financial&managerialaccounting_15e williams haka bettner chap3
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McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. The Accounting Cycle: The Accounting Cycle: Capturing Economic Events Capturing Economic Events Chapter 3
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McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
The Accounting Cycle:The Accounting Cycle:Capturing Economic EventsCapturing Economic Events
Chapter 3
3-2
The LedgerThe Ledger
The entire group of accounts is kept
together in an accounting record
called a ledger.
The entire group of accounts is kept
together in an accounting record
called a ledger.
Cash
Accounts Payable
Capital Stock
Accounts are individual records showing increases
and decreases.
Accounts are individual records showing increases
and decreases.
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The Use of AccountsThe Use of Accounts
Increases are recorded on one
side of the T account, and decreases are
recorded on the other side.
Left or
Debit Side
Right or
Credit Side
Title of Account
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Cash5/1 8,000 5/2 2,500
5/25 75 5/8 2,0005/29 750 5/28 150
5/31 50 5/31 4,125Bal.
Cash5/1 8,000 5/2 2,500
5/25 75 5/8 2,0005/29 750 5/28 150
5/31 50 5/31 4,125Bal.
Receipts are on the debit
side.
Payments are on the credit
side.
The balance is the difference between the debit and credit entries
in the account.
The balance is the difference between the debit and credit entries
in the account.
Debit and Credit EntriesDebit and Credit Entries
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AA = LL + OEOEASSETSASSETS
Debit for
Increase
Credit for
Decrease
EQUITIESEQUITIES
Debit for
Decrease
Credit for
Increase
LIABILITIESLIABILITIES
Debit for
Decrease
Credit for
Increase
Debits and credits affect accounts as follows:Debits and credits affect accounts as follows:
Debit and Credit EntriesDebit and Credit Entries
3-6
In an actual accounting system, transactions are initially recorded in the
journal.
In an actual accounting system, transactions are initially recorded in the
journal.
GENERAL JOURNAL
Date Account Titles and ExplanationPR Debit Credit
2009
May 1 Cash 8,000
Capital Stock 8,000
Owners invest cash in the business.
The JournalThe Journal
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Posting Journal Entries to Posting Journal Entries to the Ledger Accountsthe Ledger Accounts
Posting simply means updating the ledger accounts for
the effects of the transactions
recorded in the journal.
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GENERAL JOURNAL
Date Account Titles and ExplanationPR Debit Credit
2009
May 1 Cash 8,000
Capital Stock 8,000
Owners invest cash in the business.General LedgerCash
Date Debit Credit Balance2009
May 1 8,000 8,000
Posting Journal Entries to Posting Journal Entries to the Ledger Accountsthe Ledger Accounts
3-9
GENERAL JOURNAL
Date Account Titles and ExplanationPR Debit Credit
2009
May 1 Cash 8,000
Capital Stock 8,000
Owners invest cash in the business.General LedgerCapital Stock
Date Debit Credit Balance2009
May 1 8,000 8,000
Posting Journal Entries to Posting Journal Entries to the Ledger Accountsthe Ledger Accounts
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General LedgerCash
Date Debit Credit Balance2009
May 1 8,000 8,000 2 2,500 5,500
T accounts are simplified versions of the ledger account that only show the
debit and credit columns.
T accounts are simplified versions of the ledger account that only show the
debit and credit columns.
Ledger Accounts After Ledger Accounts After PostingPosting
3-11
Net income is not an asset it’s an increase in owners’ equity from profits of the
business.
Net income is not an asset it’s an increase in owners’ equity from profits of the
business.
AA = LL + OEOEIncrease Decrease
As income is earned, either an asset is
increased or a liability is decreased.
Increase
Net income always results in the increase of Owners’ Equity
What is Net Income?What is Net Income?
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Revenue and ExpensesRevenue and Expenses
The price for goods sold and services rendered during a given accounting period.
Increases owners’ equity.
The costs of goods and services used up in the process of earning revenue.
Decreases owner’s equity.
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Debit and Credit Rules for Debit and Credit Rules for Revenue and ExpensesRevenue and Expenses
EQUITIES
Debit for
Decrease
Credit for
Increase
Expenses decrease owners’ equity.
Revenues increase owners’ equity.
EXPENSES
Credit for
Decrease
Debit for
Increase
REVENUES
Debit for
Decrease
Credit for
Increase
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EQUITIES
Debit for
Decrease
Credit for
Increase
Payments to owners
decrease owners’ equity.
Owners’ investments
increase owners’ equity.
DIVIDENDS
Credit for
Decrease
Debit for
Increase
DividendsDividends
CAPITAL STOCK
Debit for
Decrease
Credit for
Increase
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End of Chapter 3End of Chapter 3
