5-1 double-entry system chapter 5. 5-2 double-entry system the double-entry system is considered as...
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5-2
Double-Entry System
The double-entry system is considered as the heart of modern accounting.
All accounting systems operate on the basis of the double-entry system.
Manual accounting system
Computerized accounting system
5-3
Double-Entry System
The double-entry system provides checks and balances to ensure that your books are always in balance.
In double-entry accounting, each transaction has two journal entries: a debit and a credit.
5-4
Double-Entry System
Credits Debits=
Because debits equal credits, double-entry accounting prevents some common bookkeeping errors.
The sum of all debits should always equal the sum of all credits.
5-5
T Account
The T account is the basic form of the double-entry system.
Title of Account
Left orDebit Side
Right orCredit Side
The rules of the double-entry system are that one transaction affects at least two accounts --- debit accounts and credit accounts.
5-6
Double-Entry System
Assets = Liabilities + Owner’s Equity
Accounting equation
Account Type Debit Credit
Assets Increase Decrease
Liabilities Decrease Increase
Owner’s equity Decrease Increase
Income Decrease Increase
Expenses Increase Decrease
5-8
Transaction Analysis
Transaction 1
March 3: Mr. George starts his photocopy company on March 1 with 20,000 us dollars that was immediately deposited into the bank.
Assets
Owner’s equity ? Increase or decrease
Debited or Credited
5-9
Transaction Analysis
Transaction 1
Account Type Debit Credit
Cash at Bank Increase
George Ross, Capital Increase
Cash at Bank $10,000
George Ross, Capital $10,000
5-10
Transaction Analysis
Transaction 2
March 6: Rented another office, paying a year’s rent in advance, $4,800 by check.
Assets 1 ? Increase or decrease
Debited or CreditedAssets 2
5-11
Transaction Analysis
Transaction 2
Account Type Debit Credit
Prepaid Rent Increase
Cash at Bank Decrease
Prepaid Rent $4,800
Cash at Bank $4,800
5-12
Transaction Analysis
Transaction 3
March 7: Purchased photocopy equipment for $2,000 with cash.
Assets 1
Assets 2?
Increase or decrease
Debited or Credited
5-13
Transaction Analysis
Transaction 3
Account Type Debit Credit
Photocopy Equipment Increase
Cash Decrease
Photocopy Equipment $2,000
Cash $2,000
5-14
Transaction Analysis
Transaction 4
March 7: Purchased office equipment from Hougas Equipment Co. for $5,300, paying $2,300 in cash and agreeing to pay the rest next month.
Assets 1
Assets 2 ? Increase or decrease
Debited or CreditedLiability
5-15
Transaction 4
Transaction Analysis
Account Type Debit Credit
Office Equipment Increase
Cash Decrease
Accounts Payable Increase
Office Equipment $5,300
Cash $2,300
Accounts Payable 3,000
5-16
Transaction Analysis
Transaction 5
March 8: Purchased on credit photocopy supplies for $2,300 an office supplies for $800 from Tim Supply Co.
Assets
Liability?
Increase or decrease
Debited or Credited
5-17
Transaction Analysis
Transaction 5
Account Type Debit Credit
Photocopy Supplies Increase
Office Supplies Increase
Accounts Payable Increase
Photocopy Supplies $2,300
Office Supplies 800
Accounts Payable $3,100
5-18
Transaction Analysis
Transaction 6
March 8: Paid $600 in cash for a one-year insurance policy with coverage effective March 1.
Assets 1
Assets 2?
Increase or decrease
Debited or Credited
5-19
Transaction 6
Transaction Analysis
Account Type Debit Credit
Prepaid Insurance Increase
Cash Decrease
Prepaid Insurance $600
Cash $600
5-20
Transaction Analysis
Transaction 7
March 9: Paid Tim Supply Co. $3,100 of the amount owed by check.
Assets ? Increase or decrease
Debited or CreditedLiability
5-21
Transaction 7
Transaction Analysis
Account Type Debit Credit
Accounts Payable Decrease
Cash at Bank Decrease
Accounts Payable $3,100
Cash at Bank $3,100
5-22
Transaction Analysis
Transaction 8
March 10: Performed a service by printing throwaways for a garment dealer and agreed to collect the fee at the beginning of the next month, $6,000.
Assets ? Increase or decrease
Debited or CreditedOwner’s equity
5-23
Transaction 8
Transaction Analysis
Account Type Debit Credit
Accounts Receivable Increase
Photocopy Fees Earned Increase
Accounts Receivable $6,000
Photocopy Fees Earned $6,000
5-24
Transaction Analysis
Transaction 9
March 14: Accept $1,300 as an advance fee for copying works to be done for an advertising agency.
Assets
Liability?
Increase or decrease
Debited or Credited
5-25
Transaction 9
Transaction Analysis
Account Type Debit Credit
Cash Increase
Unearned Photocopy Fees Increase
Cash $1,300
Unearned Photocopy Fees $1,300
5-26
Transaction Analysis
Transaction 10
March 19: Performed a service by printing price lists for Ward Fashion Company and collect a check of $3,400.
Assets
?Increase or decrease
Debited or CreditedOwner’s equity
5-27
Transaction 10
Transaction Analysis
Account Type Debit Credit
Cash Increase
Photocopy Fees Earned Increase
Cash at Bank $3,400
Photocopy fees Earned $3,400
5-28
Transaction 11
Transaction Analysis
Account Type Debit Credit
George Ross, Withdrawals Decrease
Cash Decrease
George Ross, Withdrawals $980
Cash $980
March 24: George Ross withdrew $980 from the business for personal living expenses.
5-29
Transaction Analysis
Transaction 12
March 25: Paid the secretary salary, $1,100.
Account Type Debit Credit
Office Salary Expense Decrease
Cash Decrease
Office Salary Expense $1,100
Cash $1,100
5-30
Transaction 13
Transaction Analysis
Account Type Debit Credit
Utility Expense Decrease
Cash Decrease
Utility Expense $230
Cash $230
March 29: Received and not paid the utility bill of $700.
5-31
Transaction 14
Transaction Analysis
Account Type Debit Credit
Telephone Expense Decrease
Accounts Payable Increase
Telephone Expense $120
Accounts Payable $120
March 31: Received a telephone bill, $120.
5-32
T account
Cash(at Bank)
Bal. $410
3. $10,00014. 1,30019. 3,400
6. $4,8007. 2,0007. 2,3008. 6009. 3,10024. 98025. 1,10029. 230
5-33
T account
Accounts Receivable
10. $6,000
Bal. $6,000
Photocopy Supplies
8. $2,300
Bal. $2,300
Office Supplies
8. $800
Bal. $800
Prepaid Insurance
8. $600
Bal. $600
5-34
T account
Prepaid Rent
6. $4,800
Bal. $4,800
Photocopy Equipment
7. $2,000
Bal. $2,000
Office Equipment
7. $5,300
Bal. $5,300
Accounts Payable
9. $3,1008. 3,100
Bal. $600
7. $3,000
31. 120
5-35
T account
Unearned Photocopy Fees
14. $1,300
Bal. $1,300
George Ross, Capital
3. $10,000
Bal. $10,000
George Ross, Withdrawal
24. $980
Bal. $980
Photocopy Fees Earned
Bal. $9,400
10. $6,00019. 3,400
5-36
T account
Office Salary Expense
25. $1,100
Bal. $1,100
Utility Expense
29. $230
Bal. $230
Telephone Expense
31. $120
Bal. $120
5-37
T account
On the basis of the T account calculation, we get the result as follows:
Assets = Liabilities + Owner’s Equity
$21,390 = $4420 + $16,970