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Transcript of 1 2 Analyzing Transactions. 1-2 2-2 2 Describe the characteristics of an account and a chart of...
1
2
Analyzing Transactions
1-22-22
Describe the characteristics of an account and a chart of accounts.
1
2-3
1-32-33
The T account has a title.
The T Account
Title
1
1-42-44
The left side of the account is
called the debit side.
Title
Debit
1
The T Account
1-52-55
Title
DebitThe right side of
the account is called the credit
side.
Credit
1
The T Account
1-62-66
1
Exhibit 1 NetSolutions November Transactions
1-72-77
Cash(a) 25,000 (b) 20,000(d) 7,500 (e) 3,650
(f) 950(h) 2,000
Balance 5,900
Balance of the account
1
1-82-88
A group of accounts for a business entity is called a ledger.
1
Chart of Accounts
1-92-99
A list of the accounts in a ledger is called a chart of accounts.
1
Chart of Accounts
1-102-1010
Assets are resources owned by the business entity.
• Cash• Supplies• Accounts receivable• Prepaid expenses• Buildings
1
Chart of Accounts
1-112-1111
Liabilities are debts owed to outsiders (creditors).
• Accounts payable• Notes payable• Wages payable
1
Chart of Accounts
1-122-1212
Stockholders’ equity is the stockholders’ right to the assets of the business. A dividends account represents distribution of earnings to stockholders.
1
Chart of Accounts
1-132-1313
Revenues are increases in owner’s equity as a result of selling services or products to customers.
• Fees earned• Commission revenue• Rent revenue
1
Chart of Accounts
1-142-1414
The using up of assets or consuming services in the process of generating revenues results in expenses.
• Wages expense• Rent expense• Miscellaneous expense
1
Chart of Accounts
1-152-1515
Exhibit 2 Chart of Accounts for NetSolutions
1
1-162-1616
Describe and illustrate journalizing transactions using the double-entry accounting system.
2
2-17
1-172-1717
2
Exhibit 3 Rules of Debit and Credit, Normal Balances of Accounts
(continued)
1-182-1818
Increase(Normal Bal.) Decreases
Balance sheet accounts:AssetDebit CreditLiability Credit DebitStockholders’ Equity:
Capital Stock Credit DebitDividends Debit
CreditIncome statement accounts:
Revenue Credit DebitExpense DebitCredit
2
Exhibit 3 Rules of Debit and Credit, Normal Balances of Accounts
1-192-1919
State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries. Also, indicate the normal balance.
1. Dividends2. Accounts Payable3. Cash4. Fees Earned5. Supplies6. Utilities Expense
2-20
Example Exercise 2-12
Rules of Debit and Credit and Normal Balances
1-202-2020
2
1. Dividends Debit entries only; normal debit balance
2. Accounts Payable Debit and credit entries; normal credit
balance
3. CashDebit and credit entries; normal debit balance
(continued)
Follow My Example 2-1
2-21
Example Exercise 2-1 (continued)
1-212-2121
2Example Exercise 2-1 (continued)
4. Fees Earned Credit entries only; normal credit balance
5. SuppliesDebit and credit entries; normal debit balance
6. Utilities Expense Debit entries only; normal debit balance
2-22
Follow My Example 2-1
For Practice: PE 2-1A, PE 2-1B
1-222-2222
A transaction is initially entered in a record called a journal. The process of recording a transaction in the journal is called journalizing.
2
Journalizing
1-232-2323
Journalizing requires the following steps:
1. The date of the transaction is entered in the Date column.
(continued)
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.
2
Journalizing
1-242-2424
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.
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.
2
Journalizing
1-252-2525
On November 1, Chris Clark deposited $25,000 in a bank account in the name of NetSolutions in exchange for capital stock.
Transaction A
2
1-262-2626
2
Journalizing
1-272-2727
The effect of this entry is shown in the accounts of NetSolutions as follows:
CashNov. 1 25,000 Nov. 1 25,000
Capital Stock
2
1-282-2828
On November 5, NetSolutions bought land for $20,000, paying cash.
Transaction B
2
1-292-2929
On November 10, NetSolutions bought supplies on account for $1,350.
Transaction C
2
1-302-3030
On November 18, NetSolutions received fees of $7,500 from customers for services rendered.
Transaction D
2
1-312-3131
Throughout the month, NetSolutions incurred the following expenses: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275.
Transaction E
2
1-322-3232
On November 30, NetSolutions paid creditors on account, $950.
Transaction F
2
1-332-3333
Chris Clark determined that the cost of supplies on hand on November 30 was $550.
Transaction G
2
1-342-3434
On November 30, NetSolutions paid $2,000 of dividends to stockholders.
Transaction H
2
1-352-3535
Example Exercise 2-22
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.
2-36
Follow My Example 2-2
June 3 Truck……………………….. 42,500Cash……………………. 8,500Accounts Payable……. 34,000
For Practice: PE 2-2A, PE 2-2B
Journal Entry for Asset Purchase
1-362-3636
Describe and illustrate the journalizing and posting of transactions to accounts..
3
2-37
1-372-3737
The process of transferring the debits and credits from the journal entries to the accounts is called posting.
3
Posting Journal Entries to Accounts
1-382-3838
Dec. 1 NetSolutions paid a premium of $2,400 for an insurance policy for liability, theft and fire. The policy covers a one-year period.
3
1-392-3939
Posting the previous entry requires the following steps:1. The date (Dec. 1) of the journal entry
is entered in the Date column of Prepaid Insurance.
(continued)
2. The amount ($2,400) is entered into the Debit column of Prepaid Insurance.
3
Posting
1-402-4040
3. The journal page number (2) is entered in the Posting Reference (Post. Ref.) column of Prepaid Insurance.
4. The account number (15) is entered in the Posting Reference (Post. Ref.) column in the journal.
3
Posting
1-412-4141
3
to Cash
Step 1
ep 3
Step 1
Step 2
Step 2
ep 3
(continued)
Exhibit 4 Diagram of the Recording and Posting of a Debit and a Credit
1-422-4242
3
Step 1
Step 2
Step 1
ep 4
Step 3
Step 3
Exhibit 4 Diagram of the Recording and Posting of a Debit and a Credit (continued)
ep 3
1-432-4343
Dec. 1 NetSolutions paid rent for December, $800. The company from which NetSolutions is renting its store space now requires the payment of rent on the first of each month, rather than at the end of the month.
3
1-442-4444
Dec. 1 NetSolutions received an offer from a local retailer to rent the land purchased on November 5. The retailer plans to use the land as a parking lot for its employees and customers. NetSolutions agreed to rent the land to the retailer for three months, with the rent payable in advance.
(continued)
3
1-452-4545
Dec. 1 NetSolutions receives $360 for three month’s rent for use of its land beginning December 1.
3
1-462-4646
Dec. 4 NetSolutions purchased office equipment on account from Executive Supply Co. for $1,800.
3
1-472-4747
Dec. 6 NetSolutions paid $180 for a newspaper advertisement.
3
1-482-4848
Dec. 11 NetSolutions paid creditors $400.
3
1-492-4949
Dec. 13 NetSolutions paid a receptionist and part-time assistant $950 for two weeks’ wages.
3
1-502-5050
Dec. 16 NetSolutions received $3,100 from fees earned for the first half of December.
3
1-512-5151
Example Exercise 2-33
Prepare a journal entry on August 7 for the fees earned on account, $115,000.
Follow My Example 2-3
Aug. 7 Accounts Receivable……... 115,000 Fees Earned……………… 115,000
2-52
Journal Entry for Fees Earned
For Practice: PE 2-3A, PE 2-3B
1-522-5252
Dec. 20 NetSolutions paid $900 to Executive Supply Co. on the $1,800 debt owed from the December 4 transaction.
3
1-532-5353
Dec. 21 NetSolutions received $650 from customers in payment of their accounts.
3
1-542-5454
Dec. 23 NetSolutions paid $1,450 for supplies.
3
1-552-5555
Dec. 27 NetSolutions paid the receptionist and part-time assistant $1,200 for two weeks’ wages.
3
1-562-5656
Dec. 31 NetSolutions paid its $310 telephone bill for the month.
3
1-572-5757
Dec. 31 NetSolutions paid $225 for electric usage for the month.
3
1-582-5858
Dec. 31 NetSolutions received $2,870 from fees earned for the second half of December.
3
1-592-5959
Dec. 31 NetSolutions earned $1,120 on account for the second half of December.
3
1-602-6060
Dec. 31 NetSolutions paid $2,000 of dividends to stockholders.
3
1-612-6161
Prepare a journal entry on December 29 for the payment of dividends of $12,000.
Example Exercise 2-43
Dec. 29 Dividends……………………….. 12,000 Cash…………………………… 12,000
Follow My Example 2-4
2-62
For Practice: PE 2-4A, PE 2-4B
Journal Entry for Dividends
1-622-6262
On March 1, the cash account balance was $22,350. During March, cash receipts totaled $241,880 and the March 31 balance was $19,125. Determine the cash payments made during March.
3 Example Exercise 2-5
Missing Amount from an Account
2-63
1-632-6363
3Example Exercise 2-5 (continued)
Follow My Example 2-5
Using the following T-account solve for the amount of cash payment (indicated by ? below).
Cash
Mar. 1 Bal 22,350 ? Cash paymentsCash receipts 241,880Mar. 31 Bal. 19,125
$19,125 = $22,350 + $241,880 – Cash paymentsCash payments = $22,350 + $241,880 – $19,125 = $245,105
2-64
For Practice: PE 2-5A, PE 2-5B
1-642-6464
3
Ledger NetSolutions
Exhibit 5 Ledger NetSolutions
1-652-6565
3Exhibit 5 Ledger NetSolutions (continued)
1-662-6666
3
Exhibit 5 Ledger NetSolutions (continued)
1-672-6767
Prepare an unadjusted trial balance and explain how it can be used to discover errors.
4
2-68
1-682-6868
The equality of debits and credits in the ledger should be proven at the end of each accounting period by preparing a trial balance.
4
Trial Balance
1-692-6969
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.
(continued)
4
Trial Balance
1-702-7070
3. Total the Debit and Credit columns of the trial balance.
4. Verify that the total of the Debit column equals the total of the Credit column.
4
Trial Balance
1-712-7171
4
Exhibit 6 Trial Balance
Capital Stock . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . .
1-722-7272
A transposition occurs when the order of the digits is changed mistakenly, such as writing $542 as $452 or $524.
4
Trial Balance Errors
1-732-7373
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.
4
Trial Balance Errors
1-742-7474
For each of the following errors, considered individually, indicate whether the error would cause the trial balance totals to be unequal. If the error would cause the trial balance total to be unequal, indicate whether the debit or credit total is higher and by how much.
4 Example Exercise 2-6
2-75
Trial Balance Errors
(continued)
1-752-7575
a. Payment of dividends of $5,600 was journalized and posted as a debit of $6,500 to Salary Expense and a credit of $6,500 to Cash.
b. A fee of $2,850 earned from a client was debited to Accounts Receivable for $2,580 and credited to Fees Earned for $2,850.
c. A payment of $3,500 to a creditor was posted as a debit of $3,500 to Accounts Payable and a debit of $3,500 to Cash.
4 Example Exercise 2-6
2-76
Trial Balance Errors
Example Exercise 2-6 (continued)
1-762-7676
24Example Exercise 2-6 (continued)
Follow My Example 2-6
a. The totals are equal since both the debit and credit entries were journalized and posted for $6,500.
2-77
For Practice: PE 2-6A, PE 2-6B
b. The totals are unequal. The credit total is higher by $270 ($2,850 – $2,580).
c. The totals are unequal. The debit total is higher by $7,000 ($3,500 + $3,500).
1-772-7777
If an error has already been journalized and posted to the ledger, a correcting journal entry is normally prepared.
4
Trial Balance Errors
1-782-7878
Another type of error is a posting error. 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.
Errors Not Affecting the Trial Balance
4
1-792-7979
4
Posted Correcting Entry
1-802-8080
4 Example Exercise 2-7
The following errors took place in journalizing and posting transactions:
a. Dividends of $6,000 were 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.
Correcting Entries
2-81
1-812-8181
Example Exercise 2-7 (continued)
Follow My Example 2-7
a. Dividends……………...……………………….. 6,000Office Salaries Expense……………..... 6,000
b. Accounts Payable…………………………….. 4,500Miscellaneous Expense………………..4,500
2-82
For Practice: PE 2-7A, PE 2-7B
4
Utilities Expense………………………………. 4,500Cash……………………………………..... 4,500
1-822-8282