NETA POWERPOINT PRESENTATIONS TO ACCOMPANY VOLUME 1 Accounting Second Canadian Edition BY WARREN/REEVE/DUCHAC/ELWORTHY/KRISTJANSON/TOBER Adapted by Sheila.

NETA POWERPOINT PRESENTATIONS TO ACCOMPANY VOLUME 1 Accounting Second Canadian Edition BY WARREN/REEVE/DUCHAC/ELWORTHY/KRISTJANSON/TOBER Adapted by Sheila Elworthy and Tana Kristjanson Copyright © 2014 by Nelson Education Ltd.1

After studying this chapter, you should be able to: 1.Describe the characteristics of an account and a chart of accounts. 2.Describe and illustrate journalizing transactions using the double- entry accounting system. 3.Describe and illustrate the posting of transactions to accounts. Analyzing Transactions Copyright © 2014 by Nelson Education Ltd.3

After studying this chapter, you should be able to: 4.Prepare an unadjusted trial balance and explain how it can be used to discover errors. Analyzing Transactions Copyright © 2014 by Nelson Education Ltd.4

Chart of Accounts The numbering system used in the chart of accounts often indicates the major account group of the ledger in which a particular account is located. For example: 1000’s – Assets 2000’s – Liabilities 3000’s – Owner’s Equity 4000’s – Revenues 5000’s – Expenses Copyright © 2014 by Nelson Education Ltd.11

Expenses The using up of assets or consuming services in the process of generating revenues results in expenses. Wages expense Rent expense Miscellaneous expense Copyright © 2014 by Nelson Education Ltd.16

Double-Entry Accounting System This system is based on the accounting equation and requires that every business transaction be recorded in at least two accounts. It has specific rules of debit and credit for recording transactions in the accounts. Copyright © 2014 by Nelson Education Ltd.19

The double-entry accounting system is based on the accounting equation and specific rules for recording debits and credits. The debit and credit rules for balance sheet accounts are as follows: Copyright © 2014 by Nelson Education Ltd.20

EXAMPLE EXERCISE 2-1 Rules of Debit and Credit and Normal Balances Balances Balances State for each account on the next slide whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries. Also, indicate whether its normal balance is a debit or a credit. Copyright © 2014 by Nelson Education Ltd.23

EXAMPLE EXERCISE 2-1 Rules of Debit and Credit and Normal Balances 1.Amber Saunders, Withdrawals 2.Accounts Payable 3.Cash 4.Fees Earned 5.Supplies 6.Utilities Expense Copyright © 2014 by Nelson Education Ltd.24

FOLLOW MY EXAMPLE 2-1 Rules of Debit and Credit and Normal Balances 1.Amber Saunders, Withdrawals a.Debit entries only; normal debit balance 2.Accounts Payable c.Debit and credit entries; normal debit balance 3.Cash c.Debit and credit entries; normal debit balance Copyright © 2014 by Nelson Education Ltd.25

FOLLOW MY EXAMPLE 2-1 Rules of Debit and Credit and Normal Balances 4.Fees Earned b.Credit entries only; normal credit balance 5.Supplies c.Debit and credit entries; normal debit balance 6.Utilities Expense a.Debit entries only; normal debit balance For Practice: PE 2-1 Copyright © 2014 by Nelson Education Ltd.26

Income Statement Accounts Copyright © 2014 by Nelson Education Ltd.28 Credit for increases (+) Debit for decreases (–) Revenue Accounts Credit for decreases (–) Debit for increases (+) Expense Accounts

Owner’s Withdrawals Copyright © 2014 by Nelson Education Ltd.30 Increase (Normal Bal.) Decreases Balance sheet accounts: AssetDebitCredit LiabilityCreditDebit Owner’s Equity: Capital CreditDebit WithdrawalDebitCredit Income statement accounts: RevenueCreditDebit ExpenseDebitCredit

Journalizing 2.The title of the account to be debited is recorded at the left- hand margin under the Description column, and the amount to be debited is entered in the Debit column. Copyright © 2014 by Nelson Education Ltd.34

Journalizing 3.The title of the account to be credited is listed below and to the right of the debited account title, and the amount to be credited is entered in the Credit column. Copyright © 2014 by Nelson Education Ltd.35

Journalizing 4.A brief description may be entered below the credited account. 5.The Post. Ref. (Posting Reference) column is left blank when the journal entry is initially recorded. Copyright © 2014 by Nelson Education Ltd.36

EXAMPLE EXERCISE 2-2 Journal Entry for Asset Purchase Prepare a journal entry for the purchase of a truck on June 3 for $42,500, paying $8,500 cash and the remainder on account. Copyright © 2014 by Nelson Education Ltd.43

FOLLOW MY EXAMPLE 2-2 Journal Entry for Asset Purchase June 3 Truck.............................. 42,500 Cash........................... 8,500 Accounts Payable.......34,000 For Practice: PE 2-2 Copyright © 2014 by Nelson Education Ltd.44

EXAMPLE EXERCISE 2-4 Journal Entry for Owner’s Withdrawal Prepare a journal entry on December 29 for the payment of $3,000 to the owner of Smartstaff Consulting Services, Jessie Algeo, for personal use. Copyright © 2014 by Nelson Education Ltd.55

FOLLOW MY EXAMPLE 2-4 Journal Entry for Owner’s Withdrawal Dec. 29 Jessie Algeo, Withdrawals...... 3,000 Cash.................................. 3,000 For Practice: PE 2-4 Copyright © 2014 by Nelson Education Ltd.56

Posting the previous entry requires the following steps: 1.The date (Dec. 1) of the journal entry is entered in the Date column on the Prepaid Insurance line. Copyright © 2014 by Nelson Education Ltd.61

2.The amount ($2,400) is entered into the Debit column of Prepaid Insurance. 3.The journal page number (2) is entered in the Posting Reference (Post. Ref.) column of Prepaid Insurance. 4.The account number (1050) is entered in the Posting Reference (Post. Ref.) column in the journal. Copyright © 2014 by Nelson Education Ltd.62

The steps in preparing a trial balance are as follows: 1.List the name of the company, the title of the trial balance, and the date the trial balance is prepared. 2.List the accounts from the ledger and enter their debit or credit balance in the Debit or Credit column of the trial balance. Copyright © 2014 by Nelson Education Ltd.67

Errors Affecting the Trial Balance If the debit and credit balances of the trial balance do not balance, there are a number of possible reasons. 1.If the difference is divisible by 10, it could be an addition error. 2.If the difference is divisible by 2, a debit and credit may be switched. Copyright © 2014 by Nelson Education Ltd.70

Errors Affecting the Trial Balance 3.If the difference is divisible by 9, it could be a transposition or slide. 4.If the difference is not divisible by 2 or 9, an account could be missing. Copyright © 2014 by Nelson Education Ltd.71

Errors In a slide, the entire number is mistakenly moved one or more spaces to the right or the left, such as writing $542.00 as $54.20 or $97.50 as $975.00. Copyright © 2014 by Nelson Education Ltd.73

Errors Affecting the Trial Balance If an accounting error is not discovered with the preceding steps, the accounting process must be retraced, beginning with the last entry. Copyright © 2014 by Nelson Education Ltd.74

EXAMPLE EXERCISE 2-5 Trial Balance Errors For each of the following errors on the next slide, considered individually, indicate whether the error would cause the trial balance totals to be unequal. If the error would cause the trial balance totals to be unequal, indicate whether the debit or credit total is higher and by how much. Copyright © 2014 by Nelson Education Ltd.75

EXAMPLE EXERCISE 2-5 Trial Balance Errors a.Payment of a cash withdrawal of $6,700 was journalized and posted as a debit of $7,600 to Salary Expense and a credit of $7,600 to Cash. b.A fee of $3,280 earned from a client was debited to Accounts Receivable for $3,820 and credited to Fees Earned for $3,280. c.A payment of $6,200 to a creditor was posted as a debit of $6,200 to Accounts Payable and a debit of $6,200 to Cash. Copyright © 2014 by Nelson Education Ltd.76

FOLLOW MY EXAMPLE 2-5 Trial Balance Errors a.The totals are equal since both the debit and credit entries were journalized and posted for $7,600. b.The totals are unequal. The debit total is higher by $540 ($3,820 − $3,280). c.The totals are unequal. The debit total is higher by $12,400 ($6,200 + $6,200). For Practice: PE 2-5 Copyright © 2014 by Nelson Education Ltd.77

Errors Not Affecting the Trial Balance To illustrate, assume that on May 5, a $12,500 purchase of office equipment on account was incorrectly journalized and posted as a debit to Supplies and a credit to Accounts Payable for $12,500. This posting of the incorrect entry is shown in the following T accounts. Copyright © 2014 by Nelson Education Ltd.79

Errors Not Affecting the Trial Balance Before making a correcting journal entry, it is best to determine the debit(s) and credit(s) that should have been recorded. These are shown in the following T accounts. Copyright © 2014 by Nelson Education Ltd.81

Correcting Entries Once you have identified the incorrect entry and correct entry, apply a two-step process, using a journal entry to remove the entry that is wrong and then a correcting journal entry. Copyright © 2014 by Nelson Education Ltd.84

EXAMPLE EXERCISE 2-6 Correcting Entries The following errors took place in journalizing transactions: a.A withdrawal of $6,000 by Cheri Ramey, owner of the business, was recorded as a debit to Office Salaries Expense and a credit to Cash. b.Utilities Expense of $4,500 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. Copyright © 2014 by Nelson Education Ltd.86

NETA POWERPOINT PRESENTATIONS TO ACCOMPANY VOLUME 1 Accounting Second Canadian Edition BY WARREN/REEVE/DUCHAC/ELWORTHY/KRISTJANSON/TOBER Adapted by Sheila.

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NETA POWERPOINT PRESENTATIONS TO ACCOMPANY VOLUME 1 Accounting Second Canadian Edition BY WARREN/REEVE/DUCHAC/ELWORTHY/KRISTJANSON/TOBER Adapted by Sheila.

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Presentation on theme: "NETA POWERPOINT PRESENTATIONS TO ACCOMPANY VOLUME 1 Accounting Second Canadian Edition BY WARREN/REEVE/DUCHAC/ELWORTHY/KRISTJANSON/TOBER Adapted by Sheila."— Presentation transcript:

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