1. Recording, Storing, & Reporting Accounting Information
Appendix A: Recording, Storing, and Reporting Accounting Information
Appendix A
Recording, Storing, & Reporting Accounting Information

2. Recording
App. A
Accounting system - identifies, measures, records, and retains accounting information
Account - records and retains the monetary information from transactions
General ledger - the entire set of accounts that a company uses

3. Debits and Credits
App. A
Title of Account
Left (debit) side
Right (credit) side
Debit entry - monetary amount recorded on the left side
Credit entry - monetary amount recorded on the right side

4. Recording Rules Asset accounts are: increased by debit entries
App. A
Asset accounts are:
increased by debit entries
decreased by credit entries
Liability accounts are:
increased by credit entries
decreased by debit entries

5. Recording Rules Permanent owner’s equity, or capital accounts are:
App. A
Permanent owner’s equity, or capital accounts are:
increased by credit entries
decreased by debit entries

6. Recording Rules
App. A
Temporary owner’s equity accounts have the following rules:
Withdrawal accounts are increased by debit entries and decreased by credit entries
Revenue accounts are increased by credit entries and decreased by debit entries
Expense accounts are increased by debit entries and decreased by credit entries

7. Recording Rules
App. A
Double entry rule - the total amount of the debit entries must equal the total amount of the credit entries for each transaction.
Balance of an account - the difference between the total increases and the total decreases recorded in an account.

8. Normal Balances Assets Debit Liabilities Credit Owner’s capital Credit
App. A
Assets Debit
Liabilities Credit
Owner’s capital Credit
Owner’s withdrawals Debit
Revenues Credit
Expenses Debit

9. Accounting Cycle
App. A
Recording (journalizing) the transactions in the general journal
Posting the journal entries to the accounts in the general ledger
Recording (and posting) adjusting entries
Preparing the financial statements
Recording (and posting) closing entries

10. Recording (Journalizing) Transactions
App. A
General journal - a book where information is recorded for each transaction
Journalizing - the process of recording a transaction in the general journal
Journal entry - the recorded information for each transaction

11. Key Procedures in Journalizing
App. A
Enter the month, day, and year
Enter the title of the account and amount to be debited
Enter the title of the account and amount to be credited
Enter a brief explanation of the transaction

12. Illustration of Journal Entries
App. A
Acct. No.
Date
Account Titles and Explanations
Debit
Credit
2003 Dec. 15
Cash
15,000
A. Cox, Capital
15,000
Made initial investment in business 29
Store Equipment
2,200
1,000
Cash
1,200
Notes Payable
Purchased store equipment from Ace Equipment Company, making cash down payment and signing 3-month note

13. Posting to the Accounts
App. A
Posting - the process of transferring the journal entry information to the accounts in the general ledger
Chart of accounts - a numbering system designed to organize a company’s accounts

14. Key Procedures in Posting
App. A
Locate the first account to be posted from the general journal
Enter the month, day, and year of the transaction and the debit amount in the debit (left) side of the account
Enter the account number in the general journal
Repeat the process for the credit amount

15. Illustration of Posting Process - Exhibit A-7
App. A
Acct. No.
Date
Account Titles and Explanations
Debit
Credit
2004 Jan. 2
Cash
101
401
300
Sales Revenue
300
Made cash sales
General Ledger
Cash
No. 101
Sales Revenue
No. 401
Bal ,300
1/02/
1/02/

16. Trial Balance
App. A
Trial balance - a schedule that lists the general ledger accounts and the balances
Normally prepared at the end of the accounting period before making adjusting entries
Helps to detect a journalizing or posting error

17. Preparing Adjusting Entries
App. A
Adjusting entries - made at the end of an accounting period to bring the company’s revenue and expense account balances up-to-date
Three types of adjusting entries
Apportionment of prepaid and unearned items
Recording of accrued items
Recording or apportionment of estimated items

18. Apportionment of Prepaid and Unearned Items
App. A
Prepaid item - an economic resource that will be used in the near future
the “expired” part of the resource cost must be recorded as an expense
Unearned revenue - an obligation of a company to provide goods or services in the future
the “expired” part of the obligation must be recorded as a revenue

19. Accrued Items
App. A
Accrued expense - an expense that has been incurred but that has not been paid or recorded
Accrued revenue - a revenue that has been earned but that has not been collected or recorded
Adjusting entries must be made to record the accrued expenses and revenues

20. Estimated Items Depreciation on buildings and equipment
App. A
Depreciation on buildings and equipment
Amortization of intangible assets
Recognition of uncollectible accounts receivable

21. Adjusted Trial Balance
App. A
A schedule prepared after adjusting entries to prove the equality of the debit and credit balances in the general ledger accounts
Helps prevent the company from including debit and credit errors in the financial statements
Makes preparing the financial statements easier

22. Common Errors Found on the Adjusted Trial Balance
App. A
Transposition - two digits in a number are mistakenly reversed
Slide - the digits are listed in the correct order but are mistakenly moved one decimal place to the left or right

23. Preparing the Financial Statements
App. A
Income Statement
Statement of Changes in Owner’s Equity
Balance Sheet
Cash Flow Statement

24. Preparation of Closing Entries
App. A
Closing entries are done at the end of an accounting period to:
Show the current balance in the owner’s capital account
Show zero balances in the revenue, expense, and withdrawals accounts
Income Summary account is a temporary account used in the closing process

25. Closing the Revenue Accounts
App. A
A debit entry is made to each revenue account to bring the balance to zero
A credit entry is made to the income summary account for the total of the revenue accounts

26. Closing the Expense Accounts
App. A
A credit entry is made to each expense account to bring the balance to zero
A debit entry is made to the income summary account for the total of the expense accounts

27. Closing the Income Summary Account
App. A
The balance in the account is the net income (or net loss)
An entry is made to transfer the balance in the income summary account to the owner’s equity account

28. Closing the Withdrawals Account
App. A
A credit entry is made to the withdrawals account to bring the balance to zero
A debit entry is made to the owner’s equity account for the total of the withdrawals account

29. Post-Closing Trial Balance
App. A
A schedule prepared after making the closing entries to prove the equality of the debit and credit balances in the permanent accounts
Only permanent accounts should have balances since all temporary accounts have zero balances due to the closing process

30. Modifications for Corporations
App. A
Investments by owners
Distributions to owners
Income taxes on the income statement
Stockholders’ equity on the balance sheet

31. Conclusion A company’s accounting cycle includes:
App. A
A company’s accounting cycle includes:
recording (journalizing) transactions
posting to the accounts
recording and posting adjusting entries
preparing the financial statements
recording and posting closing entries

32. Homework Problem PA-2 (2)
App. A
Acct. No.
Date
Account Titles and Explanations
Debit
Credit
Jan. 2
Cash
33,000
R. Foster, Capital
33,000
To record investment by owner of cash into business.

33. Homework Problem PA-2 (2)
App. A
Acct. No.
Date
Account Titles and Explanations
Debit
Credit 3
Land
3,000
Building
21,000
Cash
6,000
Mortgage Payable
18,000
To record purchase of land and building; making cash down payment and signing mortgage for remaining balance.

34. Homework Problem PA-2 (2)
App. A
Acct. No.
Date
Account Titles and Explanations
Debit
Credit 4
Office Equipment
7,000
Notes Payable
7,000
To record purchase of office equipment & issuance of 1-year note.

35. Homework Problem PA-2 (2)
App. A
Acct. No.
Date
Account Titles and Explanations
Debit
Credit 10
Office Supplies
735
Cash
735
To record purchase of office supplies for cash.

36. Homework Problem PA-2 (2)
App. A
Acct. No.
Date
Account Titles and Explanations
Debit
Credit 21
Cash
3,020
Tax Service Revenues
3,020
To record collection of cash for services performed.

37. Homework Problem PA-2 (2)
App. B
Acct. No.
Date
Account Titles and Explanations
Debit
Credit 31
Salary Expense
1,450
Cash
1,450
To record payment of employee’s salary.

38. Homework Problem PA-2 (2)
App. A
Acct. No.
Date
Account Titles and Explanations
Debit
Credit 31
Utilities Expense 88
Cash 88
To record payment of January utilities.

39. Homework Problem PA-2 (2)
App. A
Acct. No.
Date
Account Titles and Explanations
Debit
Credit 31
R. Foster, Withdrawals
850
Cash
850
To record withdrawal of cash by owner for personal use.

40. Homework Problem PA-2 (4)
App. A
FOSTER TAX SERVICES COMPANY
Trial Balance
January 31
Account Titles Debits Credits
Cash $26,897
Office supplies
Land ,000
Building ,000
Office equipment ,000
Notes Payable $ 7,000
Mortgage payable ,000
R. Foster, capital ,000
R. Foster, withdrawals
Tax service revenues ,020
Salary expense ,450
Utilities expense
Totals $61,020 $61,020