1. Copyright © 2012 Pearson Education 1 Record transactions in the journal Copy (post) to the ledger Prepare the trial balance

2. Copyright © 2012 Pearson Education Basic summary device Detailed record of all changes that have occurred in a particular asset, liability, or owner’s equity Covers a specific period of time Grouped in three broad categories Assets Liabilities Owner’s Equity 2

3. Copyright © 2012 Pearson Education Journal Chronological record of transactions Organized by date Ledger The book holding all the accounts and their balances Organized by account 3

4. Copyright © 2012 Pearson Education Listing of all accounts and their balances 4

5. Copyright © 2012 Pearson Education 5 ASSETSLIABILITIESEQUITY Economic Resources Claims to Economic Resources

6. Copyright © 2012 Pearson Education Economic resources that will benefit the business in the future: Cash Accounts receivable Notes receivable Prepaid expenses Land Building Equipment, Furniture, Fixtures 6

7. Copyright © 2012 Pearson Education A debt (something owed): Accounts payable Notes payable Accrued liabilities 7

8. Copyright © 2012 Pearson Education Owner’s claim to the assets: Capital Drawing Revenues Expenses 8

9. Copyright © 2012 Pearson Education Asset, Liability, and Owner’s Equity Accounts 9

10. Copyright © 2012 Pearson Education List of all accounts used by a company 10

11. Copyright © 2012 Pearson Education Record dual effects of each transaction Each transaction has a: Receiving side Giving side Examples: Company purchases supplies (receiving) with cash (giving) Company issues stock (giving) and receives cash (receiving) 11

12. Copyright © 2012 Pearson Education 12 Tool for analyzing and determining the balance in a given account Account Name (Left Side) (Right Side) Dr Debit Dr Debit Cr Credit Cr Credit

13. Copyright © 2012 Pearson Education Whether an account is increased by debit or a credit is determined by the account type Asset, liability, or equity Debits are not good or bad Neither are credits 13

14. Copyright © 2012 Pearson Education 14 The account category governs the increase side or decrease side Increases are recorded on one side Decreases are recorded on the opposite side Rules of debits and credits

15. Copyright © 2012 Pearson Education Match the accounting terms on the left with the corresponding definitions on the right. 1._____Posting 2._____ Receivable 3._____ Debit 4._____ Journal 5._____ Expense 6._____ Net Income 7._____ Normal Balance 8._____ Ledger 9._____ Payable 10._____ Equity 15 A.Using up assets in the course of operating a business B.Book of accounts C.An asset D.Record of transactions E.Left side of an account F.Side of an account where increases are recorded G.Copying data from the journal to the ledger H.Always a liability I.Revenues – Expenses = J.Assets – Liabilities = G C E D A I F B H J

16. Copyright © 2012 Pearson Education Identify each account affected and its type Determine if each account is increased or decreased Record transaction in the journal 16 Use the rules of debit and credit

17. Copyright © 2012 Pearson Education Journalize the first transaction of Smart Touch— the receipt of $30,000 cash and issuance of Capital. The accounts affected are Cash and Capital. Cash is an asset. Capital is equity. Both accounts increase by $30,000. Assets increase with debits. Equity increases with credits. 17

18. Copyright © 2012 Pearson Education 18 Journal Page 1 DateDescriptionDebitCredit Apr 1Cash30,000 Bright, capital30,000 Owner investment. Transaction date Accounts affected Dollar amounts of debits and credits Explanation of transaction

19. Copyright © 2012 Pearson Education Ned Brown opened a medical practice in San Diego, California. 1. Record the preceding transactions in the journal of Ned Brown, M.D., P.C. Include an explanation. 19 Jan 1The business received $29,000 cash and issued common stock. 2Purchased medical supplies on account, $14,000. 2Paid monthly office rent of $2,600. 3Recorded $8,000 revenue for service rendered to patients on account.

20. Copyright © 2012 Pearson Education Jan. 1: The business received $29,000 cash and issued common stock. Cash received indicates cash increases. Cash is an Asset, Assets increase with debits Issued common stock, indicates equity is increasing Increase equity with credits 20 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Jan1Cash 29,000 Brown, capital 29,000 Issued stock.

21. Copyright © 2012 Pearson Education Jan. 2: Purchased medical supplies on account, $14,000. Medical Supplies, an asset, is increasing. Assets increase with debits On account, increases accounts payable, a liability Increase liabilities with credits 21 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Jan1 Medical supplies 14,000 Accounts payable 14,000 Purchased supplies on account.

22. Copyright © 2012 Pearson Education Jan. 2: Paid monthly office rent of $2,600. Paid rent, an expense, expense is increasing Expenses increase with debits Paid cash, cash is an asset. Increase assets with debits 22 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Jan2Rent Expense 2,600 Cash 2,600 Paid office rent.

23. Copyright © 2012 Pearson Education Jan. 3: Recorded $8,000 revenue for service rendered to patients on account. On account indicates Accounts receivable increase. Accounts receivable is an Asset, Assets increase with debits Rendered services, services are revenues, indicates revenues are increasing Increase revenues with credits 23 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Jan1Accounts receivable 8,000 Service revenue 8,000 Performed service on account.

24. Copyright © 2012 Pearson Education Copying amounts from the journal to the ledger 24

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29. Copyright © 2012 Pearson Education Origin of accounting transactions Examples: Bank deposit tickets Invoices Checks Stock certificates 29

30. Copyright © 2012 Pearson Education 30 Cash Capital GENERAL JOURNAL DATEDESCRIPTION RE F DEBITCREDIT Cash30,000 Bright, capital30,000 Issued capital. 30,000

31. Copyright © 2012 Pearson Education 31 Cash Capital Land GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Land20,000 Cash20,000 Bought land. 30,000 20,000 10,000

32. Copyright © 2012 Pearson Education 32 CashAccounts payable Office supplies GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Office supplies500 Accounts payable500 Purchased supplies. 30,000 20,000 Cash 30,000 20,000 10,000 500

33. Copyright © 2012 Pearson Education 33 CashService revenue GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Cash5,500 Service revenue5,500 Received payment on account. 30,000 20,000 Cash 30,000 20,000 5,500

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35. Copyright © 2012 Pearson Education Texas Sales Consultants completed the following transactions during the latter part of January: 35 Jan 22Performed service for customers on account, $8,000. 30Received cash on account from customers, $7,000. 31Received a utility bill, $180, which will be paid during February. 31Paid monthly salary to salesman, $2,000. 31Paid advertising expense of $700.

36. Copyright © 2012 Pearson Education Jan 22: Performed service for customers on account, $8,000 “On account” indicates Accounts receivable Accounts receivable is an asset account Increase an asset with a debit 36 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Service revenue8,000 Jan 22 Accounts receivable 8,000

37. Copyright © 2012 Pearson Education Jan. 30: Cash is received Increase cash, an asset Assets are increased by debits The payment is “on account” Decrease Accounts receivable with a credit 37 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Accounts receivable 7,000 Received payment on account. Jan 30 Cash7,000

38. Copyright © 2012 Pearson Education Jan. 31: A utility bill is an expense Expenses are increased by debits The bill will be paid later–creating an account payable Liabilities are increased by credits 38 GENERAL JOURNAL DATEDESCRIPTION RE F DEBITCREDIT Received utility bill. Jan 31Utilities expense 180 Accounts payable 180

39. Copyright © 2012 Pearson Education Jan. 31: Salaries to employees are an expense Expenses are increased by debits The salary was paid in cash Cash, an asset, decreases, Assets are decreased by credits Rent Expense is an expense account. Increase an expense with a debit 39 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Cash 2,000 Paid salaries. Mar 31 Salaries expense 2,000

40. Copyright © 2012 Pearson Education March 31: Advertising is another expense Cash is paid 40 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Mar31Advertising expense 700 Cash 700 Paid advertising.

41. Copyright © 2012 Pearson Education Summary of the ledger Lists all accounts with their balances Accuracy check Debits should equal credits NOT a balance sheet 41

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45. Copyright © 2012 Pearson Education Think of the account, journal, ledger (T-account), and chart as matching tools. Businesses are just matching the business transaction to the account description that best captures the specific event that occurred. The accounting equation must always balance after each transaction is recorded. To achieve this balance, we record transactions using a double entry accounting system. In that system, debits are on the left and credits are on the right. Debits always equal credits. 45

46. Copyright © 2012 Pearson Education A transaction occurs and is recorded on a source document. Then, we identify the account names affected by the transaction and determine whether the accounts increased or decreased using the rules of debit and credit for the six main account types. Next, we record the transaction in the journal, listing the debits first. We then post all transactions to the ledger (T-account). 46

47. Copyright © 2012 Pearson Education Once the ledger (T-account) balances are calculated, the ending balance for each account is transferred to the trial balance. Recall that the trial balance is a listing of all accounts and their balances on a specific date. Total debits must always equal total credits on the trial balance. If they do not, then review the correcting trial balance errors section on Page 81 of the textbook. 47