© The McGraw-Hill Companies, Inc., 2002
Slide
3-1
McGraw-Hill/Irwin
3 Analyzing and Recording
Transactions
© The McGraw-Hill Companies, Inc., 2002
Slide
3-2
McGraw-Hill/Irwin
Post to the
ledger
Source
documents
Record
transaction...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-3
McGraw-Hill/Irwin
External Transactions
occur between the
organization a...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-4
McGraw-Hill/Irwin
Sales
Invoices
Bank
Statement
Purchase
Orders
Checks
S...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-5
McGraw-Hill/Irwin
Detailed record of
increases and
decreases in
specific...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-6
McGraw-Hill/Irwin
LiabilitiesLiabilities EquityEquityAssetsAssets = +
Ow...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-7
McGraw-Hill/Irwin
LandLand
EquipmentEquipment
BuildingsBuildings
CashCas...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-8
McGraw-Hill/Irwin
Accrued
Liabilities
Accrued
Liabilities
Unearned
Reven...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-9
McGraw-Hill/Irwin
EquitiesEquities
RevenuesRevenues
Owners’
Capital
Owne...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-10
McGraw-Hill/Irwin
Account Name
(Left Side)
Debit
(Right Side)
Credit
Us...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-11
McGraw-Hill/Irwin
Balance of an Account
An account balance is the diffe...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-12
McGraw-Hill/Irwin
LiabilitiesLiabilities EquityEquityAssetsAssets = +
D...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-13
McGraw-Hill/Irwin
RevenuesRevenues ExpensesExpenses
Owner’s
Capital
Own...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-14
McGraw-Hill/Irwin
 Analyze the
transaction and its
source.
 Identify ...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-15
McGraw-Hill/Irwin
Post the transaction in the T-accounts
and complete t...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-16
McGraw-Hill/Irwin
Analyzing Transactions
Example - Transaction 1
© The McGraw-Hill Companies, Inc., 2002
Slide
3-17
McGraw-Hill/Irwin
Post the transaction in the T-accounts
and complete t...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-18
McGraw-Hill/Irwin
Post the transaction in the T-accounts
and complete t...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-19
McGraw-Hill/Irwin
Analyzing Transactions
Example - Transaction 4
Post t...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-20
McGraw-Hill/Irwin
Remember these two steps?
Now let’s look at some
addi...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-21
McGraw-Hill/Irwin
ACCOUNT NAME: ACCOUNT No.
Date Description PR Debit C...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-22
McGraw-Hill/Irwin
Transaction
Date
Transaction
Date
Titles of Affect...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-23
McGraw-Hill/Irwin
T-accounts are useful illustrations, but
balance colu...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-24
McGraw-Hill/Irwin
Balance Column Ledger
T-accounts are useful illustrat...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-25
McGraw-Hill/Irwin
The last line in the balance column shows
the current...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-26
McGraw-Hill/Irwin
LiabilitiesLiabilities EquityEquityAssetsAssets = +
N...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-27
McGraw-Hill/Irwin
Note that the balance column ledger does not
indicate...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-28
McGraw-Hill/Irwin
RevenuesRevenues ExpensesExpenses
Owner’s
Capital
Own...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-29
McGraw-Hill/Irwin
1
Identify the account.
Posting Journal Entries
Examp...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-30
McGraw-Hill/Irwin
2 Enter the date.
Posting Journal Entries
Example
© The McGraw-Hill Companies, Inc., 2002
Slide
3-31
McGraw-Hill/Irwin
3Enter the amount.
Posting Journal Entries
Example
© The McGraw-Hill Companies, Inc., 2002
Slide
3-32
McGraw-Hill/Irwin
4
Enter the journal reference.
Posting Journal Entrie...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-33
McGraw-Hill/Irwin
5
Compute the balance.
Posting Journal Entries
Example
© The McGraw-Hill Companies, Inc., 2002
Slide
3-34
McGraw-Hill/Irwin
Enter the ledger reference.
6
Posting Journal Entries...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-35
McGraw-Hill/Irwin
A Trial
Balance is a
listing of all
accounts
and thei...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-36
McGraw-Hill/Irwin
Generally, dollar signs ($)
are not used in the journ...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-37
McGraw-Hill/Irwin
 Describes the relationship between the
amounts of t...
© The McGraw-Hill Companies, Inc., 2002
Slide
3-38
McGraw-Hill/Irwin
End of Chapter 3
Now, was that debits
to the left or ...
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Accounting Chapter 3

  1. 1. © The McGraw-Hill Companies, Inc., 2002 Slide 3-1 McGraw-Hill/Irwin 3 Analyzing and Recording Transactions
  2. 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. 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. 4. © The McGraw-Hill Companies, Inc., 2002 Slide 3-4 McGraw-Hill/Irwin Sales Invoices Bank Statement Purchase Orders Checks Source Documents
  5. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 16. © The McGraw-Hill Companies, Inc., 2002 Slide 3-16 McGraw-Hill/Irwin Analyzing Transactions Example - Transaction 1
  17. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 29. © The McGraw-Hill Companies, Inc., 2002 Slide 3-29 McGraw-Hill/Irwin 1 Identify the account. Posting Journal Entries Example
  30. 30. © The McGraw-Hill Companies, Inc., 2002 Slide 3-30 McGraw-Hill/Irwin 2 Enter the date. Posting Journal Entries Example
  31. 31. © The McGraw-Hill Companies, Inc., 2002 Slide 3-31 McGraw-Hill/Irwin 3Enter the amount. Posting Journal Entries Example
  32. 32. © The McGraw-Hill Companies, Inc., 2002 Slide 3-32 McGraw-Hill/Irwin 4 Enter the journal reference. Posting Journal Entries Example
  33. 33. © The McGraw-Hill Companies, Inc., 2002 Slide 3-33 McGraw-Hill/Irwin 5 Compute the balance. Posting Journal Entries Example
  34. 34. © The McGraw-Hill Companies, Inc., 2002 Slide 3-34 McGraw-Hill/Irwin Enter the ledger reference. 6 Posting Journal Entries Example
  35. 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. 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. 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. 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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