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Accounting Chapter 3

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    1.3 Analyzing and Recording Transactions as a powerpoint.
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  • 1. © The McGraw-Hill Companies, Inc., 2002 Slide 3-1 McGraw-Hill/Irwin 3 Analyzing and Recording Transactions
  • 2. © The McGraw-Hill Companies, Inc., 2002 Slide 3-2 McGraw-Hill/Irwin Post to the ledger Source documents Record transactions Prepare a trial balance Prepare financial statements and report Transaction Analyze Overview of the Accounting Process
  • 3. © The McGraw-Hill Companies, Inc., 2002 Slide 3-3 McGraw-Hill/Irwin External Transactions occur between the organization and an outside party. Internal Transactions occur within the organization. Transactions and Events Exchanges of economic consideration between two parties.
  • 4. © The McGraw-Hill Companies, Inc., 2002 Slide 3-4 McGraw-Hill/Irwin Sales Invoices Bank Statement Purchase Orders Checks Source Documents
  • 5. © The McGraw-Hill Companies, Inc., 2002 Slide 3-5 McGraw-Hill/Irwin Detailed record of increases and decreases in specific assets, liabilities, equities, revenues, or expenses. Separate accounts are maintained for each item of importance. Detailed record of increases and decreases in specific assets, liabilities, equities, revenues, or expenses. Separate accounts are maintained for each item of importance. The Account
  • 6. © The McGraw-Hill Companies, Inc., 2002 Slide 3-6 McGraw-Hill/Irwin LiabilitiesLiabilities EquityEquityAssetsAssets = + Owner’s Capital Owner’s Capital Owner’s Withdrawals Owner’s Withdrawals RevenuesRevenues ExpensesExpenses Accounting Equation + +– – Exh. 3.3
  • 7. © The McGraw-Hill Companies, Inc., 2002 Slide 3-7 McGraw-Hill/Irwin LandLand EquipmentEquipment BuildingsBuildings CashCash Prepaid Expenses Prepaid Expenses Office Supplies Office Supplies Store Supplies Store Supplies Prepaid Insurance Prepaid Insurance Notes Receivable Notes Receivable Accounts Receivable Accounts Receivable ASSETSASSETS Asset Accounts
  • 8. © The McGraw-Hill Companies, Inc., 2002 Slide 3-8 McGraw-Hill/Irwin Accrued Liabilities Accrued Liabilities Unearned Revenues Unearned Revenues Notes Payable Notes Payable Accounts Payable Accounts Payable LIABILITIESLIABILITIES LiabilityAccounts
  • 9. © The McGraw-Hill Companies, Inc., 2002 Slide 3-9 McGraw-Hill/Irwin EquitiesEquities RevenuesRevenues Owners’ Capital Owners’ Capital Owners’ Withdrawals Owners’ Withdrawals ExpensesExpenses Equity Accounts
  • 10. © The McGraw-Hill Companies, Inc., 2002 Slide 3-10 McGraw-Hill/Irwin Account Name (Left Side) Debit (Right Side) Credit Used as a simple tool for illustrating the balance in a given account. T-Account Exh. 3.5
  • 11. © The McGraw-Hill Companies, Inc., 2002 Slide 3-11 McGraw-Hill/Irwin Balance of an Account An account balance is the difference between the increases and decreases in an account. Exh. 3.6
  • 12. © The McGraw-Hill Companies, Inc., 2002 Slide 3-12 McGraw-Hill/Irwin LiabilitiesLiabilities EquityEquityAssetsAssets = + Debit Credit Debit Credit Debit Credit ASSETS + - LIABILITIES - + EQUITIES - + Double-Entry Accounting Exh. 3.7
  • 13. © The McGraw-Hill Companies, Inc., 2002 Slide 3-13 McGraw-Hill/Irwin RevenuesRevenues ExpensesExpenses Owner’s Capital Owner’s Capital Owner’s Withdrawals Owner’s Withdrawals _ + _ Debit Credit Capital - + Debit Credit Withdrawals + - Debit Credit Expenses + - Debit Credit Revenues - + Double-Entry Accounting - Detail of Effects on Equity EquityEquity Exh. 3.8
  • 14. © The McGraw-Hill Companies, Inc., 2002 Slide 3-14 McGraw-Hill/Irwin  Analyze the transaction and its source.  Identify the impact of the transaction on account balances. Also identify the financial statements that are impacted by the transaction. Analyzing Transactions
  • 15. © The McGraw-Hill Companies, Inc., 2002 Slide 3-15 McGraw-Hill/Irwin Post the transaction in the T-accounts and complete the transaction analysis. Analyzing Transactions Example - Transaction 1
  • 16. © The McGraw-Hill Companies, Inc., 2002 Slide 3-16 McGraw-Hill/Irwin Analyzing Transactions Example - Transaction 1
  • 17. © The McGraw-Hill Companies, Inc., 2002 Slide 3-17 McGraw-Hill/Irwin Post the transaction in the T-accounts and complete the transaction analysis. Analyzing Transactions Example - Transaction 2
  • 18. © The McGraw-Hill Companies, Inc., 2002 Slide 3-18 McGraw-Hill/Irwin Post the transaction in the T-accounts and complete the transaction analysis. Analyzing Transactions Example - Transaction 3
  • 19. © The McGraw-Hill Companies, Inc., 2002 Slide 3-19 McGraw-Hill/Irwin Analyzing Transactions Example - Transaction 4 Post the transaction in the T-accounts and complete the transaction analysis.
  • 20. © The McGraw-Hill Companies, Inc., 2002 Slide 3-20 McGraw-Hill/Irwin Remember these two steps? Now let’s look at some additional steps. Steps in Processing Transactions Step 1: Examine source documents. LiabilitiesLiabilities EquityEquityAssetsAssets = + Step 2: Analyze transactions.
  • 21. © The McGraw-Hill Companies, Inc., 2002 Slide 3-21 McGraw-Hill/Irwin ACCOUNT NAME: ACCOUNT No. Date Description PR Debit Credit Balance Step 4: Record the journal information in a ledger. Step 3: Record transactions in a journal. Step 5: Prepare a trial balance. Steps in Processing Transactions Step 1: Examine source documents. LiabilitiesLiabilities EquityEquityAssetsAssets = + Step 2: Analyze transactions.
  • 22. © The McGraw-Hill Companies, Inc., 2002 Slide 3-22 McGraw-Hill/Irwin Transaction Date Transaction Date Titles of Affected Accounts Titles of Affected Accounts Dollar amount of debits and credits Dollar amount of debits and credits Transaction explanation Transaction explanation General Journal for FastForward
  • 23. © The McGraw-Hill Companies, Inc., 2002 Slide 3-23 McGraw-Hill/Irwin T-accounts are useful illustrations, but balance column ledger accounts are used in practice. Balance Column Ledger
  • 24. © The McGraw-Hill Companies, Inc., 2002 Slide 3-24 McGraw-Hill/Irwin Balance Column Ledger T-accounts are useful illustrations, but balance column ledger accounts are used in practice.
  • 25. © The McGraw-Hill Companies, Inc., 2002 Slide 3-25 McGraw-Hill/Irwin The last line in the balance column shows the current balance in the account. The last line in the balance column shows the current balance in the account. Exh. 3.16 Balance Column Ledger
  • 26. © The McGraw-Hill Companies, Inc., 2002 Slide 3-26 McGraw-Hill/Irwin LiabilitiesLiabilities EquityEquityAssetsAssets = + Note that the balance column ledger does not indicate whether the balance in an account is debit or credit. This is because each account has a normal balance. Note that the balance column ledger does not indicate whether the balance in an account is debit or credit. This is because each account has a normal balance. Normal Balances
  • 27. © The McGraw-Hill Companies, Inc., 2002 Slide 3-27 McGraw-Hill/Irwin Note that the balance column ledger does not indicate whether the balance in an account is debit or credit. This is because each account has a normal balance. Note that the balance column ledger does not indicate whether the balance in an account is debit or credit. This is because each account has a normal balance. RevenuesRevenues ExpensesExpenses Owner’s Capital Owner’s Capital Owner’s Withdrawals Owner’s Withdrawals _ + _ Continue Normal Balances
  • 28. © The McGraw-Hill Companies, Inc., 2002 Slide 3-28 McGraw-Hill/Irwin RevenuesRevenues ExpensesExpenses Owner’s Capital Owner’s Capital Owner’s Withdrawals Owner’s Withdrawals _ + _ Normal Balances Note that the balance column ledger does not indicate whether the balance in an account is debit or credit. This is because each account has a normal balance. Note that the balance column ledger does not indicate whether the balance in an account is debit or credit. This is because each account has a normal balance.
  • 29. © The McGraw-Hill Companies, Inc., 2002 Slide 3-29 McGraw-Hill/Irwin 1 Identify the account. Posting Journal Entries Example
  • 30. © The McGraw-Hill Companies, Inc., 2002 Slide 3-30 McGraw-Hill/Irwin 2 Enter the date. Posting Journal Entries Example
  • 31. © The McGraw-Hill Companies, Inc., 2002 Slide 3-31 McGraw-Hill/Irwin 3Enter the amount. Posting Journal Entries Example
  • 32. © The McGraw-Hill Companies, Inc., 2002 Slide 3-32 McGraw-Hill/Irwin 4 Enter the journal reference. Posting Journal Entries Example
  • 33. © The McGraw-Hill Companies, Inc., 2002 Slide 3-33 McGraw-Hill/Irwin 5 Compute the balance. Posting Journal Entries Example
  • 34. © The McGraw-Hill Companies, Inc., 2002 Slide 3-34 McGraw-Hill/Irwin Enter the ledger reference. 6 Posting Journal Entries Example
  • 35. © The McGraw-Hill Companies, Inc., 2002 Slide 3-35 McGraw-Hill/Irwin A Trial Balance is a listing of all accounts and their balances at a point in time. A Trial Balance is a listing of all accounts and their balances at a point in time.
  • 36. © The McGraw-Hill Companies, Inc., 2002 Slide 3-36 McGraw-Hill/Irwin Generally, dollar signs ($) are not used in the journals or ledgers. Generally, dollar signs ($) are not used in the journals or ledgers. RoundingRounding Round numbers in financial statements to the nearest dollar. Round numbers in financial statements to the nearest dollar. ACCOUNT NAME: ACCOUNT No. Date Description PR Debit Credit Balance Formatting Conventions
  • 37. © The McGraw-Hill Companies, Inc., 2002 Slide 3-37 McGraw-Hill/Irwin  Describes the relationship between the amounts of the company’s liabilities and assets.  Helps to assess the risk that a company will fail to pay its debts. Using the Information - Debt Ratio
  • 38. © The McGraw-Hill Companies, Inc., 2002 Slide 3-38 McGraw-Hill/Irwin End of Chapter 3 Now, was that debits to the left or credits to the left? I sure wish I had paid more attention in class!

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