Recording business transactions

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Definition of accounting, what is accounting cycle? And how to record business transactions, it consist on various series which started from journal entries, ledger, and trial balance. key terms of accounting. The Accounting Rules of debit and credit, Debit money, assets and liabilities, Bad Debits, Balance Sheet, Double-entry, bad debts, inventory, Expenses, depreciation , Accumulated Depreciation , types of ledger account, categories of general ledger account, Assets and Liabilities, Owners’ Equity, Revenue Expansion of the Basic Equation and Expense, and examples.

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Recording business transactions

  1. 1. .
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  3. 3. The account • Debit & credits • Shareholder equity • Summary of DR CR rules Steps of Recording Process • JOURNEL • LEDGER • POSTING Recording process • Summary Trial balance • Limitations of Trial balance
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  5. 5. • The name given to the collective process of recording and processing the accounting events of a company. The series of steps begin when a transaction occurs and end with its inclusion in the financial statements. 1. Collecting and analysing data from transactions and events. 2. Putting transactions into the general journal. 3. Posting entries to the general ledger. 4. Preparing an unadjusted trial balance. 5. Adjusting entries appropriately. 6. Preparing an adjusted trial balance. 7. Organizing the accounts into the financial statements. 8. Closing the books.
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  7. 7. • documents are important because they are the ultimate proof a business transaction has occurred. • is a part of the accounting system used to classify and summarize the increases, decreases, and balances of each asset, liability, stockholders' equity item, dividend, revenue, and expense. • that each transaction be recorded by an entry that has equal debits and credits is called double-entry procedure. procedure keeps the accounting equation in balance
  8. 8. • A registry of pecuniary transactions; a written or printed statement of business dealings or debts and credits, and also of other things subjected to a reckoning or review • Account a written or printed statement of business dealings or debts and credits, and also of other things • The development and use of a system for recording and analysing the financial transactions and financial status of a business or other organization. • Amounts that customers owe the company for normal credit purchases. Accumulated depreciation is known as a contra account, because it separately shows a negative amount that is directly associated with another account.
  9. 9. • Something or someone of any value; any portion of one's property or effects so considered Items of ownership convertible into cash; total resources of a person or business, as cash, notes and accounts receivable; securities and accounts receivable, securities, inventories, goodwill, fixtures, machinery, or real estate (as opposed to liabilities) Any property or object of value that one possesses, usually considered as applicable to the payment of one's debts A resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide future benefit
  10. 10. • A debt which cannot be recovered from the debtor, either because the debtor doesn't have the money to pay or because the debtor cannot be found and/or forced to pay • bad debts A bad debt is an amount owed to a business or individual that is written off by the creditor as a loss (and classified as an expense) because the debt cannot be collected and all reasonable efforts to collect it have been exhausted. This usually occurs when the debtor has declared bankruptcy or the cost of pursuing further action in an attempt to collect the debt exceeds the debt itself.
  11. 11. balance sheet A summary of a person's or organization's assets, liabilities. and equity as of a specific date. Balance Sheet A balance sheet is often described as a "snapshot of a company's financial condition." A standard company balance sheet has three parts: assets, liabilities, and ownership equity
  12. 12. • an entry in the right hand column of an account; credits increase liability, income, and equity accounts and decrease asset and expense accounts • an entry in the left hand column of an account to record a debt; debits increase asset and expense accounts and decrease liability, income, and equity accounts • a written or printed statement of business dealings or debts and credits, and also of other things subjected to a reckoning or review that one person or entity owes or is required to pay to another, generally as a result of a loan or other financial transaction
  13. 13. dividend A pro rata payment of money by a company to its shareholders, usually made periodically (e.g., quarterly or annually)
  14. 14. Equity Ownership interest in a company, as determined by subtracting liabilities from assets.
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  16. 16. Assets Liabilities Stockholders‟ Equity Revenues Expenses
  17. 17.  This category includes Assets, Liabilities, and Stockholders‟ Equities (i.e., Balance Sheet accounts)  Accounts are permanent.  Account balances are carried forward from one fiscal year to the next.  Nominal accounts include revenues and expenses.  Nominal accounts are temporary.  Nominal account balances are closed out to zero at the end of the fiscal year
  18. 18. • a book or computer file in which monetary transactions are entered the first time they are processed • A journal entry, in accounting, is a logging of transactions into accounting journal items. The journal entry can consist of several items, each of which is either a debit or a credit. The total of the debits must equal the total of the credits or the journal entry is said to be "unbalanced." Journal entries can record unique items or recurring items, such as depreciation or bond amortization.
  19. 19. • A collection of accounting entries consisting of credits and debits. • A book for keeping notes, especially one for keeping accounting records.(accounting) A collection of accounting entries consisting of credits and debits.
  20. 20. • liability An obligation, debt or responsibility owed to someone. • liabilities An amount of money in a company that is owed to someone and has to be paid in the future, such as tax, debt, interest, and mortgage payments • Liabilities Probable future sacrifices of economic benefits arising from present obligations to transfer assets or providing services as a result of past transactions or events.
  21. 21. • an entry in the left hand column of an account to record a debt; debits increase asset and expense accounts and decrease liability, income, and equity accounts • A registry of pecuniary transactions; a written or printed statement of business dealings or debts and credits, and also of other things subjected to a reckoning or review • an entry in the right hand column of an account; credits increase liability, income, and equity accounts and decrease asset and expense accounts
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  23. 23. Shareholder Equity Common stock + Retained Earning
  24. 24. • Record of increases and decreases in a specific asset, liability, equity, revenue, or expense item. • Debit = “Left” • Credit = “Right” Account Name An Account can be illustrated in a T-Account form. Debit / Dr. Credit / Cr.
  25. 25. • Each transaction must affect two or more accounts to keep the basic accounting equation in balance. • Recording done by debiting at least one account and crediting another.
  26. 26. Account Debit Credit Assets Increase Decrease Contra Assets Decrease Increase Liabilities Equity Contributed Capital Decrease Decrease Decrease Increase Increase Increase Revenue Expenses Decrease Increase Increase Decrease Distributions Increase Decrease
  27. 27. • Debit (DR) • Credit (CR) Debit refers to the LEFT and Credit to the RIGHT side of the T-Account LEFT DEBIT SIDE RIGHT CREDIT SIDE
  28. 28. Normal Balance Credit Assets Debit / Dr. Normal Balance Chapter 3-23 Credit / Cr.
  29. 29. Asset = Liability + Equity Revenue - Expense
  30. 30. Assets Debit / Dr. Debits should exceed credits. Credits should exceed debits. Credit / Cr. Normal Balance Chapter 3-23 Liabilities Debit / Dr. Credit / Cr. is on the increase side. Normal Balance Chapter 3-24
  31. 31. Owner’s Equity Debit / Dr. Credit / Cr. increase owner‟s equity (credit). Normal Balance decrease owner‟s equity (debit). Chapter 3-25 Owner’s Capital Owner’s Drawing Chapter 3-25 Credit / Cr. Debit / Dr. Normal Balance Debit / Dr. Normal Balance Chapter 3-23 Credit / Cr.
  32. 32. Relationship among the assets, liabilities & owner‟s equity of a business: Assets = Liabilities + Owner’s Equity The equation must be in balance after every transaction. For every Debit there must be a Credit.
  33. 33. Revenue Debit / Dr. Chapter 3-26 Expense Normal Balance Chapter 3-27 The purpose of earning is to benefit the owner(s).  The effect of debits and credits on revenue accounts is the their effect on Owner‟s Capital. Credit / Cr. Normal Balance Debit / Dr.  Credit / Cr. have the opposite effect: expenses decrease owner‟s equity.
  34. 34. • Book of original entry. • Transactions recorded in chronological order. • Discloses the complete effects of a transaction. • Provides a chronological record of transactions. • Helps to prevent or locate errors because the debit and credit amounts can be easily compared
  35. 35.  On January 1, 19X7, Caldwell Company borrows $10,000 from the bank.  Prepare the appropriate general journal entry for the above transaction.
  36. 36.  Cash is increased by $10,000.  Notes Payable is increased by $10,000.
  37. 37.  On January 15, 19X7, Caldwell Company purchases a truck for $19,500 cash.  Prepare the appropriate journal entry for the above transaction. Trucks is increased by $19,500. Cash is decreased by $19,500.
  38. 38.  On January 20, 19X7, Caldwell Co. pays the $400 electric bill for January.  Prepare the appropriate journal entry for the above transaction. Utility Expense is increased by $400. Cash is decreased by $400.
  39. 39.  On Oct. 3 Purchases office furniture for $1,900, on account.
  40. 40.  Oct.27 Oct. 3. Pays $700 on balance related to transaction of
  41. 41.  Oct. 30 Pays the administrative assistant $2,500 salary for Oct.
  42. 42.  Two accounts, one debit and one credit. Three or more accounts. Example – On June 15, H. Burns, purchased equipment for $15,000 by paying cash of $10,000 and the balance on account (to be paid within 30 days).
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  46. 46.  The Dividends account is a contra account to Retained Earnings. Therefore, it is affected by debits and credits

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