1. Power Notes Chapter F2 Learning Objectives C2 Analyzing Transactions
1. Usefulness of an Account
2. Characteristics of an Account
3. Analyzing and Summarizing Transactions
4. Illustration of Analyzing and Summarizing
5. Trial Balance
6. Discovery and Correction of Errors
7. Financial Analysis and Interpretation C2

2. Power Notes Chapter F2 Analyzing Transactions
Slide # Power Note Topics 3 11 36 40 43 50 57
Double-Entry Accounting
Analyzing and Recording Transactions
Chart of Accounts, Trial Balance
Journal, Ledger, and Trial Balance
Recording and Posting an Entry
Correcting Errors
Horizontal Analysis
Note: To select a topic, type the slide # and press Enter.

3. 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
Luca Pacioli
Developer of
Double-Entry
Accounting
Receive
DEBIT
Give
CREDIT

4. 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 =

5. 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 =
Assets

6. 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 =
Assets
Expenses

7. 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 =
Liabilities
Assets
Expenses

8. 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 =
Liabilities
Assets
Owner’s Equity
Expenses

9. 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 =
Liabilities
Assets
Owner’s Equity
Revenues
Expenses

10. 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 =
Liabilities
Assets
Owner’s Equity
Net
Income
Revenues
Expenses

11. NetSolutions
“ On November 1, 2002, I started a business called NetSolutions. I plan to use my knowledge of microcomputers and offer computer consulting services for a fee. The following double-entry transactions show how amounts received (debits) always equal amounts given (credits).”
Chris Clark, Owner

12. Business Transactions Chris Clark (investor)
Entry A.
Chris Clark (investor)
Chris Clark deposits $25,000 in a bank account for NetSolutions in exchange for capital stock.
receive
Debit
NetSolutions
(investee)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/1

13. Business Transactions Chris Clark (investor)
Entry A.
Chris Clark (investor)
Chris Clark deposits $25,000 in a bank account for NetSolutions in exchange for capital stock.
Cash
receive
Debit
NetSolutions
(investee)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/1 Cash 25,000

14. Business Transactions Chris Clark (investor)
Entry A.
Chris Clark (investor)
Chris Clark deposits $25,000 in a bank account for NetSolutions in exchange for capital stock.
Cash
Capital
Stock
receive
Debit
NetSolutions
(investee)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/1 Cash 25,000
Capital Stock 25,000

15. Business Transactions
Entry B.
Land Owner (seller)
NetSolutions buys land for $20,000.
receive
Debit
NetSolutions
(buyer)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/5

16. Business Transactions
Entry B.
Land Owner (seller)
NetSolutions buys land for $20,000.
Land
receive
Debit
NetSolutions
(buyer)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/5 Land 20,000

17. Business Transactions
Entry B.
Land Owner (seller)
NetSolutions buys land for $20,000.
Land
Cash
receive
Debit
NetSolutions
(buyer)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/5 Land 20,000
Cash 20,000

18. Business Transactions
Entry C.
Supplier (seller)
NetSolutions buys supplies for $1,350, agreeing to pay in the near future.
receive
Debit
NetSolutions
(buyer)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/10

19. Business Transactions
Entry C.
Supplier (seller)
NetSolutions buys supplies for $1,350, agreeing to pay in the near future.
Supplies
receive
Debit
NetSolutions
(buyer)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/10 Supplies 1,350

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

21. Business Transactions
Entry D.
Customer (buyer)
NetSolutions earns fees of $7,500, receiving cash.
receive
Debit
NetSolutions
(seller)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/18

22. Business Transactions
Entry D.
Customer (buyer)
NetSolutions earns fees of $7,500, receiving cash.
Cash
receive
Debit
NetSolutions
(seller)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/18 Cash 7,500

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

24. Business Transactions
Entry E.
Various suppliers
NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275.
receive
Debit
NetSolutions
(buyer)
give
Credit
give
Credit
General Journal
Date Description Debit Credit

25. Business Transactions
Entry E.
Various suppliers
NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275.
Services,
benefits
receive
Debit
NetSolutions
(buyer)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/18 Wages Expense 2,125
Rent Expense 800
Utilities Expense 450
Misc. Expense 275

26. Business Transactions
Entry E.
Various suppliers
NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275.
Services,
benefits
Cash
receive
Debit
NetSolutions
(buyer)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/18 Wages Expense 2,125
Rent Expense 800
Utilities Expense 450
Misc. Expense 275
Cash 3,650

27. Business Transactions
Entry F.
Supplier (payee)
NetSolutions pays $950 to creditors on account.
receive
Debit
NetSolutions
(payor)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/30

28. Business Transactions Reduction in obligation
Entry F.
Supplier (payee)
NetSolutions pays $950 to creditors on account.
Reduction in obligation
receive
Debit
NetSolutions
(payor)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/30 Accounts Payable 950

29. Business Transactions Reduction in obligation
Entry F.
Supplier (payee)
NetSolutions pays $950 to creditors on account.
Reduction in obligation
Cash
receive
Debit
NetSolutions
(payor)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/30 Accounts Payable 950
Cash

30. Business Transactions
Entry G.
Internal Transaction
(no external entity)
At the end of the month, the cost of supplies on hand is $550.
receive
Debit
NetSolutions
(user)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/30

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

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

33. Business Transactions Chris Clark (stockholder)
Entry H.
Chris Clark (stockholder)
NetSolutions paid dividends of $2,000.
receive
Debit
NetSolutions
(payor)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/30

34. Business Transactions Chris Clark (stockholder)
Entry H.
Chris Clark (stockholder)
NetSolutions paid dividends of $2,000.
Reduction in equity
receive
Debit
NetSolutions
(payor)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/30 Dividends 2,000

35. Business Transactions
Entry H.
Chris Clark (stockholder)
NetSolutions paid dividends of $2,000.
Reduction in obligation
Cash
receive
Debit
NetSolutions
(payor)
give
Credit
give
Credit
General Journal
Date Description Debit Credit
11/30 Dividends 2,000
Cash 2,000

36. Balance Sheet Income Statement
NetSolutions
Chart of Accounts
Balance Sheet
Income Statement
1. Assets
11 Cash
12 Accounts Receivable
14 Supplies
15 Prepaid Insurance
17 Land
18 Office Equipment
2. Liabilities
21 Accounts Payable
23 Unearned Rent
3. Owner’s Equity
31 Capital Stock
32 Retained Earnings
33 Dividends
4. Revenue
41 Fees Earned
5. Expenses
51 Wages Expense
52 Rent Expense
54 Utilities Expense
55 Supplies Expense
59 Miscellaneous Expense

37. NetSolutions
Trial Balance
November 30, 2002
11 Cash 5,900
14 Supplies 550
17 Land 20,000
21 Accounts Payable 400
31 Capital Stock 25,000
33 Dividends 2,000
41 Fees Earned 7,500
51 Wages Expense 2,125
52 Rent Expense 800
54 Utilities Expense 450
55 Supplies Expense 800
59 Miscellaneous Expense 275
32,900 32,900

38. Balance Sheet NetSolutions Trial Balance November 30, 2002
11 Cash 5,900
14 Supplies 550
17 Land 20,000
21 Accounts Payable 400
31 Capital Stock 25,000
33 Dividends 2,000
41 Fees Earned 7,500
51 Wages Expense 2,125
52 Rent Expense 800
54 Utilities Expense 450
55 Supplies Expense 800
59 Miscellaneous Expense 275
32,900 32,900
Balance
Sheet

39. Income Statement NetSolutions Trial Balance November 30, 2002
11 Cash 5,900
14 Supplies 550
17 Land 20,000
21 Accounts Payable 400
31 Capital Stock 25,000
33 Dividends 2,000
41 Fees Earned 7,500
51 Wages Expense 2,125
52 Rent Expense 800
54 Utilities Expense 450
55 Supplies Expense 800
59 Miscellaneous Expense 275
32,900 32,900
Income
Statement

40. Journal, Ledger, Trial Balance
1. Transactions are analyzed
and recorded in journal.
Documents
Journal

41. Journal, Ledger, Trial Balance
1. Transactions are analyzed
and recorded in journal.
Documents
Journal
2. Transactions are posted
from journal to ledger.
Journal
Ledger

42. Journal, Ledger, Trial Balance
1. Transactions are analyzed
and recorded in journal.
Documents
Journal
2. Transactions are posted
from journal to ledger.
Journal
Ledger
Trial Balance
3. Trial balance is prepared.

43. Recording and Posting an Entry
General Journal
Page 1
Post.
Date Description Ref. Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400
1. Analyze and record the transaction as shown.
2. Post the debit side of the transaction.
3. Post the credit side of the transaction.

44. Recording and Posting an Entry
General Journal
Page 1
Post.
Date Description Ref. Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400 1
General Ledger
Account: Prepaid Insurance Account No. 15
Post Balance
Date Item Ref. Debit Credit Debit Credit
12/1
Enter the transaction date in the ledger account. 1

45. Recording and Posting an Entry
General Journal
Page 1
Post.
Date Description Ref. Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400 2
General Ledger
Account: Prepaid Insurance Account No. 15
Post Balance
Date Item Ref. Debit Credit Debit Credit
12/ ,400
Enter the debit amount in the ledger debit column. 2

46. Recording and Posting an Entry
General Journal
Page 1
Post.
Date Description Ref. Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400
General Ledger
Account: Prepaid Insurance Account No. 15
Post Balance
Date Item Ref. Debit Credit Debit Credit
12/ ,400 2,400 3
Update the ledger account balance. 3

47. Recording and Posting an Entry
General Journal
Page 1
Post.
Date Description Ref. Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400 4
General Ledger
Account: Prepaid Insurance Account No. 15
Post Balance
Date Item Ref. Debit Credit Debit Credit
12/1 1
Enter the journal page in the ledger account. 4

48. Recording and Posting an Entry
General Journal
Page 1
Post.
Date Description Ref. Debit Credit
12/1 Prepaid Insurance 15 2,400
Cash 2,400 5
General Ledger
Account: Prepaid Insurance Account No. 15
Post Balance
Date Item Ref. Debit Credit Debit Credit
12/1 1 2,400 2,400
Enter the ledger account number in the journal. 5

49. Recording and Posting an Entry
General Journal
Page 1
Post.
Date Description Ref. Debit Credit
12/1 Prepaid Insurance 15 2,400
Cash 11 2,400 1 4 5 2
General Ledger
Account: Cash Account No. 11
Post Balance
Date Item Ref. Debit Credit Debit Credit
11/30 Balance 5,900
12/ ,400 3,500 3
All five parts of the credit posting are shown.

50. Correcting Errors Three Types of Errors
Journal Entry
Ledger Posting
Correction Procedure
1. incorrect not posted correct Journal

51. Correcting Errors Three Types of Errors
Journal Entry
Ledger Posting
Correction Procedure
1. incorrect not posted correct Journal
2. correct incorrectly posted correct Ledger

52. Error 3 requires a correcting journal entry.
Correcting Errors
Three Types of Errors
Journal Entry
Ledger Posting
Correction Procedure
1. incorrect not posted correct Journal
2. correct incorrectly posted correct Ledger
3. incorrect already posted record and post
a correcting entry
Error 3 requires a correcting journal entry.

53. Correcting Errors – An Example
On May 5 a purchase of office equipment on account was incorrectly journalized and posted as shown.
General Journal – As recorded and posted
Date Description Debit Credit
5/5 Supplies 12,500
Accounts Payable 12,500
What part of this entry is incorrect?
What correcting entry would you make?

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

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

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

57. Comparative Balance Sheet December 31, 2003 and 2002
Financial Analysis and Interpretation
Objective: Use horizontal analysis to compare financial statements from different periods.
Comparative Balance Sheet December 31, 2003 and 2002
Increase (Decrease)
Amount Percent
Assets
Current assets $ 550,000 $ 533,000
Long-term investments 95, ,500
Plant assets (net) 444, ,000
Intangible assets 50,000 50,000
$1,139,500 $1,230,500

58. Comparative Balance Sheet December 31, 2003 and 2002
Financial Analysis and Interpretation
Objective: Use horizontal analysis to compare financial statements from different periods.
Comparative Balance Sheet December 31, 2003 and 2002
Increase (Decrease)
Amount Percent
Assets
Current assets $ 550,000 $ 533,000 $ 17, %
Long-term investments 95, ,500 (82,500) (46.5%)
Plant assets (net) 444, ,000 (25,500) (5.4%)
Intangible assets 50,000 50,000 —
$1,139,500 $1,230,500 $ (91,000) (7.4%)
Horizontal Analysis:
Current year (2003) $550,000
Base year (1999) $533,000
= %
Increase amount $17,000
Base year (2002) $533,000
= 3.2%

59. Comparative Income Statement December 31, 2003 and 2002
Financial Analysis and Interpretation
Objective: Use horizontal analysis to compare financial statements from different periods.
Comparative Income Statement December 31, 2003 and 2002
Increase (Decrease)
Amount Percent
Sales $1,530,500 $1,234,000
Sales returns 32,500 34,000
Net sales $1,498,000 $1,200,000
Cost of goods sold 1,043, ,000
Gross profit $ 455,000 $ 380,000

60. Comparative Income Statement December 31, 2003 and 2002
Financial Analysis and Interpretation
Objective: Use horizontal analysis to compare financial statements from different periods.
Comparative Income Statement December 31, 2003 and 2002
Increase (Decrease)
Amount Percent
Sales $1,530,500 $1,234,000 $296, %
Sales returns 32,500 34,000 (1,500) (4.4%)
Net sales $1,498,000 $1,200,000 $298,000) 24.8%
Cost of goods sold 1,043, , , %
Gross profit $ 455,000 $ 380,000 $ 75, %
Horizontal Analysis:
Current year (2003) $1,498,000
Base year (2002) $1,200,000
= %
Increase amount $298,000
Base year (2002) $1,200,000
= 24.8%

61. Power Notes This is the last slide in Chapter F2. Chapter F2
Analyzing Transactions
This is the last slide in Chapter F2.
Note: To see the topic slide, type 2 and press Enter.