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ACC112

Chapter 2

1st Semester 2021/2022

Online Classes

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1st Semester 2021/2022 CH 2

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Analyzing and Recording Process

Analyze each transaction and event from source documents.

Record relevant transactions and events in a journal.

Prepare and analyze the trial balance.

Post journal information to ledger accounts.





2 | Page

Source Documents

• Bills from Suppliers.

• Purchase Orders.

• Bank Statements.

• Sales Tickets.

• Employee Earnings Records.

• Checks.

The Account and its Analysis

- An account: is a record of increases and decreases in a specific asset, liability, equity,

revenue, or expense item.

- The general ledger is a record containing all accounts used by the company.

Asset Accounts: Liability Accounts: Equity Accounts:

• Cash. • Account Payable. • Owner’s Capital.

• Accounts Receivable. • Accrued Payable. • Revenues.

• Supplies. • Unearned Revenue. • Expenses.

• Prepaid Accounts. • Notes Payable. • Owner’s Withdrawals.

• Inventory.

• Notes Receivables.

• Equipment.

• Buildings.

• Land.





3 | Page

Ledger and Chart of Accounts

- The ledger is a collection of all accounts for an information system. A company’s size and

diversity of operations affect the number of accounts needed.

- The chart of accounts is a list of all accounts and includes an identifying number for each

account.

Debits and Credits

- A T-account represents a ledger account and is a tool used to understand the effects of

one or more transactions.

Left Side Right Side

Debit Credit

Partial Chart of

Accounts for

FastForward.





4 | Page

Double-Entry Accounting

Double-entry accounting requires that for each transaction:

• At least two accounts are involved, with at least one debit and one credit.

• The total amount debited must equal the total amount credited.

• The accounting equation must not be violated.

Asset Liability Owner’s Equity

Debit for

Increases

Credit for

Decreases

Debit for

Decreases

Credit for

Increases

Debit for

Decreases

Credit for

Increases

+ - - + - +

Normal Normal Normal

Owner’s Equity

Owner’s Capital Owner’s Withdrawals Revenues

Expenses

Debit for

Decreases

Credit for

Increases

Debit for

Increases

Credit for

Decreases

Debit for

Decreases

Credit for

Increases

Debit for

Increases

Credit for

Decreases

- + + - - +

+ -

Normal Normal Normal

Normal





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Journalizing & Posting Transactions

Step 1: Analyze transactions and source documents.

Step 2: Apply double-entry accounting

Step 3: Record journal entry

Step 4: Post entry to ledger

(Left side) (Right side)

Debit Credit

T- Account

GENERAL JOURNAL Page 123

Date Description

Post.

Ref. Debit Credit

ACCOUNT NAME: ACCOUNT No.

Date Description PR Debit Credit Balance





6 | Page

Analyzing Transactions

Record journal entries

Transaction 1: 'Owner invested $30,000 in FastForward on Dec. 1.

Transaction 2: FastForward purchases supplies by paying $2,500 cash.

Transaction 3: FastForward purchases equipment by paying $26,000 cash.

Transaction 4: FastForward purchases $7,100 of supplies on credit.

Transaction 5: FastForward provides consulting services and immediately collects $4,200

cash.

Credit Debit Date

30,000 Cash (1)

30,000 C. Taylor, Capital

Credit Debit Date

2,500 Supplies (2)

2,500 Cash

Credit Debit Date

26,000 Equipment (3)

26,000 Cash

Credit Debit Date

7,100 Supplies (4)

7,100 Account Payable

Credit Debit Date

4,200 Cash (5)

4,200 Consulting Revenue





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Transaction 6: FastForward pays $1,000 for December rent.

Transaction 7: FastForward pays $700 for employee salary.

Transaction 8: FastForward provided consulting services of $1,600 and rents its test facilities for

$300. The customer is billed $1,900 for services.

Transaction 9: FastForward receives $1,900 cash from the client billed in transaction 8.

Transaction 10: FastForward pays $900 cash toward the payable in transaction 4.

Transaction 11: Chas Taylor withdraws $200 from FastFoward for personal use.

Credit Debit Date

1,000 Rent Expense (6)

1,000 Cash

Credit Debit Date

700 Salaries Expense (7)

700 Cash

Credit Debit Date

1,900 Account Receivables

(8) 1,600 Consulting Revenue

300 Rental Revenue

Credit Debit Date

1,900 Cash (9)

1,900 Account Receivables

Credit Debit Date

900 Accounts Payable (10)

900 Cash

Credit Debit Date

200 Withdrawals (11)

200 Cash





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Transaction 12: FastForward receives $3,000 cash in advance of providing consulting services

to a customer.

Transaction 13: FastForward pays $2,400 cash for a 24-month insurance policy.

Posting Journal Entries:

Cash C. Taylor, Capital Supplies

(1) 30,000 (2) 2,500 (1) 30,000 (2) 2,500

(5) 4,200 (3) 26,000 (4) 7,100 (9) 1,900 (6) 1,000

(7) 700

(10) 900

(11) 200 (12) 3,000 (13) 2,400

Equipment Account Payable Consulting Revenue

(3) 26,000 (10) 900 (4) 7,100 (5) 4,200

(8) 1,600

Rent Expense Salaries Expense Account Receivables

(6) 1,000 (7) 700 (8) 1,900

Credit Debit Date

3,000 Cash (12)

3,000 Unearned Consulting Revenue

Credit Debit Date

2,400 Prepaid Insurance (13)

2,400 Cash





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Rental Revenue Salaries Expense Account Receivables

(8) 300 (7) 700 (8) 1,900 (9) 1,900

Withdrawals Unearned Consulting Revenue Prepaid Insurance

(11) 200 (12) 3,000 (13) 2,400

Trial Balance

FastForward

Trial Balance

December 31, 2011

Cash 5,400

Supplies 9,600

Prepaid Insurance 2,400

Equipment 26,000

Accounts Payable 6,200

Unearned Consulting Revenue 3,000

C. Taylor, Capital 30,000

C. Taylor, Withdrawals 200

Consulting Revenue 5,800

Rental Revenue 300

Salaries Expense 700

Rent Expense 1,000

Totals $45,300 $45,300





10 | Page

Exercise 2-4: For each of the following (1) identify the type of account as an asset, liability,

equity, revenue, or expense, (2) identify the normal balance of the account, and enter debit

(Dr.) or credit (Cr.) to identify the kind of entry that would increase the account balance.

(1)

Type of Account

(2)

Normal Balance of

Account

(Dr / Cr)

a. Fees Earned

b. Equipment

c. Notes Payable

d. Owner, Capital

e. Cash

f. Legal Expense

g. Prepaid Insurance

h. Land

i. Accounts Receivable

j. Owner, Withdrawals

k. License Fee Revenue

l. Unearned Revenue





11 | Page

Ex1: Sarah Company completed the following transactions during January 2020.

(a) Sarah invested $15,000 cash in the business.

(b) Purchased $300 of office supplies on credit.

(c) Completed work for a customer on credit, $1,700.

(d) Paid for the supplies purchased on transaction b.

(e) Paid a $960 premium for a 12-month insurance policy.

(f) Received $2,000 from a customer for a service to be provided

next month.

Required:

1. Prepare journal entries to record these transactions.

2. Post to the ledger.

3. Prepare the trial balance.

Credit Debit Date





12 | Page

2. Ledger accounts:

3. Trial Balance:

Sarah Company

Trial Balance

January 31, 2020

Credit Debit Account





13 | Page

Ex:2 Prepare the general journal to record the following transactions during July 2018.

1 July The owner establishes the business by investing $250,000 Cash and $400,000

equipment.

7 July The company purchased supplies for $70,000; half cash and half on account.

15 July The company provided services for a customer and earned $12,000 to be

collected after one month.

21 July The company paid rent $8,000 cash.

28 July The owner withdrew $3,000 from supplies for his personal use.

Credit Debit Date

July 1

July 7

July 15

July 21

July 28





14 | Page

Ex3: On March12, 2013 Noora had started her company consultation office by investing $

40,000 cash and $ 10,000 furniture During the month of March, her office had the following

events:

On March 14, it purchased equipment for $ 12,000 on account.

On March 16, it provided services for a client for $ 5000 cash.

On March 18, it provided services for another client for $ 6000 on credit.

On March 20, it paid $ 1,500 cash for rent expense.

On March 25, it collected $ 4,000 cash from the client for the services provided on March 18.

On March 28, Noora withdrew $ 500 cash for personal use.

Required:

1-Use the Journal below to record the above transactions of Noora’s office. (No need to

explain journal entries)

2-Post the entries related to the cash account and find its balance at the end of March.

Credit Debit Date





15 | Page

Exercise 2-7: Prepare general journal entries for the following transactions of a new company

called Pose-for-Pics.

Aug.1 Madison Harris, the owner, invested $6,500 cash and $33,500 of photography

equipment in the company.

2 The company paid $2,100 cash for an insurance policy covering the next 24

months.

5 The company purchased office supplies for $880 cash.

20 The company received $3,331 cash in photography fees earned.

31 The company paid $675 cash for August utilities.

Credit Debit Date





16 | Page

Exercise 2-8: Use the information in Exercise 2-7 to prepare a trial balance for Pose-for-Pics.

3. Trial Balance:

Sarah Company

Trial Balance

January 31, 2020

Credit Debit Account

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17 | Page

Problem 2-1 A: Gary Bauer opens a computer consulting business called Technology

Consultants and completes the following transactions in April.

April

- 1. Bauer invested $100,000 cash along with $24,000 in office equipment in the company.

- 2. The company prepaid $7,200 cash for twelve months’ rent for an office. (Hint: Debit

Prepaid Rent for $7,200.)

- 3. The company made credit purchases of office equipment for $12,000 and office

supplies for $2,400. Payment is due within 10 days.

- 6. The company completed services for a client and immediately received $2,000 cash.

- 9. The company completed an $8,000 project for a client, who must pay within 30 days.

- 13. The company paid $14,400 cash to settle the account payable created on April 3.

- 19 The company paid $6,000 cash for the premium on a 12-month insurance policy. (Hint:

Debit Prepaid Insurance for $6,000.)

- 22 The company received $6,400 cash as partial payment for the work completed on

April 9.

- 25 The company completed work for another client for $2,640 on credit.

- 28 Bauer withdrew $6,200 cash from the company for personal use.

- 29 The company purchased $800 of additional office supplies on credit.

- 30 The company paid $700 cash for this month’s utility bill.

Required:

1. Prepare general journal entries to record these transactions (use the account titles listed

in part 2).

2. Post the journal entries from part 1 to the ledger accounts and enter the balance after

each posting.

3. Prepare a trial balance as of the end of April.

1. Journal Entries:

Credit Debit Date

April 1

2





18 | Page

3

6

9

13

19

22

25

28

29

30





19 | Page

2. Ledger accounts:





20 | Page

3. Trial Balance:

Trial Balance

Credit Debit A/C titles

Totals





21 | Page

Q1: Write the ending balance for the following T-Account including the balance side.

Accounts Payable

100 800

150

100

Q2: The following transactions occurred during April:

A. Received $ 20,000 cash for service provided to a customer during April.

B. Received $15,000 cash investment from James, the owner of the business at the

beginning of the month.

C. Received $4,000 cash from a customer for service to be performed next year.

D. Provided service to a customer and received $1,200 in cash during April.

What was the amount (balance) of REVENUE for April?

Q3: Jack Wiser contributed $75,000 in cash and building worth $140,000 to open a new

business.JW Consulting. Which of the following general journal will JW consulting make to

record this transaction?

A) Debit Accounts payable $215,000; Credit Wiser, capital $215,000.

B) Debit cash $75,000; Debit building $140,000; Credit Wiser, capital $215,000.

C) Credit cash and building $215,000; Credit Wiser, capital $215,000.

D) Debit Wiser capital $215,000; Credit cash $75,000; Credit building $$140,000.

E) Debit Wiser, capital $215,000; Credit Assets $215,000.





22 | Page

Q4: Dawson’s Co. provides Delivery service to clients. On April 1, a customer paid Dawson’s

Co. $79,000 for 10-months delivery service in advance. Dawson’s Co. general journal entry to

record this transaction will include a:

A) Credit to Cash for $79,000.

B) Credit to accounts receivable for $79,000.

C) Debit to unearned revenue for $79,000.

D) Credit to unearned revenue for $79,000.

E) Debit to Account receivable for $79,000.

Q5: The accounting process begins with:

A) Analysis of business transactions and source of documents.

B) Presentation of financial information to decision makers.

C) Preparation of the trial balance.

D) Preparing financial statements and other reports

E) Analyse of prepared financial statement.

Q6: Match each of the debit / credit side of general journal with the correct entry.

Sara, the owner of case furniture, started the business by investing $100,000 cash.

A. Cash $100,000. Debit

B. Account receivable $100,000. Credit

C. Sara’s capital $100,000.

D. Equipment $100,000.