![Page 1: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/1.jpg)
1
![Page 2: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/2.jpg)
Chapter 2
Analyzing transactions
2
![Page 3: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/3.jpg)
1. Explain the steps in the accounting cycle and each step’s supporting documentation
2. Explain the purpose of source documents 3. Describe an account and its purpose 4. Describe a chart of accounts 5. Define debits, credits and account balance 6. Explain the rules of debits and credits in double-
entry accounting and the normal balance of an account
Learning objectives
3
![Page 4: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/4.jpg)
7. Transaction analysis – debits and credits8. Prepare a trial balance and explain its purpose in
the accounting cycle 9. Prepare financial statements from the trial
balance
Learning objectives
4
![Page 5: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/5.jpg)
Explain the steps in theaccounting cycle and each step’s
supporting documentation
Learning objective 1
5
![Page 6: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/6.jpg)
▪Steps and procedures that accountants follow when recording accounting information▪Performing the same steps each cycle helps minimize errors when recording transactions
The accounting cycle
6
Step in the accounting cycle Documentation
1. Analyze transactions Source documents
2. Journalize transactions General journal
3. Post transactions from the journal to the ledger General ledger
4. Prepare a trial balance Trial balance
5. Prepare the financial statements Financial statements
![Page 7: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/7.jpg)
Explain the purpose ofsource documents
Learning objective 2
7
![Page 8: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/8.jpg)
Source documents
– Invoice– Purchase order– Checks
– Bank statement– Cash register tape– Employee records
▪Step one in the accounting cycle is to analyze transactions from source documents▪A source document is a record that provides written evidence that a transaction has occurred▪Used to record the transactionExamples:
8
![Page 9: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/9.jpg)
Describe an account and its purpose
Learning objective 3
9
![Page 10: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/10.jpg)
▪After analyzing the transaction from the source document we record it in the accounting records
▪But what are these accounting records?
▪Accounts!
The account
10
![Page 11: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/11.jpg)
▪An account is a record that documents increases and decreases in specific items▪These items are classified as:
– Assets– Liabilities– Equity– Revenues– Expenses
▪Accounts are used because they are an efficient way to record information
The account
11
![Page 12: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/12.jpg)
The account
– Cash– Accounts Receivable
– Accounts Payable– Capital
▪Chapter 1 introduced us to some specific accounts:
12
▪New accounts introduced in this chapter:– Prepaid Expenses
(Asset account)– Unearned Revenue
(Liability account)
![Page 13: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/13.jpg)
Describe a chart of accounts
Learning objective 4
13
![Page 14: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/14.jpg)
▪How do we know what accounts are used by a business?
Chart of accounts:– List of all of the accounts used by the business– Displays account name and account number for each
account– Used to keep track of the accounts held by the business
▪What does a chart of accounts look like?
Chart of accounts
14
![Page 15: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/15.jpg)
Chart of accounts - example
15
Account No. Account Name
100 Cash
110 Accounts Receivable
130 Supplies
160 Equipment
210 Accounts Payable
230 Unearned Revenue
250 Loan Payable
300 Capital
350 Withdrawals
400 Revenues
541 Advertising Expense
![Page 16: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/16.jpg)
Define debits, credits and account balance
Learning objective 5
16
![Page 17: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/17.jpg)
▪We know that transactions are recorded in accounts▪But how they are recorded in the accounts?▪Transactions are recorded using debits and credits▪But what does debit and credit mean?
Debits and credits
17
![Page 18: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/18.jpg)
Debit = LeftCredit = Right
▪Debits and credits do not mean:– Good or bad– Favorable or unfavorable– Increase or decrease
• Whether debits or credits refer to an increase or decrease depends on the classification of each account
Debits and credits
18
![Page 19: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/19.jpg)
▪We can see debits and credits using the T-account:
▪To debit an account is to record an entry on the left▪To credit an account is to record an entry on the right
T-account
19
Account Title
Debit Credit
Dr Cr
Left side Right side
![Page 20: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/20.jpg)
▪As well as a debit and a credit side, an account has an account balance▪An account balance is the difference between total debits and total credits recorded in that account– Debit balance: Dr > Cr– Credit balance: Dr < Cr
▪How do we calculate the account balance?
Account balance
20
![Page 21: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/21.jpg)
Example using a simple T-account:
▪The Cash account has a debit balance of $7,000▪There are other formats an account may take
Calculating an account balance
21
Cash No. 100
(debits) 3,000 (credits) 1,000
5,000
Balance 7,000
![Page 22: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/22.jpg)
An example of a more detailed T-account:
Account formats: T-account
22
Cash No.100
Dec. 1 Capital 2,000 Dec. 2 Supplies 700
5 Loan Payable 5,000 4 Accounts Payable 600
6 Revenues 3,300 9 Expenses 150
8 Accounts Receivable 800 10 Withdrawals 250
Balance 9,400
![Page 23: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/23.jpg)
The same account - running balance format:
Account formats: Running balance format
23
Cash No. 100Date Description Ref. Debit Credit Balance
2011
Dec. 1 Balance 0
1 Cash investment by owner 2,000 2,000 Dr
2 Purchase stationery with cash 700 1,300 Dr
4 Partial payment for credit purchase 600 700 Dr
5 Received bank loan 5,000 5,700 Dr
6 Performed services for cash 3,300 9,000 Dr
8 Received cash from Accounts Receivable 800 9,800 Dr
9 Paid expense with cash 150 9,650 Dr
10 Owner withdrawal of cash 250 9,400 Dr
![Page 24: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/24.jpg)
Explain the rules of debits andcredits in double-entry accounting
and thenormal balance of an account
Learning objective 6
24
![Page 25: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/25.jpg)
▪We use debits and credits in double-entry accounting to record transactions▪The rules of double-entry accounting are:
– Each transaction affects at least two accounts – Each transaction has at least one debit and one credit – Total debits must equal total credits – The accounting equation must always remain in balance
Assets = Liabilities + Equity
Double-entry accounting
25
![Page 26: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/26.jpg)
▪This leads us to the general rules of debits and credits used in double-entry accounting– Assets are increased by debits (decreased by credits)– Liabilities and equity are increased by credits (decreased
by debits)
Rules of debits and credits
26
![Page 27: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/27.jpg)
▪These general rules are extended to the components of the expanded accounting equation:– Capital is increased by credits (decreased by debits)– Withdrawals is increased by debits (decreased by credits)– Revenues are increased by credits (decreased by debits)– Expenses are increased by debits (decreased by credits)
Rules of debits and credits
27
![Page 28: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/28.jpg)
▪To help us remember the rules of debits and credits, we can think of the normal balance of an account:– the debit or credit side of the account to which increases
are recorded
Normal balance of an account
28
Account classification: Normal balance:
Asset Debit
Liabilities Credit
Capital Credit
Withdrawals Debit
Revenues Credit
Expenses Debit
![Page 29: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/29.jpg)
Transaction analysis –debits and credits
Learning objective 7
29
![Page 30: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/30.jpg)
▪Recall the first step in the accounting cycle was to analyze transactions from source documents▪We can now use debits and credits to perform the second step, journalize transactions
▪But what does journalize transactions mean?
Transaction analysis - debits and credits
30
Step in the accounting cycle Documentation
1. Analyze transactions Source documents
2. Journalize transactions General journal
![Page 31: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/31.jpg)
Journalizing:▪ the process of recording a transaction in a journalJournal:▪A record in which the transactions of the business are entered (or journalized)– Like a diary that records the transactions in chronological
order
▪Once a transaction has been journalized, the individual transaction is known as a journal entry
Journalizing transactions
31
![Page 32: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/32.jpg)
▪Transactions are recorded in the general journal:
▪For each transaction, we record the:– Date– Accounts debited and credited– Value of the transaction– Short explanation of the transaction
General journal
General journal GJ-1
Date Account and explanation PostRef. Debit Credit
2011
Dec. 1 Cash 2,000
Capital 2,000
(Cash investment by owner.)
![Page 33: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/33.jpg)
▪Once transactions have been journalized, the next step in the accounting cycle is to post them to the general ledger
Posting to the ledger
33
Step in the accounting cycle Documentation
1. Analyze transactions Source documents
2. Journalize transactions General journal
3. Post transactions from the journal to the ledger General ledger
![Page 34: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/34.jpg)
General ledger:▪A record that contains all accounts of the business
Posting:▪The process of transferring information from journals to ledger accounts
▪Let’s look at an illustration of how this is done
Posting to the ledger
34
![Page 35: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/35.jpg)
Posting from the journal to the ledger
35
![Page 36: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/36.jpg)
▪Now we know how to journalize transactions in the general journal and post them to the ledger, we can look at how to record specific transactions▪The general steps for recording all transactions are:
– Recognize the transaction to be recorded – Analyze the transaction using the accounting equation– Determine which accounts are to be debited and credited – Journalize the transaction– Post the transaction to the ledger
Illustration of transaction analysis
![Page 37: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/37.jpg)
A. Owner invests $2,000 cash into the businessJournal entry:
Ledger posting (T-accounts):
A. Cash investment by owner
Cash No. 100
(A) 2,000
Capital No. 300
(A) 2,000
Date Account and explanation PostRef. Debit Credit
2011
Dec. 1 Cash 100 2,000
Capital 300 2,000
(Cash investment by owner.)
![Page 38: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/38.jpg)
B. Purchased supplies for $700 cashJournal entry:
Ledger posting (T-accounts):
B. Purchased an asset with cash
Cash No. 100
(B) 700
Supplies No. 130
(B) 700
Date Account and explanation PostRef. Debit Credit
2011
Dec. 2 Supplies 130 700
Cash 100 700
(Purchased supplies with cash.)
![Page 39: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/39.jpg)
C. Purchased a laptop computer on credit for $2,400Journal entry:
Ledger posting (T-accounts):
C. Purchased an asset on credit
Equipment No. 160
(C) 2,400
Accounts Payable No. 210
(C) 2,400
Date Account and explanation PostRef. Debit Credit
2011
Dec. 3 Equipment 160 2,400
Accounts Payable 210 2,400
(Purchased computer on credit.)
![Page 40: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/40.jpg)
D. Paid $600 cash toward previous credit purchaseJournal entry:
Ledger posting (T-accounts):
D. Paid for an asset purchased on credit
Cash No. 100
(D) 600
Accounts Payable No. 210
(D) 600
Date Account and explanation PostRef. Debit Credit
2011
Dec. 4 Accounts Payable 210 600
Cash 100 600
(Partial payment for asset purchased on credit.)
![Page 41: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/41.jpg)
E. Received a loan of $5,000 from the bankJournal entry:
Ledger posting (T-accounts):
E. Received loan
Cash No. 100
(E) 5,000
Loan Payable No. 250
(E) 5,000
Date Account and explanation PostRef. Debit Credit
2011
Dec. 5 Cash 100 5,000
Loan Payable 250 5,000
(Received cash loan from bank.)
![Page 42: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/42.jpg)
F. Performed tutoring services for $3,300 cashJournal entry:
Ledger posting (T-accounts):
F. Performed services for cash
Cash No. 100
(F) 3,300
Revenues No. 400
(F) 3,300
Date Account and explanation PostRef. Debit Credit
2011
Dec. 6 Cash 100 3,300
Revenues 400 3,300
(Received cash for services performed.)
![Page 43: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/43.jpg)
G. Performed $4,400 worth of services on creditJournal entry:
Ledger posting (T-accounts):
G. Performed services on credit
Accounts Receivable No. 110
(G) 4,400
Revenues No. 400
(G) 4,400
Date Account and explanation PostRef. Debit Credit
2011
Dec. 7 Accounts Receivable 110 4,400
Revenues 400 4,400
(Performed services on credit.)
![Page 44: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/44.jpg)
H. Received $800 cash from credit customersJournal entry:
Ledger posting (T-accounts):
H. Received cash from Accounts Receivable
Cash No. 100
(H) 800
Accounts Receivable No. 110
(H) 800
Date Account and explanation PostRef. Debit Credit
2011
Dec. 8 Cash 100 800
Accounts Receivable 110 800
(Received cash from credit customers.)
![Page 45: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/45.jpg)
I. Paid $150 cash for advertising campaign Journal entry:
Ledger posting (T-accounts):
I. Paid expense with cash
Cash No. 100
(I) 150
Advertising Expense No. 541
(I) 150
Date Account and explanation PostRef. Debit Credit
2011
Dec. 9 Advertising Expense 541 150
Cash 100 150
(Paid cash for advertising expense.)
![Page 46: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/46.jpg)
J. Owner withdraws $250 cash from the businessJournal entry:
Ledger posting (T-accounts):
J. Owner withdraws cash from business
Cash No. 100
(J) 250
Withdrawals No. 350
(J) 250
Date Account and explanation PostRef. Debit Credit
2011
Dec. 10 Withdrawals 350 250
Cash 100 250
(Cash withdrawal by owner.)
![Page 47: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/47.jpg)
K. Signing an employment agreement Journal entry:▪ No journal entry required because there is no change to the
value of the assets, liabilities, equity, revenues or expenses of the business
K. Non business transaction
![Page 48: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/48.jpg)
L. Paid $360 for a 3 year insurance premiumJournal entry:
Ledger posting (T-accounts):
L. Prepaid expense
Cash No. 100
(L) 360
Prepaid Insurance No. 142
(L) 360
Date Account and explanation PostRef. Debit Credit
2011
Dec. 12 Prepaid Insurance 142 360
Cash 100 360
(Paid for 36 month insurance policy for the computer.)
![Page 49: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/49.jpg)
M. Made a loan repayment of $500Journal entry:
Ledger posting (T-accounts):
M. Repayment of loan
Cash No. 100
(M) 500
Loan Payable No. 250
(M) 500
Date Account and explanation PostRef. Debit Credit
2011
Dec. 13 Loan Payable 250 500
Cash 100 500
(Repaid part of the principal of the bank loan.)
![Page 50: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/50.jpg)
N. Received $900 cash in advance for tutoringJournal entry:
Ledger posting (T-accounts):
N. Unearned revenue
Cash No. 100
(N) 900
Unearned Revenue No. 230
(N) 900
Date Account and explanation PostRef. Debit Credit
2011
Dec. 14 Cash 100 900
Unearned Revenue 230 900
(Received revenue in advance.)
![Page 51: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/51.jpg)
O. Performed $2,000 worth of tutoring services. $450 was received in cash with the remaining $1,550 to be received on credit
Journal entry:
▪Post to each of the 3 accounts in this journal entry
O. Compound journal entry
Date Account and explanation PostRef. Debit Credit
2011
Dec. 15 Cash 100 450
Accounts Receivable 110 1,550
Revenues 400 2,000
(Performed services for cash and credit.)
![Page 52: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/52.jpg)
Prepare a trial balance and explain its purpose in the
accounting cycle
Learning objective 8
52
![Page 53: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/53.jpg)
▪After journalizing transactions and posting them to the ledger, the next stage in the accounting cycle is to prepare a trial balance
Trial balance
53
Step in the accounting cycle Documentation
1. Analyze transactions Source documents
2. Journalize transactions General journal
3. Post transactions from the journal to the ledger General ledger
4. Prepare a trial balance Trial balance
![Page 54: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/54.jpg)
▪The trial balance is a list of all general ledger accounts held by the business and their balances at a specific point in time▪Purpose is to verify that total debits equals total credits in the accounts
Trial balance
54
![Page 55: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/55.jpg)
Trial balance - example
55
Running LatteTrial Balance
December 31, 2011
No. Account Debit$
Credit$
100 Cash 9,890
110 Accounts Receivable 5,150
130 Supplies 700
142 Prepaid Insurance 360
160 Equipment 2,400
210 Accounts Payable 1,800
230 Unearned Revenue 900
250 Loan Payable 4,500
300 Capital 2,000
350 Withdrawals 250
400 Revenues 9,700
541 Advertising Expense 150
Totals 18,900 18,900
![Page 56: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/56.jpg)
▪Use the general ledger to construct the trial balance– List account numbers and account names– Transfer debit and credit balances into corresponding
column– Calculate total debits and credits– Verify total debits equals total credits
▪The trial balance is said to be balanced when total debits equals total credits▪But what if the trial balance does not balance?
Preparing a trial balance
56
![Page 57: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/57.jpg)
▪Add up the columns again and check:▪ Is an account missing?
– Look for difference between debits and credits in the ledger
▪Debits or credits recorded in wrong column?– Difference ÷ 2
▪Transposition or slide error?– Difference ÷ 9
Trial balance errors
57
![Page 58: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/58.jpg)
▪There are 2 main ways to correct an error in the accounts▪Rule a line through the entry and enter the correct information for:– Incorrect journal entry that has not been posted– Posting an incorrect amount to the correct ledger account
▪ Journalize a correcting entry for:– Incorrect journal entry that has been posted– Journal entry posted to the wrong account
Correcting errors in the accounts
58
![Page 59: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/59.jpg)
▪A balanced trial balance can not guarantee the accounts are free from errors▪The following errors may still exist in the accounts:
– Missing transactions that were not journalized or posted – Duplicate transactions where journal entries were
recorded or posted more than once – Incorrect accounts that have been used in journalizing or
posting – Incorrect dollar amounts that have been journalized or
posted to the correct account
Limitations of the trial balance
59
![Page 60: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/60.jpg)
Prepare financial statements from the trial balance
Learning objective 9
60
![Page 61: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/61.jpg)
▪Once the trial balance is balanced, we can use it to help prepare the financial statements
Financial statements
61
Step in the accounting cycle Documentation
1. Analyze transactions Source documents
2. Journalize transactions General journal
3. Post transactions from the journal to the ledger General ledger
4. Prepare a trial balance Trial balance
5. Prepare the financial statements Financial statements
![Page 62: Chapter 2 · Chapter 2 Analyzing transactions 2. 1. Explain the steps in the accounting cycle and ... the process of recording a transaction in a journal Journal:](https://reader034.vdocuments.site/reader034/viewer/2022051406/5ac234d17f8b9ad73f8dcbb6/html5/thumbnails/62.jpg)
▪The trial balance can be used to help construct the financial statements▪The order of the accounts in the trial balance is generally the order in which they appear in the financial statements – balance sheet accounts are at the top of the trial balance– income statement accounts are at the bottom of the trial
balance
Financial statements
62