acct Rec Notes Payable Expenses Supplies Land 20,000
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Post from Journal to T Accts
47 Post from Journal to T Accts 4 OBJ General Journal Page 1 Date Accounts & Explanation Ref Debit Credit April 6 Supplies 500 500 Acct Payable 3 Assets Capital Liabilities Cash Gillian Equip Acct Payable 30,000 20,000 30,000 500 Revenue Bldg Acct Rec Notes Payable Expenses Supplies Land 500 20,000
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Post from Journal to T Accts
47 Post from Journal to T Accts 4 OBJ General Journal Page 1 Date Accounts & Explanation Ref Debit Credit April 7 300 Acct Payable 300 Cash April 8 2,000 Gillian, Withdraws 2,000 Cash
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Post from Journal to T Accts
48 Post from Journal to T Accts 4 OBJ General Journal Page 1 Date Accounts & Explanation Ref Debit Credit Assets Liabilities Capital Gillian Cash Equip Acct Payable 30,000 30,000 20,000 300 500 300 30,000 2,000 Bal 200 Bldg Revenue Bal 7,700 Notes Payable Acct Rec Withdraw Expenses Land Supplies 500 20,000 2,000 Bal 500 Bal 20,000 Bal 2,000
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Posting from Gen Journal
51 Posting from Gen Journal 4 OBJ Posting is the process of transferring of data from the journal to appropriate ledger accounts. Now: Let’s look at the 4 column account format
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The Four-Column Account Format
Post Fr Journal to 4 Col Ledger 4 OBJ The Four-Column Account Format Account: Cash Account No. 101 Balance Date Item Ref. Debit Credit Debit Credit April 2 30,000 30,000 GJ Why this format instead of T accounts? 1. Has room for reference information 2. Has a running balance, so information is easier to retrieve
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Post Fr Journal to 4 Col Ledger
53 Post Fr Journal to 4 Col Ledger 4 OBJ General Journal Page 1 Date Accounts & Explanation Ref Debit Credit April 2 Cash 30,000 Shay Gillen, Capital 30,000
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Post Fr Journal to 4 Col Ledger
54 Post Fr Journal to 4 Col Ledger 4 OBJ Posting Steps 1. Copy (post) transaction date from journal to the appropriate ledger account
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Post Fr Journal to 4 Col Ledger
53 Post Fr Journal to 4 Col Ledger 4 OBJ General Journal Page 1 Date Accounts & Explanation Ref Debit Credit April 2 Cash 30,000 Shay Gillen, Capital 30,000 Account: Cash Account No. 101 Balance Date Item Ref. Debit Credit Debit Credit April 2 1 Enter the date from the journal
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Post Fr Journal to 4 Col Ledger
54 Post Fr Journal to 4 Col Ledger 4 OBJ Posting Steps 1. Copy (post) transaction date from journal to the appropriate ledger account 2. Copy (post) journal name & page from journal to the appropriate ledger account
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Post Fr Journal to 4 Col Ledger
53 Post Fr Journal to 4 Col Ledger 4 OBJ General Journal Page 1 Date Accounts & Explanation Ref Debit Credit April 2 Cash 30,000 Shay Gillen, Capital 30,000 Account: Cash Account No. 101 Balance Date Item Ref. Debit Credit Debit Credit April 2 GJ-1 1 2 Enter the date Enter journal pg&no
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Post Fr Journal to 4 Col Ledger
54 Post Fr Journal to 4 Col Ledger 4 OBJ Posting Steps 1. Copy (post) transaction date from journal to the appropriate ledger account 2. Copy (post) journal name & page from journal to the appropriate ledger account 3. Copy (post) debit from journal to the appropriate ledger account
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Post Fr Journal to 4 Col Ledger
53 Post Fr Journal to 4 Col Ledger 4 OBJ General Journal Page 1 Date Accounts & Explanation Ref Debit Credit April 2 Cash 30,000 Shay Gillen, Capital 30,000 Account: Cash Account No. 101 Balance Date Item Ref. Debit Credit Debit Credit April 2 GJ-1 30,000 1 2 3 3 Enter the date Enter journal pg&no Enter debit or credit
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Post Fr Journal to 4 Col Ledger
54 Post Fr Journal to 4 Col Ledger 4 OBJ Posting Steps 1. Copy (post) transaction date from journal to the appropriate ledger account 2. Copy (post) journal name & page from journal to the appropriate ledger account 3. Copy (post) debit from journal to the appropriate ledger account 4. Calculate running balance
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Post Fr Journal to 4 Col Ledger
53 Post Fr Journal to 4 Col Ledger 4 OBJ General Journal Page 1 Date Accounts & Explanation Ref Debit Credit April 2 Cash 30,000 Shay Gillen, Capital 30,000 Account: Cash Account No. 101 Balance Date Item Ref. Debit Credit Debit Credit April 2 GJ-1 30,000 30,000 1 2 3 3 4 Enter the date Enter journal pg&no Enter debit or credit Cal Run Bal
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Post Fr Journal to 4 Col Ledger
54 Post Fr Journal to 4 Col Ledger 4 OBJ Posting Steps 1. Copy (post) transaction date from journal to the appropriate ledger account 2. Copy (post) journal name & page from journal to the appropriate ledger account 3. Copy (post) debit from journal to the appropriate ledger account 4. Calculate running balance 5. Copy (post) ledger account number back to the Post Ref col in the journal
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Put acct no in Post Ref col
53 Post Fr Journal to 4 Col Ledger 4 OBJ General Journal Page 1 Date Accounts & Explanation Ref Debit Credit April 2 Cash 101 30,000 Shay Gillen, Capital 30,000 Account: Cash Account No. 101 Balance Date Item Ref. Debit Credit Debit Credit April 2 GJ-1 30,000 30,000 1 2 3 3 4 5 Enter the date Enter journal pg&no Enter debit or credit Cal Run Bal Put acct no in Post Ref col
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Post Fr Journal to 4 Col Ledger
54 Post Fr Journal to 4 Col Ledger 4 OBJ Posting Steps 1. Copy (post) transaction date from journal to the appropriate ledger account 2. Copy (post) journal name & page from journal to the appropriate ledger account 3. Copy (post) debit from journal to the appropriate ledger account 4. Calculate running balance 5. Copy (post) ledger account number back to the Post Ref col in the journal 6. Repeat steps 1-4 for the credit entry
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Put acct no in Post Ref col
53 Post Fr Journal to 4 Col Ledger 4 OBJ General Journal Page 1 Date Accounts & Explanation Ref Debit Credit April 2 Cash 301 30,000 Shay Gillen, Capital 30,000 Account: Shay Gillen, Capital Account No. 301 Balance Date Item Ref. Debit Credit Debit Credit April 2 GJ-1 30,000 30,000 1 2 3 3 4 5 Enter the date Enter journal pg&no Enter debit or credit Cal Run Bal Put acct no in Post Ref col
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Post from Journal to T Accts
47 Post from Journal to T Accts 4 OBJ General Journal Page 1 Date Accounts & Explanation Ref Debit Credit April 3 Land 20,000 Cash 20,000 April 6 Supplies 500 Acct Payable 500 Acct Payable 300 April 7 Cash 300 Gillen, Withdrawals April 8 2,000 2,000 Cash
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Post Fr Journal to 4 Col Ledger
53 Post Fr Journal to 4 Col Ledger 4 OBJ Account: Land Account No. 106 Balance Date Item Ref. Debit Credit Debit Credit GJ-1 20,000 20,000 April 3 Account: Cash Account No. 101 Balance Date Item Ref. Debit Credit Debit Credit April 2 GJ-1 30,000 30,000 April 3 GJ-1 20,000 10,000
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Post Fr Journal to 4 Col Ledger
53 Post Fr Journal to 4 Col Ledger 4 OBJ Account: Supplies Account No. 103 Balance Date Item Ref. Debit Credit Debit Credit GJ-1 500 500 April 6 Account: Accounts Payable Account No. 201 Balance Date Item Ref. Debit Credit Debit Credit April 6 GJ-1 500 500
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Post Fr Journal to 4 Col Ledger
53 Post Fr Journal to 4 Col Ledger 4 OBJ Account: Accounts Payable Account No. 201 Balance Date Item Ref. Debit Credit Debit Credit April 6 GJ-1 500 500 200 April 7 GJ-1 300 Account: Cash Account No. 101 Balance Date Item Ref. Debit Credit Debit Credit April 2 GJ-1 30,000 30,000 April 3 GJ-1 20,000 10,000 April 7 GJ-1 300 9,700
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Post Fr Journal to 4 Col Ledger
53 Post Fr Journal to 4 Col Ledger 4 OBJ Account: Shay Gillen, Withdrawals Account No. 302 Balance Date Item Ref. Debit Credit Debit Credit April 8 GJ-1 2,000 2,000 Account: Cash Account No. 101 Balance Date Item Ref. Debit Credit Debit Credit April 2 GJ-1 30,000 30,000 20,000 April 3 GJ-1 10,000 April 7 GJ-1 300 9,700 April 8 GJ-1 2,000 7,700
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Trial Balance Prepare & use a trial balance. 5
54 5 Prepare & use a trial balance. OBJ Trial Balance What is a trial balance? It is an internal document. It is a listing of all the accounts with their related balances. Before computers, it provided a check on accuracy by showing whether total debits equal total credits.
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Prepare & use a trial balance.
55 5 OBJ Gillen Travel Trial Balance As of _____ 20xx Account Debit Credit 7, 700 Cash Acct Rec Supplies 500 Equip Buildings Land 20,000 Acct Payable 200 Notes Payable Gillen, Capital 30,000 Gillen, Withdraw 2,000 Revenue Expense TOTAL 30,200 30,200
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Locating Trial Balance Errors
65 5 Prepare & use a trial balance. OBJ Locating Trial Balance Errors What if it doesn’t balance ? Is the addition correct? Are all accounts listed? Are the balances listed correctly? DEBITS CREDITS
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Locating Trial Balance Errors
65 5 Prepare & use a trial balance. OBJ Locating Trial Balance Errors Divide the difference by two. Is there a debit/credit balance for this amount posted in the wrong column? Check journal postings. Review accounts for reasonableness. Computerized accounting programs usually prohibit out-of-balance entries.
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Post Fr Journal to 4 Col Ledger
54 Post Fr Journal to 4 Col Ledger 1 OBJ Date PR Db Cr E Pg 76 5/2 Cash 20,000 Edwards, Capital 20,000 Cash 25,000 5/5 Notes Payable 25,000 5/9 Supplies 200 Accounts Payable 200 5/11 Accounts Receivable 2,600 Service Revenue 2,600
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Post Fr Journal to 4 Col Ledger
54 Post Fr Journal to 4 Col Ledger 1 OBJ Account: Cash Account No. 110 Date Item Ref. Debit Credit Debit Credit Account: Acct Rec Account No. 120 Date Item Ref. Debit Credit Debit Credit Account: Supplies Account No. 130 Date Item Ref. Debit Credit Debit Credit
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Post Fr Journal to 4 Col Ledger
54 Post Fr Journal to 4 Col Ledger 1 OBJ Account: Acct Payable Account No. 210 Date Item Ref. Debit Credit Debit Credit Account: Notes Payable Account No. 230 Date Item Ref. Debit Credit Debit Credit Account: Edwards, Capital Account No. 310 Date Item Ref. Debit Credit Debit Credit Account: Service Rev Account No. 410 Date Item Ref. Debit Credit Debit Credit
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Preparing A Trial Balance
54 Preparing A Trial Balance 2 OBJ Account: Cash Account No. 110 Date Item Ref. Debit Credit Debit Credit 5/2 GJ1 20,000 20,000 5/5 GJ1 25,000 45,000 5/14 GJ1 3,200 41,800 5/22 GJ1 300 41,500 5/25 GJ1 400 41,100 5/27 GJ1 1,400 42,500 Account: Acct Rec Account No. 120 Date Item Ref. Debit Credit Debit Credit 2,600 2,600 5/11 GJ1 5/11 GJ1 1,400 1,200 Account: Supplies Account No. 130 Date Item Ref. Debit Credit Debit Credit GJ1 200 5/9 200
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Preparing A Trial Balance
54 Preparing A Trial Balance 2 OBJ Account: Acct Payable Account No. 210 Date Item Ref. Debit Credit Debit Credit 200 200 5/9 GJ1 300 100 5/22 GJ1 5/9 GJ1 100 Account: Notes Payable Account No. 230 Date Item Ref. Debit Credit Debit Credit 5/5 GJ1 25,000 25,000 Account: Edwards, Capital Account No. 310 Date Item Ref. Debit Credit Debit Credit 5/2 GJ1 20,000 20,000
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Preparing A Trial Balance
54 Preparing A Trial Balance 2 OBJ Account: Service Rev Account No. 410 Date Item Ref. Debit Credit Debit Credit GJ1 2,600 5/11 2,600 Account: Rent Expense Account No. 510 Date Item Ref. Debit Credit Debit Credit GJ1 3,200 5/14 3,200 Account: Adv Expense Account No. 520 Date Item Ref. Debit Credit Debit Credit GJ1 400 5/11 400 Account: Util Expense Account No. 530 Date Item Ref. Debit Credit Debit Credit GJ1 100 5/11 100
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Preparing A Trial Balance
54 Preparing A Trial Balance 2 OBJ E2- 7 # Pg 76 #1 Name: #2 Statement: #3 Date (Pt of Time): Account Db Cr #4 List Assets Accts & Bal: #5 List Liab Accts& Bal: #6 List Capital Accts & Bal: #7 List Revenue Accts & Bal: #8 List Expense Accts & Bal: #9 Total Debits & Credits:
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CH 2: RECORDING BUS TRANSACTIONS
SUMMARY 2. New Procedures a. Journalizing b. Posting c. Preparing Trial Balance 1. New Terms a. T Accounts b. Ledger c. Journal d. Debits & Credits e. Normal Balance f. Trial Balance
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Name of Business Income Statement For Period Ending xx/xx/20xx
Prepare And Use Financial Statements. 17 Name of Business Income Statement For Period Ending xx/xx/20xx Revenue: Fees earned $8,500 Expenses: Salary expense ,200 Utilities & telephone expense Equipment rental expense Office rent expense ,100 Total Expenses $3,100 Net income (Net Loss) $5,400
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Prepare And Use Financial Statements.
20 Prepare And Use Financial Statements. Name of Business Statement of Owner’s Equity For Period Ending xx/xx/20xx Beginning Capital $ Add: Contribution of capital ,000 Net income $5,400 35,400 Less: Cash distributions (Withdraws) (2,100) Ending Capital $33,300
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Name of Business Balance Sheet As of xx/xx/20xx
Prepare And Use Financial Statements. Name of Business Balance Sheet As of xx/xx/20xx Liabilities Accounts payable $ Notes payable $0 S. Gillen, capital 33,300 Total liabilities and owner’s equity $33,500 Assets Cash $ 20,000 Accounts receivable ,000 Supplies Land ,000 Total assets $ 33,500
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Name of Business Statement Of Cash Flows For Period Ending xx/xx/20xx
Prepare And Use Financial Statements. 20 Name of Business Statement Of Cash Flows For Period Ending xx/xx/20xx Cash flows from operating activities: Cash in: receipts from services rendered $6,500 Cash out: expenses (3,400) Net cash flows from Operating activities $3,100 Cash flows from investing activities Cash in: Sale of land $9,000 Cash Out: Purchase of land ($20,000) Net cash flows from Investing activities ($11,000) Cash Flows from financing Activities: Cash in: Owner’s Investment $30,000 Cash Out: Owner’s Withdraw ($2,100) Net cash flows from Financing activities $27,900 NET INCREASE IN CASH $20,000 BEGINING CASH $0 ENDING CASH $20,000
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CHAPTER 3 THE ADJUSTING PROCESS
Next Topic CHAPTER 3 THE ADJUSTING PROCESS
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