1. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Please note: this presentation includes slide transitions and animations. To utilize the presentation features, launch the slide show and click to advance the slides and where appropriate, the animations will appear.

2. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. College Accounting 11 th Edition T Accounts, Debits and Credits, Trial Balance and Financial Statements chapter 2 2-2

3. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives After you have completed this chapter, you will be able to do the following: 2-3

4. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective 2-4

5. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The T-Account Form Step 2:109,070 – 53,180 = 55,890 Step 1: Add Step 3: Placement 2-5 Footings

6. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The T-Account Form 2-6 Normally, the footing on the increase (plus) side of an account will be larger than the footing

7. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 1 2-7

8. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective 2-8

9. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Asset T Accounts The T account has a title (such as Cash). (continued) Assets increase on the left side. Assets decrease on the right side. Cash 2-9

10. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Liability T Accounts T account title (continued) Liabilities decrease on the left side. Liabilities increase on the right side. Accounts Payable 2-10

11. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Owner’s Equity T Accounts Drawing and expenses cause a decrease in owner’s equity Owner’s investments (capital) and revenues cause an increase in owner’s equity 2-11

12. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Expanded Fundamental Accounting Equation icreaseicreaseicreaseicrease icreaseicreaseicreaseicrease icreaseicreaseicreaseicrease decreasedecreasedecreasedecrease decreasedecreasedecreasedecrease decreasedecreasedecreasedecrease icreaseicreaseicreaseicrease icreaseicreaseicreaseicrease icreaseicreaseicreaseicrease decreasedecreasedecreasedecrease decreasedecreasedecreasedecrease decreasedecreasedecreasedecrease 2-12

13. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 2 2-13

14. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective 2-14

15. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  What does debit mean?  Debit means “left”  Debit is abbreviated “DR”  What does credit mean?  Credit means “right”  Credit is abbreviated “CR” What is a: … Debit … Credit 2-15

16. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The T Account with Debits and Credits 2-16

17. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2-17

18. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The critical rule to remember is that the amount placed on the debit side of one or more accounts MUST equal the amount placed on the credit side of another account or accounts. = 2-18

19. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 3 2-19

20. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives 2-20

21. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Recording Business Transactions in T Accounts Steps: 3. Are the accounts increased or decreased? Answer: 3. Cash is being deposited in the bank account, an increase to Cash The owner has invested that cash in the business and has increased J. Conner, Capital (a) Transaction (a): Conner deposited $90,000 in a bank account in the name of the business. 2-21 2. What are the classifications of the accounts involved (asset, liability, capital, drawing, revenue, expense)? 1. What accounts are involved? 2. Cash is an asset account, and J. Conner, Capital is an owner’s equity account 1. Cash and J. Conner, Capital

22. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Recording Business Transactions in T Accounts Steps: 4. Write the transaction as a debit to one account (or accounts) and a credit to another account (accounts)? Answer: 5. At least one account is debited and one is credited. And, the total amount(s) debited equals the total amount(s) credited. Transaction: Conner deposited $90,000 in a bank account in the name of the business. 2-22 5. Is the equation in balance after the transaction has been recorded? 4. Because Cash is an asset account and Cash is increased, Cash is debited J. Conner, Capital is an owner’s equity account and is increased, J. Conner, Capital is credited

23. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (a) Transaction (a) in T Account Form 2-23

24. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (b) Transaction (b): Conner’s Whitewater Adventures bought equipment, paying cash of $38,000. 2-24

25. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (c) Transaction (c): Conner’s Whitewater Adventures bought equipment, on account, for $4,320. 2-25

26. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (d) Transaction (d): Conner’s Whitewater Adventures paid a creditor, Signal Products, $2,000. 2-26

27. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (e) Transaction (e): Conner invests her personal computer, fair market value $5,200, in the business. 2-27

28. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (a) - (e) Summary - Transactions (a) - (e) 2-28

29. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Let’s pause to see if the debits are equal to the credits by listing the balances of the accounts. Equal 2-29

30. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (f) Transaction (f): Conner’s Whitewater Adventures sold rafting tours for cash, $8,000. 2-30

31. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (g) Transaction (g): Conner’s Whitewater Adventures paid rent for the month, $1,250. 2-31

32. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (h) Transaction (h): Conner’s Whitewater Adventures bought computer paper, ink cartridges, invoice pads, pens and pencils, folders, filing cabinets, and 10-key calculators on account, $675. 2-32

33. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (i) Transaction (i): Conner’s Whitewater Adventures bought a three- month liability insurance policy, $1,875. 2-33

34. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (j) Transaction (j): Conner’s Whitewater Adventures received a bill for newspaper advertisement from the Times, $620. 2-34

35. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (k) Transaction (k): Conner’s Whitewater Adventures signs a contract with Crystal River Lodge to provide rafting adventures for guests. Conner’s Whitewater Adventures provides 27 one-day rafting tours and bills Crystal River Lodge for $6,750. 2-35

36. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transaction (l): Conner’s Whitewater Adventures pays on account to Signal Products, $1,500. 2-36

37. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (m) Transaction (m): Conner’s Whitewater Adventures received and paid Solar Power, Inc. for the electric bill, $225. 2-37

38. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (n) Transaction (n): Conner’s Whitewater Adventures paid on account to the Times, $620. 2-38

39. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (o) Transaction (o): Conner’s Whitewater Adventures paid the wages of a part-time employee, $2,360. 2-39

40. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (p) Transaction (p): Conner’s Whitewater Adventures bought additional equipment from Signal Products, $3,780, paying $1,850 in cash and placing the balance on account. 2-40

41. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (q) Transaction (q): Conner’s Whitewater Adventures received $2,500 cash from Crystal River Lodge to apply against the amount billed in transaction (k). 2-41

42. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (r) Transaction (r): Conner’s Whitewater Adventures sold tours for cash, $8,570. 2-42

43. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (s) Transaction (s): J. Conner withdrew cash for her personal use, $3,500. 2-43

44. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Summary of Transactions 2-44 continued

45. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Summary of Transactions 2-45

46. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2-46

47. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 4 2-47

48. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 4 – Complete the T accounts 2-48

49. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2-49

50. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective 2-50

51. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. List the account balances in two columns. Left column = Debits Right column = Credits List the accounts in the same order as the chart of accounts. Prepare a Trial Balance 2-51

52. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The normal balance of each account is on its plus side. 2-52

53. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 2: Trial Balance Column headings identify information in each column Accounts listed in order of the chart of accounts Dollar signs not used on a trial balance Single underline beneath figures to be added Double underline beneath column totals 2-53

54. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 5 2-54

55. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 5 – Complete the trial balance 2-55

56. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2-56

57. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective 2-57

58. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Income Statement 2-58  The income statement shows total revenue minus total expenses, which yields the net income or net loss.  The income statement reports how the business has performed over a period of time, usually a month or a year.  When total revenue exceeds total expenses over the period, the result is a net income or profit.  When the total revenue is less than total expenses, the result is a net loss.

59. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2-59 Figure 3 Net Income / Loss is transferred to statement of owner’s equity1 2 3 a b b c d c c e e f

60. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective 2-60

61. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  The statement of owner’s equity shows how—and why—the owner’s equity or Capital account has changed over a stated period of time.  This statement is prepared after the accountant has determined the net income or net loss on the income statement. The Statement of Owner’s Equity 2-61

62. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 4 2-62 Carried over from income statement1 2 3 a b b e e f Transfer ending capital to balance sheet

63. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective 2-63

64. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Balance Sheet  The balance sheet shows the financial condition of a business’s assets offset by claims against them as of a particular date.  The balance sheet summarizes the balances of the asset, liability, and owner’s equity accounts on a given date (usually the end of a month or year). It is a “snapshot” of the financial condition of the business at that particular time. 2-64

65. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 5 1 2 3 a b b e e f Carried from statement of owner’s equityb b f d 2-65

66. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 6 2-66

67. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (continued) 2-67 Practice Exercise 6 (a) – complete the income statement

68. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2-68

69. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (continued) 2-69 Practice Exercise 6 (b) – complete the statement of owner’s equity

70. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2-70

71. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (continued) 2-71 Practice Exercise 6 (c) – complete the balance sheet

72. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2-72

73. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective 2-73

74. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. If the debit and credit columns in the trial balance are not equal, then it is evident that there is an error. Possible mistakes include: Making errors in arithmetic. Recording only half an entry. Recording both halves of the entry on the same side. Recording one or more amounts incorrectly. Errors Exposed by the Trial Balance 2-74

75. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The best method of locating errors is to do everything in reverse, as follows: Look at the pattern of the balances to see if a normal balance was placed in the wrong column of the trial balance. Re-add the trial balance columns. Check the transferring of the figures from the accounts to the trial balance. Verify the footings and balances of the accounts. Procedure for Locating Errors 2-75

76. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Transpositions and Slides 2-76  A transposition means that the digits have been transposed, or switched around when the numbers were copied from one place to another, e.g. writing 619 for 916 (the difference of 297 is evenly divisible by 9).  A slide is an error in placing the decimal point; in other words, a slide in the decimal point, e.g., writing 2,700 for 27,000 (the difference of 24,300 is evenly divisible by 9).  An error may be a combination of a transposition and a slide, e.g., writing $54 for $450 (the difference of $396 is evenly divisible by 9).

77. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 7 2-77

78. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2-78

79. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. College Accounting 11 th Edition T Accounts, Debits and Credits, Trial Balance and Financial Statements chapter 2 2-79