1. Analysis and Recording of Transactions Module 3

2. SAP 2007 / SAP University Alliances Introductory Accounting Explain and describe the accounting cycle.Define types of accounts.Define and explain debits versus credits.Practice using T-accounts to analyze transactions.Define and practice double entry accounting.Record (journalize) and post transactions.Prepare a trial balance.Run an SAP demonstration.Practice entering transactions in SAP. Learning Objectives

3. SAP 2007 / SAP University Alliances Introductory Accounting The Accounting Cycle Analyze transactions Journalize Post Prepare statements Close Prepare post-closing trial balance Adjust Prepare unadjusted trial balance Prepare adjusted trial balance 2 2 3 4 5 6 7 8 9 1

4. The Accounting Equation A detailed record of increases and decreases in a specific asset, liability, or equity item. Examples: CashAccounts PayableOwner, Capital Accounts ReceivableNotes PayableOwner, Withdrawals SuppliesUnearned RevenuesService Revenue FurnitureRent Expense Liabilities Equity Assets =+ SAP 2007 / SAP University Alliances Introductory Accounting

5. SAP 2007 / SAP University Alliances Introductory Accounting The General Ledger A record containing all accounts used by a business. May be computerized or maintained manually. Each company has its own unique set of accounts.

6. The T-Account Represents an account in the ledger.Learning tool.The difference between the debit side and credit side is the balance. SAP 2007 / SAP University Alliances Introductory Accounting

7. Steps: 1.Add the amounts on the debit side. 2.Add the amounts on the credit side. 3.Calculate the difference between the debits and credits. Steps: 1.Add the amounts on the debit side. 2.Add the amounts on the credit side. 3.Calculate the difference between the debits and credits. Example: 1 2 3 Calculating the Account Balance SAP 2007 / SAP University Alliances Introductory Accounting

8. SAP 2007 / SAP University Alliances Introductory Accounting Double-Entry Accounting Transactions are recorded using debits and credits.Every transaction affects at least two accounts. Equal debits and credits will keep the accounting equation in balance. Debits = Credits Always!

9. Liabilities Equity Assets =+ Owner’s EquityAssetsLiabilities Debit Credit + - - + Double-Entry Accounting SAP 2007 / SAP University Alliances Introductory Accounting

10. Debit Credit Capital - + Equity Accounts Debit Credit Withdrawals + - Debit Credit Expenses + - Debit Credit Revenues - + Double-Entry Accounting SAP 2007 / SAP University Alliances Introductory Accounting

11. Liabilities Equity Assets Normal Balances An account’s normal balance is the debit or credit side where increases are recorded. = + SAP 2007 / SAP University Alliances Introductory Accounting

12. SAP 2007 / SAP University Alliances Introductory Accounting Chart of Accounts A list of all accounts used in the ledger by a company. Unique for each company.Accounts are usually numbered.

13. SAP 2007 / SAP University Alliances Introductory Accounting Analyzing Transactions Steps:1. Determine which accounts are being affected. 2. Determine if account balances are increasing or decreasing. 3. Apply rules of debits and credits.

14. SAP 2007 / SAP University Alliances Introductory Accounting Analyzing Transactions Example 1: The owner invests $10,000 in the business. Accounts affected Increase/ Decrease Debit/ Credit 1 3 2

15. SAP 2007 / SAP University Alliances Introductory Accounting Analyzing Transactions Example 1: The owner invests $10,000 in the business. Accounts affected Increase/ Decrease Debit/ Credit Cash Owner, capital 1 3 2

16. SAP 2007 / SAP University Alliances Introductory Accounting Analyzing Transactions Example #1: The owner invests $10,000 in the business. Accounts affected Increase/ Decrease Debit/ Credit CashIncrease Owner, capitalIncrease 1 3 2

17. SAP 2007 / SAP University Alliances Introductory Accounting Analyzing Transactions Example #1: The owner invests $10,000 in the business. Accounts affected Increase/ Decrease Debit/ Credit CashIncreaseDebit Owner, capitalIncreaseCredit 1 3 2

18. Analyzing Transactions Example 1: The owner invests $10,000 in the business. Debit cash for $10,000 Credit owner, capital for $10,000 SAP 2007 / SAP University Alliances Introductory Accounting

19. SAP 2007 / SAP University Alliances Introductory Accounting Analyzing Transactions Example 2: The company purchases supplies by paying $2,500 cash. Accounts affected Increase/ Decrease Debit/ Credit 1 3 2

20. SAP 2007 / SAP University Alliances Introductory Accounting Analyzing Transactions Example 2: The company purchases supplies by paying $2,500 cash. Accounts affected Increase/ Decrease Debit/ Credit Supplies Cash 1 3 2

21. SAP 2007 / SAP University Alliances Introductory Accounting Analyzing Transactions Example 2: The company purchases supplies by paying $2,500 cash. Accounts affected Increase/ Decrease Debit/ Credit SuppliesIncrease CashDecrease 1 3 2

22. SAP 2007 / SAP University Alliances Introductory Accounting Analyzing Transactions Example 2: The company purchases supplies by paying $2,500 cash. Accounts affected Increase/ Decrease Debit/ Credit SuppliesIncreaseDebit CashDecreaseCredit 1 3 2

23. Analyzing Transactions Example 2: The company purchases supplies by paying $2,500 cash. Debit supplies for $2,500 Credit cash for $2,500 SAP 2007 / SAP University Alliances Introductory Accounting

24. SAP 2007 / SAP University Alliances Introductory Accounting Analyzing Transactions Example 3: The company purchases supplies for $1,100 on credit. Accounts affected Increase/ Decrease Debit/ Credit 1 3 2

25. SAP 2007 / SAP University Alliances Introductory Accounting Analyzing Transactions Example 3: The company purchases supplies for $1,100 on credit. Accounts affected Increase/ Decrease Debit/ Credit Supplies Accounts Payable 1 3 2

26. SAP 2007 / SAP University Alliances Introductory Accounting Analyzing Transactions Example 3: The company purchases supplies for $1,100 on credit. Accounts affected Increase/ Decrease Debit/ Credit SuppliesIncrease Accounts Payable Increase 1 3 2

27. SAP 2007 / SAP University Alliances Introductory Accounting Analyzing Transactions Example 3: The company purchases supplies for $1,100 on credit. Accounts affected Increase/ Decrease Debit/ Credit SuppliesIncreaseDebit Accounts Payable IncreaseCredit 1 3 2

28. Analyzing Transactions Example 3: The company purchases supplies for $1,100 on credit. Debit supplies for $1,100 Credit accounts payable for $1,100 SAP 2007 / SAP University Alliances Introductory Accounting

29. SAP 2007 / SAP University Alliances Introductory Accounting The General Journal Entries are originally recorded in the General Journal. This process is called journalizing.

30. SAP 2007 / SAP University Alliances Introductory Accounting Posting Journal Entries General Journal information is transferred to the General Ledger. Account balances are updated.This process is called posting.

31. SAP 2007 / SAP University Alliances Introductory Accounting General journal information is transferred to the general ledger The Posting Process Steps: 1.Identify the account. 2.Enter date 3.Enter amount 4.Calculate new account balance 5.Enter posting references Steps: 1.Identify the account. 2.Enter date 3.Enter amount 4.Calculate new account balance 5.Enter posting references 2 1 3 4 5 5

32. SAP 2007 / SAP University Alliances Introductory Accounting Trial Balance A list of accounts and their balances at a point in time. Used to determine if total debits equals total credits. Also used to prepare financial statements.

33. SAP 2007 / SAP University Alliances Introductory Accounting Trial Balance