The Accounting Cycle - UPRRP
Transcript of The Accounting Cycle - UPRRP
![Page 1: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/1.jpg)
The Accounting CycleDuring the Period
E DWI N R ENÁN MALDONADO ©
C AT EDRÁTI CO – U PR R I O P I EDRAS
S EG. S EM. 2 017 -18
![Page 2: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/2.jpg)
Textbook: Financial Accounting, Spiceland
▪ This presentation contains information, in addition
to the material prepared and provided by the
professor, from the book Financial Accounting, 4th.
Ed., Spiceland which is the textbook assigned for
the course CONT 3105 – “Introducción a los
Fundamentos de Contabilidad” at the University of
Puerto Rico, Río Piedras Campus.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 2
![Page 3: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/3.jpg)
Topics
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 3
![Page 4: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/4.jpg)
Topics
1. The Accounting Information System
2. Double-entry Accounting System
3. The Effects of Transactions on the Basic Accounting
Equation
4. Effects on Account Balances (Debits and Credits)
5. Double-entry Accounting System with Debits and Credits
6. The Accounting Cycle
a. Journalizing
b. Posting to General Ledger
c. Trial Balance
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 4
![Page 5: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/5.jpg)
The Accounting Information System
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 5
![Page 6: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/6.jpg)
The Accounting Information System
1.1 Definition
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 6
![Page 7: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/7.jpg)
The Accounting Information System
1.1 Definition
• The Accounting Information System collects and
processes transaction data and then disseminates
the financial information to interested parties.
• Accounting information systems vary widely from
one business to another. [Kieso]
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 7
![Page 8: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/8.jpg)
The Accounting Information System
1.1 Definition
• Various factors shape these systems:
1. the nature of the business and the transactions in
which it engages,
2. the size of the firm,
3. the volume of data to be handled, and
4. the informational demands that management and
others require. [Kieso]
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 8
![Page 9: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/9.jpg)
The Accounting Information System
1.2 Components
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 9
![Page 10: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/10.jpg)
The Accounting Information System
1.2 Components
• The main components of the Accounting
Information Systems include:1. Understanding the basic terminology of accounting.
2. Knowing the double-entry systems, using the debits and credits
and their relationship with the accounting equation.
3. Identifying the different ownerships structures.
4. Comprehending and using the accounting cycle.
5. Preparing financial statements and understanding the flow of
financial data among them.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 10
![Page 11: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/11.jpg)
The Accounting Information System
1.2 Components
• The Ownership Structures and the basic rules to
prepare the financial statements are explained in
the Presentation 1 of this course.
• In this Presentations 2 and in the Presentation 3
will be discussed the rest of the components of the
Accounting Information Systems.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 11
![Page 12: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/12.jpg)
The Accounting Information System
1.3 Basic Terminology
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 12
![Page 13: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/13.jpg)
The Accounting Information System
1.3 Basic Terminology
• Financial accounting rests on a set of concepts for
identifying, recording, classifying, and interpreting
transactions and other events relating to
enterprises. [Kieso]
• Consequently, It is important to understand and
comprehend the basic terminology employed in
collecting accounting data.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 13
![Page 14: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/14.jpg)
The Accounting Information System
1.3 Basic Terminology
• The basic terminology, which we will discussed
throughout the Presentations 2 and 3, follows:
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 14
# Terminology # Terminology
1 Transaction 6 Trial Balance
2 Account 7 Adjusting Entries
3 Journal 8 Financial Statements
4 Posting 9 Closing Entries
5 General Ledger 10 Post Closing Trial Balance
![Page 15: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/15.jpg)
The Accounting Information System
1.4 The Accounting Cycle
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 15
![Page 16: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/16.jpg)
The Accounting Information System
1.4 The Accounting Cycle
• The Accounting Information Systems comprises
mainly of the Accounting Cycle.
• The Accounting Cycle is a set of procedures to
record transactions (in a company’s accounting
books) and prepare the company’s financial
statements.
• See the Accounting Cycle in the next page.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 16
![Page 17: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/17.jpg)
The Accounting Information SystemThe Accounting Cycle
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 17
(1) Identifying and Measurement of
Transaction
(2) Journalizing
(3) Posting to General Ledger
(4) Preparing the
Trial Balance
(5) Recording the Adjustments
(6) Preparing the Adjusted Trial
Balance
(7) Preparing the Financial
Statements
(8) Closing Nominal Accounts
![Page 18: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/18.jpg)
The Accounting Information System
1.4 The Accounting Cycle
• Before discussing in detailed each step of the
Accounting Cycle, we should first understand the
following topic:1. Double-entry Accounting System.
2. The Effects of Transactions on the Basic Accounting
Equation.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 18
![Page 19: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/19.jpg)
Double-entry Accounting System
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 19
![Page 20: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/20.jpg)
Double-entry Accounting System
2.1 Definition
• Under the used double-entry accounting system, a
company records the dual (two-sided) effect of
each transaction in appropriate accounts.
• This system provides a logical method for recording
transactions. It also offers a means of providing the
accuracy of the recorded amounts. [Kieso]
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 20
![Page 21: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/21.jpg)
Double-entry Accounting System
2.1 Definition• Before we continue, let’s see the definition of these terms:
1. Transaction: It is a business activity or event that can be
measured (in dollar amounts) and communicated to users. A
transaction can be classified as:
a. External Transaction: A transaction the company conducts with a
separate economic entity. Ex. Selling a product to a customer,
paying salaries to an employee, etc.
b. Internal Transaction: Events that affects the financial position of
the company but do not include an exchange with a separate
entity. Ex. Using supplies already purchased.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 21
![Page 22: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/22.jpg)
Double-entry Accounting System
2.1 Definition2. Accounts:
◦ Summarize all transactions related to a particular item over a
period of time.
◦ A systematic arrangement that shows the effect of
transactions and other events on a specific element (asset,
liability, capital, revenue, expenses). Companies keep a
separate account for each asset, liability, revenue, and
expense, and for capital. [Kieso]
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 22
![Page 23: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/23.jpg)
Double-entry Accounting System
2.1 Definition2. Accounts:
◦ Because the format of an account often resembles the letter
T, it is sometimes referred to as a T-Account.
Name of Account
Debit Credit
Side Side
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 23
![Page 24: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/24.jpg)
Double-entry Accounting System
2.2 Double-entry System and Accounting Equation
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 24
![Page 25: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/25.jpg)
Double-entry Accounting System
2.2 Double-entry System and Accounting Equation
• The most important point to understand the
double-entry system is the effect in the accounting
equation. The accounting equation is depicted as
follows:
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 25
ASSETS = LIABILITIES + OWNER’S EQUITY
![Page 26: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/26.jpg)
Double-entry Accounting System
2.2 Double-entry System and Accounting Equation
• Every transaction impacts directly the financial
position of a company. But, this effect is dual, at
least two accounts are affected in each business
transaction, increasing or decreasing one or more
components of the accounting equation.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 26
ASSETS = LIABILITIES + OWNER’S EQUITY
![Page 27: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/27.jpg)
Double-entry Accounting System
2.2 Double-entry System and Accounting Equation
• For example, a company borrows $1,000 for the
bank and sign a note payable.
• The dual effect of this transaction is an increase of
the asset and an increase of the liabilities.
Cash Note payable+ $1,000 + $1,000
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 27
ASSETS = LIABILITIES + OWNER’S EQUITY
![Page 28: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/28.jpg)
Effects of Transactions in the Basic Accounting Equation
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 28
![Page 29: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/29.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 29
![Page 30: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/30.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A
• In order to understand the dual-effect of each transaction
in the accounting equation, let’s analyze a few transactions
of the following example.
• Brandon created in December 1, 2017 a corporation to
establish a music school named Vienna School
Corporation. The annual accounting period of the school is
the natural year.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 30
![Page 31: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/31.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A
• For each of the following transactions, we should
determine
1. What components of the accounting equation is affected
by the transaction?
2. What are the accounts related to the transaction?
3. What is the monetary effect of the transaction?
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 31
![Page 32: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/32.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 1: On December 1 the corporation issued 1,000
common stock of $30,000 to three stockholders (including
Brandon). The funds raised with the issuance of the stock are
to buy equipment and start operations.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 32
![Page 33: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/33.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 1: On December 1 the corporation issued common
stock of $30,000 to three stockholders (including Brandon).
The funds raised with the issuance of the stock are to buy
equipment and start operations.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 33
ASSETS = LIABILITIES + OWNER’S EQUITY
Cash Common Stock
+ $30,000 + $30,000
![Page 34: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/34.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 2: On December 2 the corporation borrowed
$5,000 from American Bank and signed a promissory note
payable to repay the full amount of the loan in one year.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 34
![Page 35: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/35.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 2: On December 2 the corporation borrowed
$5,000 from American Bank and signed a promissory note
payable to repay the full amount of the loan in one year.
$35,000 = $35,000
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 35
ASSETS = LIABILITIES + OWNER’S EQUITY
Cash Notes Payable Common Stock
Bal. $30,000 $30,000
+ 5,000 + 5,000
Bal. $35,000 $5,000 $30,000
![Page 36: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/36.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 3: On December 3, the corporation purchased
music equipment necessary for conducting the music classes
amounting $20,000 cash.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 36
![Page 37: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/37.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 3: On December 3, the corporation purchased
music equipment necessary for conducting the music classes
amounting $20,000 cash.
$35,000 = $35,000
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 37
ASSETS = LIABILITIES + OWNER’S EQUITY
Cash Equipment Notes Payble Common Stock
Bal. $35,000 $5,000 $30,000
- 20,000 + 20,000
Bal. $15,000 $20,000 $5,000 $30,000
![Page 38: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/38.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 4: On December 3, the corporation paid six months
of rent in advance for a place to provide the music classes,
$3,000 cash ($500 each month).
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 38
![Page 39: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/39.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 4: On December 3, the corporation paid six months
of rent in advance for a place to provide the music classes,
$3,000 cash ($500 each month).
• Occasionally, a company purchased a service prior to its use.
In this case, the rent paid is for occupying space in the future.
The payment represents a resource of a company, an asset.
This asset is called prepaid rent.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 39
![Page 40: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/40.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 4: On December 3, the corporation paid six months
of rent in advance for a place to provide the music classes,
$3,000 cash ($500 each month).
$35,000 = $35,000
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 40
ASSETS = LIABILITIES + OWNER’S EQUITY
Cash Equipment Prepaid Rent
Notes Payable Common Stock
Bal. $15,000 $20,000 $5,000 $30,000
- 3,000 + 3,000
Bal. $12,000 $20,000 $3,000 $5,000 $30,000
![Page 41: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/41.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 5: On December 5, the corporation purchased
music supplies on account, $1,500.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 41
![Page 42: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/42.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 5: On December 5, the corporation purchased
music supplies on account, $1,500.
• The music supplies represent a resource of the company (an
asset).
• However, in this transaction the supplies were acquired on
account, that means the company does not pay cash
immediately but promise to pay it in the future. A promise to
pay cash in the future is an “account payable”.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 42
![Page 43: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/43.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 5: On December 5, the corporation purchased
music supplies on account, $1,500.
$36,500 = $36,500
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 43
ASSETS = LIABILITIES + OWNER’S EQUITY
Cash Equipment Prepaid Rent
Supplies Accounts Payable
Notes Payable
Common Stock
Bal. $12,000 $20,000 $3,000 $5,000 $30,000
+ 1,500 + 1,500
Bal. $12,000 $20,000 $3,000 $1,500 $1,500 $5,000 $30,000
![Page 44: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/44.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 6: On December 15, the corporation provided
music classes to customer for cash, $5,000.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 44
![Page 45: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/45.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 6: On December 15, the corporation provided
music classes to customer for cash, $5,000.
• When a company provides services to its clients the entity earns
revenue. According to the Revenue Recognition Principles, the company
records revenue “at the time (accounting period) they provide goods and
services to customers.” This principles is applied disregarding if the
company receives cash immediately or a promise to be paid in the future
(accounts receivable).
• Revenues increase the Retained Earnings accounts in the Owner’s Equity.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 45
![Page 46: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/46.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 6: On December 15, the corporation provided
music classes to customer for cash, $5,000.
$41,500 = $41,500
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 46
ASSETS = LIABILITIES + OWNER’S EQUITY
Cash Equipment Prepaid Rent
Supplies Accounts Payable
Notes Payable
Common Stock
Ret.Ear.
Bal. $12,000 $20,000 $3,000 $1,500 $1,500 $5,000 $30,000
+ 5,000 + 5,000
Bal. $17,000 $20,000 $3,000 $1,500 $1,500 $5,000 $30,000 $5,000
![Page 47: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/47.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 7: On December 21, the corporation provided
music classes to customer on account, $2,700.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 47
![Page 48: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/48.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 7: On December 21, the corporation provided
music classes to customer on account, $2,700.
$44,200 = $44,200
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 48
ASSETS = LIABILITIES + OWNER’S EQUITY
Cash Acct.Rec.
Equip. Prepaid Rent
Supplies Accounts Payable
Notes Payable
Common Stock
Ret.Ear.
Bal $17,000 $20,000 $3,000 $1,500 $1,500 $5,000 $30,000 $5,000
+ 2,700 + 2,700
Bal $17,000 $2,700 $20,000 $3,000 $1,500 $1,500 $5,000 $30,000 $7,700
![Page 49: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/49.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 8: On December 21, the corporation received $1,000 for
music classes to be provided to customers next months.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 49
![Page 50: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/50.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 8: On December 21, the corporation received $1,000 for
music classes to be provided to customers next months.
• Sometimes a company receives cash in advance from customers for
services to be provided in the future. According to the Revenue
Recognition Principles, the company records revenue “at the time
(accounting period) they provide goods and services to customers.”
• When a company receives cash for services not rendered, an obligation is
created to the entity to perform services in the future. This is a liability for
the company, referred to as “Deferred Revenue”.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 50
![Page 51: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/51.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 8: On December 21, the corporation received $1,000 for
music classes to be provided to customers next months.
$45,200 = $45,200
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 51
ASSETS = LIABILITIES + OWNER’S EQUITY
Cash Acct.Rec.
Equip. Prepaid Rent
Supplies Acct.Pay.
Def.Rev.
Notes Pay
Common Stock
Ret.Ear.
Bal $17,000 $2,700 $20,000 $3,000 $1,500 $1,500 $5,000 $30,000 $7,700
+ 1,000 + 1,000
Bal $18,000 $2,700 $20,000 $3,000 $1,500 $1,500 $1,000 $5,000 $30,000 $7,700
![Page 52: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/52.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 9: On December 27, the corporation paid $3,200
on salaries to employees.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 52
![Page 53: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/53.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 9: On December 27, the corporation paid $3,200
on salaries to employees.
• Salaries of employees are an expense to the company. The
expenses reduce the net income, and a reduction of net
income is a decrease of Retained Earnings (Owner’s equity
account).
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 53
![Page 54: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/54.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 9: On December 27, the corporation paid $3,200 on
salaries to employees.
$42,000 = $42,000
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 54
ASSETS = LIABILITIES + OWNER’S EQUITY
Cash Acct.Rec.
Equip. Prepaid Rent
Supplies Acct.Pay.
Def.Rev.
Notes Pay
Common Stock
Ret.Ear.
Bal $18,000 $2,700 $20,000 $3,000 $1,500 $1,500 $1,000 $5,000 $30,000 $7,700
- 3,200 - 3,200
Bal $14,800 $2,700 $20,000 $3,000 $1,500 $1,500 $1,000 $5,000 $30,000 $4,500
![Page 55: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/55.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 10: On December 30, the corporation paid $1,500
on dividends to stockholders.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 55
![Page 56: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/56.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 10: On December 30, the corporation paid $1,500
on dividends to stockholders.
• Dividends are distributions of part of the company’s
accumulated earnings. It is the claim of the owners to the asset’s
company. Since the dividends are pay out of the accumulated
earnings of the corporation, a payment of dividends decreased
the “Retained Earnings” account (Owner’s Equity).
• Pay attention, dividends are NOT EXPENSES.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 56
![Page 57: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/57.jpg)
Effects of Transactions in the Basic Accounting Equation
3.1 Comprehensive Example A• Transaction 10: On December 30, the corporation paid $1,500 on
dividends to stockholders.
$40,500 = $40,500
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 57
ASSETS = LIABILITIES + OWNER’S EQUITY
Cash Acct.Rec.
Equip. Prepaid Rent
Supplies Acct.Pay.
Def.Rev.
Notes Pay
Common Stock
Ret.Ear.
Bal $14,800 $2,700 $20,000 $3,000 $1,500 $1,500 $1,000 $5,000 $30,000 $4,500
- $1,500 - 1,500
Bal $13,300 $2,700 $20,000 $3,000 $1,500 $1,500 $1,000 $5,000 $30,000 $3,000
![Page 58: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/58.jpg)
Effects on Account Balances(Debits and Credits)
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 58
![Page 59: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/59.jpg)
Effects on Account Balances(Debits and Credits)
4.1 Debits and Credits
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 59
![Page 60: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/60.jpg)
Effects on Account Balances(Debits and Credits)
4.1 Debits and Credits• The term debit means “left.”. The term credit means “right.”
Name of Account
Debit Credit
• When a company enters an amount on the left side of an
account, it debits the account. When it makes an entry on the
right side, it credits the account.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 60
![Page 61: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/61.jpg)
Effects on Account Balances(Debits and Credits)
4.1 Debits and Credits• For example, if a company debits the cash account by $10,000, the
entry of this transaction is in the “left” side of the account.
Cash
Debit Credit
10,000
• Pay attention, these terms (debit or credit) do not mean increase
or decrease, instead describe where a company makes entries in
the recording process.Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 61
![Page 62: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/62.jpg)
Effects on Account Balances(Debits and Credits)
4.1 Debits and Credits• As demonstrated in the prior section of this presentation,
transactions have the effect of increasing or decreasing account
balances.
• In accounting, we use the terms debit and credits to increase or
decrease the account balances. However, not all the accounts
increase or decrease by the debit or credit side. Instead, an
account increase or decrease by the debit or credit side
according to its classification in the basic accounting equation.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 62
![Page 63: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/63.jpg)
Effects on Account Balances(Debits and Credits)
4.1 Debits and Credits• Consequently, you will need to learn how to increase or
decrease account balances using the terms debit and credits.
• We will discussed this procedure,
1. first with the three account types in the accounting equation
(assets, liabilities and owner’s equity), and then
2. with the accounts in the expanded accounting equation
(revenue and expenses accounts).
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 63
![Page 64: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/64.jpg)
Effects on Account Balances(Debits and Credits)
4.2 Assets, Liabilities and Owner’s Equity Accounts
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 64
![Page 65: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/65.jpg)
Effects on Account Balances(Debits and Credits)
4.2 Assets, Liabilities and Owner’s Equity Accounts
• First, forget any rule you have learned about the
meaning of debit or credit in the past, specially those in
the finance or banking industry.
• This is a new language.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 65
![Page 66: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/66.jpg)
Effects on Account Balances(Debits and Credits)
4.2 Assets, Liabilities and Owner’s Equity Accounts
• All assets accounts (left side of the accounting equation)
increase by the debit side, and decrease by the credit side.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 66
ASSETS = LIABILITY + OWNER’S EQUITY
Debit Credit
![Page 67: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/67.jpg)
Effects on Account Balances(Debits and Credits)
4.2 Assets, Liabilities and Owner’s Equity Accounts
▪ Example 1: A new company, X Corporation receives $5,000 in
the issuance of common stock on February 1. This
transaction increases the cash account, consequently, you
debit the cash account.
Cash
Feb. 1 5,000
_____
Bal. 5,000
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 67
![Page 68: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/68.jpg)
Effects on Account Balances(Debits and Credits)
4.2 Assets, Liabilities and Owner’s Equity Accounts
▪ Example 2: The X Corporation purchased equipment, $2,000
cash on February 3. This transaction decreases, you credit
the cash account. Pay attention the account shows a debit
balance, because the debit amounts exceed the credits.
Cash
Feb. 1 5,000 Feb. 3 2,000
_____
Bal. 3,000
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 68
![Page 69: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/69.jpg)
Effects on Account Balances(Debits and Credits)
4.2 Assets, Liabilities and Owner’s Equity Accounts
• All liabilities and owner’s equity accounts (right side of the
accounting equation) increase by the credit side, and decrease
by the debit side.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 69
ASSETS = LIABILITY + OWNER’S EQUITY
Debit Credit Debit Credit Debit Credit
![Page 70: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/70.jpg)
Effects on Account Balances(Debits and Credits)
4.2 Assets, Liabilities and Owner’s Equity Accounts
▪ Example 3: Refer to Example 1, where X Corporation receives
$5,000 in the issuance of common stock on February 1. This
transaction increases the common stock account (owner’s
equity), consequently, you credit common stock account.
Common Stock
Feb. 1 5,000
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 70
![Page 71: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/71.jpg)
Effects on Account Balances(Debits and Credits)
4.2 Assets, Liabilities and Owner’s Equity Accounts
▪ Example 4: X Corporation borrowed $10,000 in the Global Bank
and singed a promissory note to pay the loan in the future on
February 8. This transaction increases the Note Payable
(liability), then, you credit Note Payable.
Note Payable
Feb. 8 10,000
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 71
![Page 72: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/72.jpg)
Effects on Account Balances(Debits and Credits)
4.2 Assets, Liabilities and Owner’s Equity Accounts
▪ Example 5: X Corporation paid $4,000 to Global Bank on
February 28 related to the $10,000 borrowed on February 8
(Example 4). This transaction decreases the Note Payable
(liability), then, you debit Note Payable.
Note Payable
Feb. 28 4,000 Feb. 8 10,000
Bal. 6,000
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 72
![Page 73: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/73.jpg)
Effects on Account Balances(Debits and Credits)
4.3 Revenues and Expenses
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 73
![Page 74: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/74.jpg)
Effects on Account Balances(Debits and Credits)
4.3 Revenues and Expenses• In order to know how a revenue or expense account increase or
decrease, you must first understand the effect of the revenues
and expenses in the owner’s equity of a company.
➢ Revenues: Revenues increase the owner’s equity (Retained Earnings
in the case of corporations). Owner’s equity increases by the credit
side, so we increase revenue with a credit.
➢ Expenses: Expenses decrease the owner’s equity. Owner’s equity
decreases by the debit side. Consequently, a debit to an expense is
essentially a debit to the owner’s equity.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 74
![Page 75: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/75.jpg)
Effects on Account Balances(Debits and Credits)
4.3 Revenues and Expenses• Therefore, revenues increase by the credit side and decrease by
the debit side. Conversely, expenses increase by the debit side
and decrease by the credit side.
REVENUES EXPENSES
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 75
Debit Credit Debit Credit
![Page 76: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/76.jpg)
Effects on Account Balances(Debits and Credits)
4.3 Revenues and Expenses▪ Example 6: X Corporation received $3,500 cash for services
rendered on February 23. This transaction increases the Service
Revenue Account, so you credit Service Revenue.
Service Revenue
Feb. 23 3,500
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 76
![Page 77: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/77.jpg)
Effects on Account Balances(Debits and Credits)
4.3 Revenues and Expenses▪ Example 7: X Corporation paid $500 to employees for salaries
of the month of February on February 27. This transaction
increases the expenses. Consequently, you must debit Salary
Expense.
Salary Expense
Feb. 27 3,500
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 77
![Page 78: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/78.jpg)
Double-entry Accounting Systemwith Debits and Credits
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 78
![Page 79: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/79.jpg)
Double-entry Accounting Systemwith Debits and Credits
5.1 Equality of Debits and Credits
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 79
![Page 80: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/80.jpg)
Double-entry Accounting Systemwith Debits and Credits
5.1 Equality of Debits and Credits
• The equality of debits and credits provides the basis of
the double-entry systems of recording transactions
(sometimes referred to as double-entry bookkeeping).
• This systems provides a logical method for recording
transactions where a company records the dual (two-
sided) effect of each transaction in appropriate accounts.
[Kieso]
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 80
![Page 81: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/81.jpg)
Double-entry Accounting Systemwith Debits and Credits
5.1 Equality of Debits and Credits
• It also offers a means of proving the accuracy of the
recorded amounts. If a company records every
transaction with equal debits and credits, then the
sum of all the debits to the accounts must equal the
sum of all the credits. [Kieso]
• Conclusion: In a double-entry system, for every debit
there must be a credit, and vice versa.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 81
![Page 82: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/82.jpg)
Double-entry Accounting Systemwith Debits and Credits
5.2 Application
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 82
![Page 83: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/83.jpg)
Double-entry Accounting Systemwith Debits and Credits
5.2 Application• Example 8: Refer to Example 1. A new company, X Corporation
receives $5,000 in the issuance of common stock on February 1. Cash
account increases (debit) and common stock account increases
(credit). The total of debits amount $5,000 and the total of credits
amounts $5,000.
Cash Common Stock
Feb. 1 5,000 Feb. 1 5,000
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 83
![Page 84: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/84.jpg)
Double-entry Accounting Systemwith Debits and Credits
5.2 Application• Example 9: Refer to Example 2. The X Corporation purchased
equipment, $2,000 cash on February 3. Equipment account
increases (debit) and Cash account decreases (credit). The total of
debits amount $2,000 and the total of credits amounts $2,000.
Cash Equipment
Feb. 3 2,000 Feb. 3 2,000
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 84
![Page 85: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/85.jpg)
The Accounting Cycle
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 85
![Page 86: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/86.jpg)
The Accounting Cycle
6.1 Summary
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 86
![Page 87: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/87.jpg)
The Accounting Cycle
6.1 Summary• As explained before, the Accounting Cycles comprises of
multiple steps for recording and preparing financial statements
of a company.
• We will be discussing in this presentation the first four steps of
the cycle.
1. Identifying and Measurement of Transactions
2. Journalizing
3. Posting to General Ledger
4. Preparing the Trial Balance
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 87
![Page 88: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/88.jpg)
The Accounting Cycle
6.2 Identifying and Measurement of Transactions
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 88
![Page 89: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/89.jpg)
The Accounting Cycle
6.2 Identifying and Measurement of Transactions
• In this first step, the company uses the source documents
to identify accounts affected by an external transactions
and to establish the monetary value of the transaction.
• Examples:• Sales invoice: Provide the description of a sale transaction and the
selling price.
• Lease Contract: Provide the evidence of a lease agreement and the
monthly lease payment required.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 89
![Page 90: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/90.jpg)
The Accounting Cycle
6.3 Journalizing
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 90
![Page 91: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/91.jpg)
The Accounting Cycle
6.3 Journalizing
• To record every transaction, a company uses a journal
(also called “the book of original entry” and “general
journal”).
• This journal chronologically lists transactions and other
events, expressed in terms of debits and credits to
accounts. [Kieso]
• To illustrate the format of the General Journal, see next
page.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 91
![Page 92: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/92.jpg)
The Accounting Cycle
6.3 Journalizing
• To practice the technique of journalizing, let’s record on
the general journal the transactions discussed in the last
two examples on the Section 5.2 (Example 8 and 9)
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 92
GENERAL JOURNAL
Date Account Title Ref. Debit Credit
![Page 93: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/93.jpg)
The Accounting Cycle
6.3 Journalizing
• Example 10: Refer to Example 8. A new company, X
Corporation receives $5,000 in the issuance of common
stock on February 1.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 93
GENERAL JOURNAL J-1
Date Account Title Ref. Debit Credit
Feb. 1 Cash 5,000
Common Stock 5,000
(Issued shares of stock for cash)
![Page 94: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/94.jpg)
The Accounting Cycle
6.3 Journalizing
• Example 11: Refer to Example 9. The X Corporation
purchased equipment, $2,000 cash on February 3.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 94
GENERAL JOURNAL J2
Date Account Title Ref. Debit Credit
Feb. 3 Equipment 2,000
Cash 2,000
(Purchased equipment for cash)
![Page 95: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/95.jpg)
The Accounting Cycle
6.4 Posting to General Ledger
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 95
![Page 96: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/96.jpg)
The Accounting Cycle
6.4 Posting to General Ledger
• Posting is the process of transferring the debit and credit
information from the journal to individual accounts in the
general ledger.
• The General Ledger provides, in a single location, the list of
transactions affecting each account and the account’s
balance.
• Therefore, in the General Ledger are located all the accounts
of a company with a detailed of each transaction affecting the
accounts during a period.Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 96
![Page 97: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/97.jpg)
The Accounting Cycle
6.4 Posting to General Ledger
• The next illustration depicts the General Ledger.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 97
ACCOUNT TITLE:
Date Description Debit Credit Balance
![Page 98: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/98.jpg)
The Accounting Cycle
6.4 Posting to General Ledger
• To practice the technique of posting, let’s post on the
general ledger the transactions discussed in the prior
section: Journalizing.
• See example on next page.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 98
![Page 99: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/99.jpg)
The Accounting Cycle
6.4 Posting to General Ledger• Example 12 (Posting): The General Journal of X Corporation, showing
the transactions recorded for Examples 10 and 11, follows:
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 99
GENERAL JOURNAL
Date Account Title Ref. Debit Credit
Feb. 1 Cash 5,000
Common Stock 5,000
(Issued shares of stock for cash)
Feb. 3 Equipment 2,000
Cash 2,000
(Purchased equipment for cash)
![Page 100: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/100.jpg)
The Accounting Cycle
6.4 Posting to General Ledger
• Example 12 (Posting): For posting the transaction from the
general journal to the general ledger, you should post every
debit and every credit recorded on the general ledger to the
corresponding account in the general ledger.
• Let’s post each transaction. In the next three pages you will see
part of the General Ledger of X Corporation showing first Cash,
then Equipment, and finally Common Stock accounts after the
posting process of the transactions recorded on the General
Journal.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 100
![Page 101: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/101.jpg)
The Accounting Cycle
Example 12 (Posting) [Posting to Cash]
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 101
ACCOUNT TITLE: Cash
Date Description Debit Credit Balance
Feb. 1 Issuance of common stock 5,000 5,000
3 Purchase of equipment 2,000 3,000
![Page 102: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/102.jpg)
The Accounting Cycle
Example 12 (Posting)
• Is this $3,000 balance, a debit or credit balance?
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 102
ACCOUNT TITLE: Cash
Date Description Debit Credit Balance
Feb. 1 Issuance of common stock 5,000 5,000
3 Purchase of equipment 2,000 3,000
![Page 103: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/103.jpg)
The Accounting Cycle
Example 12 (Posting)
• Is this $3,000 balance, a debit or credit balance? Debit Balance
(asset account).
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 103
ACCOUNT TITLE: Cash
Date Description Debit Credit Balance
Feb. 1 Issuance of common stock 5,000 5,000
3 Purchase of equipment 2,000 3,000
![Page 104: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/104.jpg)
The Accounting Cycle
Example 12 (Posting) [Posting to Equipment]
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 104
ACCOUNT TITLE: Equipment
Date Description Debit Credit Balance
Feb. 3 Purchase of equipment 2,000 2,000
![Page 105: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/105.jpg)
The Accounting Cycle
Example 12 (Posting)
• Is this $2,000 balance, a debit or credit balance?
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 105
ACCOUNT TITLE: Equipment
Date Description Debit Credit Balance
Feb. 3 Purchase of equipment 2,000 2,000
![Page 106: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/106.jpg)
The Accounting Cycle
Example 12 (Posting)
• Is this $2,000 balance, a debit or credit balance? Debit balance (asset
account).
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 106
ACCOUNT TITLE: Equipment
Date Description Debit Credit Balance
Feb. 3 Purchase of equipment 2,000 2,000
![Page 107: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/107.jpg)
The Accounting Cycle
Example 12 (Posting) [Posting to Common Stock]
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 107
ACCOUNT TITLE: Common Stock
Date Description Debit Credit Balance
Feb. 1 Issuance of common stock 5,000 5,000
![Page 108: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/108.jpg)
The Accounting Cycle
Example 12 (Posting)
• Is this $5,000 balance, a debit or credit balance?
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 108
ACCOUNT TITLE: Common Stock
Date Description Debit Credit Balance
Feb. 1 Issuance of common stock 5,000 5,000
![Page 109: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/109.jpg)
The Accounting Cycle
Example 12 (Posting)
• Is this $5,000 balance, a debit or credit balance? Credit balance
(owner’s equity account).
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 109
ACCOUNT TITLE: Common Stock
Date Description Debit Credit Balance
Feb. 1 Issuance of common stock 5,000 5,000
![Page 110: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/110.jpg)
The Accounting Cycle
6.5 Preparing the Trial Balance
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 110
![Page 111: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/111.jpg)
The Accounting Cycle
6.5 Preparing the Trial Balance
• A trial balance is a list of all accounts and their balances
at a particular date, showing that total debits equal total
credits.
• After we have posted journal entries to the general
ledger accounts, the sum of the accounts with debit
balances should equal the sum of the accounts with
credit balances.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 111
![Page 112: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/112.jpg)
The Accounting Cycle
6.5 Preparing the Trial Balance
• This is expected because debits were equal to credits for
every journal entry posted to those ledger accounts. To prove
this and to check for any errors in posting, we prepare the
trial balance.
• Another purpose of the trail balance is to assist us in
preparing the adjusting entries (internal transitions).
Adjusting entries is the fifth step of the Accounting Cycle and
they are discussed in the next Presentation.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 112
![Page 113: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/113.jpg)
The Accounting Cycle
6.5 Preparing the Trial Balance
• Most companies list accounts in the trial balance in the
following order: assets, liabilities, owner’s equity, revenues,
and expenses.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 113
![Page 114: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/114.jpg)
The Accounting Cycle
Example 13 (Trial Balance): Let’s prepare the Trial Balance of X
Corporation as of February 28 taking into consideration only the results
of Example 10, 11 and 12. The general ledger follows:
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 114
![Page 115: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/115.jpg)
The Accounting Cycle
Example 13 (Trial Balance)
• The Trial Balance of X Corporation as of February 28,
follow:
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 115
X CORPORATIONTRIAL BALANCEFEBRUARY 28
ACCOUNTS DEBIT CREDIT
Cash $3,000
Equipment 2,000
Common Stock $5,000
Total $5,000 $5,000
![Page 116: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/116.jpg)
The Accounting Cycle
6.6 Comprehensive Example B
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 116
![Page 117: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/117.jpg)
The Accounting Cycle
6.6 Comprehensive Example B• Refer to Compressive Example A about Vienna School Corporation.
• In this Example B, we will execute the first four steps of the
Accounting Cycle:
1. Step 1: Identification and measurement of each transaction of the
corporation taking place on December 2017.
2. Step 2: Record all the transactions in the General Journal.
3. Step 3: Post all the transactions from the General Journal to the
General Ledger.
4. Step 4: Prepare the Trial Balance.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 117
![Page 118: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/118.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1, 2 and 3
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 118
![Page 119: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/119.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1, 2 and 3
• Transaction 1: On December 1 the corporation issued 1,000
common stock of $30,000 to three stockholders (including
Brandon). The funds raised with the issuance of the stock are
to buy equipment and start operations.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 119
![Page 120: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/120.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1, 2 and 3
• Transaction 1: On December 1 the corporation issued 1,000
common stock of $30,000 to three stockholders (including
Brandon). The funds raised with the issuance of the stock are
to buy equipment and start operations.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 120
GENERAL JOURNAL J-1
Date Account Title Ref. Debit Credit
Dec. 1 Cash 30,000
Common Stock 30,000
(Issued shares of stock for cash)
![Page 121: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/121.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1, 2 and 3
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 121
ACCOUNT TITLE: Common Stock
Date Description Debit Credit Balance
Dec. 1 Issuance of Stock 30,000 30,000
ACCOUNT TITLE: Cash
Date Description Debit Credit Balance
Dec. 1 Issuance of Stock 30,000 30,000
![Page 122: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/122.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2
• Transaction 2: On December 2 the corporation borrowed
$5,000 from American Bank and signed a promissory note
payable to repay the full amount of the loan in one year.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 122
![Page 123: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/123.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2
• Transaction 2: On December 2 the corporation borrowed
$5,000 from American Bank and signed a promissory note
payable to repay the full amount of the loan in one year.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 123
GENERAL JOURNAL J-2
Date Account Title Ref. Debit Credit
Dec. 2 Cash 5,000
Note Payable 5,000
(Borrowed cash from bank)
![Page 124: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/124.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1, 2 and 3
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 124
ACCOUNT TITLE: Note Payable
Date Description Debit Credit Balance
Dec. 2 Borrowed cash from bank 5,000 5,000
ACCOUNT TITLE: Cash
Date Description Debit Credit Balance
Dec. 1 Issuance of Stock 30,000 30,000
2 Borrowed cash from bank 5,000 35,000
![Page 125: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/125.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2
• Transaction 3: On December 3, the corporation purchased
music equipment necessary for conducting the music classes
amounting $20,000 cash.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 125
![Page 126: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/126.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2
• Transaction 3: On December 3, the corporation purchased
music equipment necessary for conducting the music classes
amounting $20,000 cash.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 126
GENERAL JOURNAL J-3
Date Account Title Ref. Debit Credit
Dec. 3 Equipment 20,000
Cash 20,000
(Purchased music equipment on cash)
![Page 127: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/127.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1, 2 and 3
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 127
ACCOUNT TITLE: Equipment
Date Description Debit Credit Balance
Dec. 3 Purchased music equipment 20,000 20,000
ACCOUNT TITLE: Cash
Date Description Debit Credit Balance
Dec. 1 Issuance of Stock 30,000 30,000
2 Borrowed cash from bank 5,000 35,000
3 Purchased music equipment 20,000 15,000
![Page 128: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/128.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2
• Transaction 4: On December 3, the corporation paid six months
of rent in advance for a place to provide the music classes,
$3,000 cash ($500 each month).
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 128
![Page 129: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/129.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2
• Transaction 4: On December 3, the corporation paid six months
of rent in advance for a place to provide the music classes,
$3,000 cash ($500 each month).
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 129
GENERAL JOURNAL J-4
Date Account Title Ref. Debit Credit
Dec. 3 Prepaid Rent 3,000
Cash 3,000
(Prepaid six months of rent)
![Page 130: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/130.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1, 2 and 3
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 130
ACCOUNT TITLE: Prepaid Rent
Date Description Debit Credit Balance
Dec. 3 Paid six months rent in advance
3,000 3,000
ACCOUNT TITLE: Cash
Date Description Debit Credit Balance
Dec. 1 Issuance of Stock 30,000 30,000
2 Borrowed cash from bank 5,000 35,000
3 Purchased music equipment 20,000 15,000
3 Paid six months rent in advance 3,000 12,000
![Page 131: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/131.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2
• Transaction 5: On December 5, the corporation purchased
music supplies on account, $1,500.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 131
![Page 132: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/132.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2
• Transaction 5: On December 5, the corporation purchased
music supplies on account, $1,500.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 132
GENERAL JOURNAL J-5
Date Account Title Ref. Debit Credit
Dec. 5 Music Supplies 1,500
Accounts Payable 1,500
(Purchased supplies on account)
![Page 133: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/133.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1, 2 and 3
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 133
ACCOUNT TITLE: Accounts Payable
Date Description Debit Credit Balance
Dec. 5 Purchased supplies on account 1,500 1,500
ACCOUNT TITLE: Music Supplies
Date Description Debit Credit Balance
Dec. 5 Purchased supplies on account 1,500 1,500
![Page 134: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/134.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2
• Transaction 6: On December 15, the corporation provided
music classes to customer for cash, $5,000.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 134
![Page 135: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/135.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2
• Transaction 6: On December 15, the corporation provided
music classes to customer for cash, $5,000.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 135
GENERAL JOURNAL J-6
Date Account Title Ref. Debit Credit
Dec. 15 Cash 5,000
Service Revenue 5,000
(Provided services in cash)
![Page 136: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/136.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1, 2 and 3
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 136
ACCOUNT TITLE: Service Revenue
Date Description Debit Credit Balance
Dec. 15 Provided services in cash 5,000 5,000
ACCOUNT TITLE: Cash
Date Description Debit Credit Balance
Dec. 1 Issuance of Stock 30,000 30,000
2 Borrowed cash from bank 5,000 35,000
3 Purchased music equipment 20,000 15,000
3 Paid six months rent in advance 3,000 12,000
15 Provide services in cash 5,000 17,000
![Page 137: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/137.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2
• Transaction 7: On December 21, the corporation provided
music classes to customer on account, $2,700.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 137
![Page 138: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/138.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2
• Transaction 7: On December 21, the corporation provided
music classes to customer on account, $2,700.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 138
GENERAL JOURNAL J-7
Date Account Title Ref. Debit Credit
Dec. 21 Accounts Receivable 2,700
Service Revenue 2,700
(Provided services on account)
![Page 139: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/139.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1, 2 and 3
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 139
ACCOUNT TITLE: Services Revenue
Date Description Debit Credit Balance
Dec. 15 Provided services in cash 5,000 5,000
21 Provided services on account 2,700 7,700
ACCOUNT TITLE: Accounts Receivable
Date Description Debit Credit Balance
Dec. 21 Provided services on account 2,700 2,700
![Page 140: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/140.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2• Transaction 8: On December 21, the corporation received $1,000 for
music classes to be provided to customers next months.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 140
![Page 141: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/141.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2• Transaction 8: On December 21, the corporation received $1,000 for
music classes to be provided to customers next months.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 141
GENERAL JOURNAL J-8
Date Account Title Ref. Debit Credit
Dec. 21 Cash 1,000
Deferred Revenue 1,000
(Received cash in advance for services)
![Page 142: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/142.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1, 2 and 3
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 142
ACCOUNT TITLE: Deferred Revenue
Date Description Debit Credit Balance
Dec. 21 Received cash in advance for services 1,000 1,000
ACCOUNT TITLE: Cash
Date Description Debit Credit Balance
Dec. 1 Issuance of Stock 30,000 30,000
2 Borrowed cash from bank 5,000 35,000
3 Purchased music equipment 20,000 15,000
3 Paid six months rent in advance 3,000 12,000
15 Provide services in cash 5,000 17,000
21 Received cash in advance for services 1,000 18,000
![Page 143: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/143.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2• Transaction 9: On December 27, the corporation paid $3,200 on
salaries to employees.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 143
![Page 144: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/144.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2• Transaction 9: On December 27, the corporation paid $3,200 on
salaries to employees.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 144
GENERAL JOURNAL J-9
Date Account Title Ref. Debit Credit
Dec. 27 Salary Expense 3,200
Cash 3,200
(Paid salaries to employees)
![Page 145: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/145.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1, 2 and 3
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 145
ACCOUNT TITLE: Cash
Date Description Debit Credit Balance
Dec. 1 Issuance of Stock 30,000 30,000
2 Borrowed cash from bank 5,000 35,000
3 Purchased music equipment 20,000 15,000
3 Paid six months rent in advance 3,000 12,000
15 Provide services in cash 5,000 17,000
21 Received cash in advance for services 1,000 18,000
27 Paid salaries to employees 3,200 14,800
![Page 146: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/146.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1, 2 and 3
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 146
ACCOUNT TITLE: Salary Expense
Date Description Debit Credit Balance
Dec. 27 Paid salaries to employees 3,200 3,200
![Page 147: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/147.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2
• Transaction 10: On December 30, the corporation paid $1,500
on dividends to stockholders.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 147
![Page 148: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/148.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1 and 2
• Transaction 10: On December 30, the corporation paid $1,500
on dividends to stockholders.
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 148
GENERAL JOURNAL J-10
Date Account Title Ref. Debit Credit
Dec. 30 Dividends 1,500
Cash 1,500
(Paid dividends to stockholders)
![Page 149: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/149.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1, 2 and 3
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 149
ACCOUNT TITLE: Cash
Date Description Debit Credit Balance
Dec. 1 Issuance of Stock 30,000 30,000
2 Borrowed cash from bank 5,000 35,000
3 Purchased music equipment 20,000 15,000
3 Paid six months rent in advance 3,000 12,000
15 Provide services in cash 5,000 17,000
21 Received cash in advance for services 1,000 18,000
27 Paid salaries to employees 3,200 14,800
30 Paid dividends to stockholders 1,500 13,300
![Page 150: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/150.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Steps 1, 2 and 3
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 150
ACCOUNT TITLE: Dividends
Date Description Debit Credit Balance
Dec. 30 Paid dividends to stockholders 1,500 1,500
![Page 151: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/151.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Step 4
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 151
![Page 152: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/152.jpg)
The Accounting Cycle
6.6 Comprehensive Example B – Step 4
• The step 4 is to prepare the Trial Balance.
• You will need to find out the balance of each account of
the company at the end of the period, in this case, as of
December 31, 2017.
• The balance of each account was computed and updated
after each of the ten transactions discussed before. The
Trial Balance, using the most recent account balances, as
of December 31, 2017, follows:
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 152
![Page 153: The Accounting Cycle - UPRRP](https://reader030.fdocuments.net/reader030/viewer/2022012721/61b37a2c9e05131e29461f5a/html5/thumbnails/153.jpg)
The Accounting Cycle
Seg. Sem. 2017-18 EDWIN RENÁN MALDONADO 153
VIENNA SCHOOL CORPORATIONTRIAL BALANCE
DECEMBER 31, 2017
ACCOUNTS DEBIT CREDIT
Cash $13,300
Account Receivable 2,700
Prepaid Rent 3,000
Music Supplies 1,500
Music Equipment 20,000
Accounts Payable 1,500
Deferred Revenue 1,000
Note Payable 5,000
Common Stock 30,000
Dividends 1,500
Service Revenue 7,700
Salary Expense 3,200
TOTAL $45,200 $45,200