6. A ledger account is a tool used for
classifying and summarizing information
about increases, decreases, and balances
of financial statements items.
◦ Think of it as a storage
container like a bucket.
◦ Dollars, which are used to measure economic
transactions, are “poured” into and out of the
container.
7.
8. Three-Amount Column Format
(Debit, Credit, Balance)
◦ Used in general ledgers in the business world
T-Account Format
◦ Used primarily for teaching and analysis of complex
transactions
10. For the sake of
simplicity, we often
use this format in
teaching accounting
even though it is no
longer used in
practice.
Debit Credit
Account Name
11. Increases to the
T-account are
recorded on one
side of the T-
account, and
decreases are
recorded on the
other side.
Debit Credit
Account Name
12. The side which
increases and the
side which
decreases is
determined by the
type of account.
Debit Credit
Account Name
13. Tools used for recording transactions
◦ Debit (DR)
◦ Credit (CR)
Debit refers to the LEFT and Credit to the
RIGHT side of the T-Account.
Debit and Credit are neutral terms and do not
connote value judgments. Neither is “good”
or “bad”!
14. Tools used for recording transactions
◦ Debit (DR)
◦ Credit (CR)
Debit refers to the LEFT and Credit to the
RIGHT side of the T-Account
Account Name
LEFT RIGHT
15. Tools used for recording transactions
◦ Debit (DR)
◦ Credit (CR)
Debit refers to the LEFT and Credit to the
RIGHT side of the T-Account
Account Name
LEFT RIGHT
DEBIT
SIDE
CREDIT
SIDE
Used as
Adjectives:
16. Tools used for recording transactions
◦ Debit (DR)
◦ Credit (CR)
Debit refers to the LEFT and Credit to the
RIGHT side of the T-Account
Account Name
LEFT RIGHT
DEBIT CREDIT
Used as
Verbs:
Synonym
for Debit?
17. There are no “magic” names for many
accounts
◦ e.g., either “Heat, Light & Power” or “Utilities
Expense” could be used for an account name.
Other accounts have names which must be
used
◦ e.g., “Cash”, “Accounts Receivable” and “Accounts
Payable”.
18. Let’s see how
debits and
credits affect
the different
types of
accounts.
Debit Credit
Account Name
Types of Ledger Accounts
20. Again, debits and credits are used to increase
or decrease account balances.
Determining whether to use a debit or credit
to record an increase or decrease depends on
the type of account in question.
The Balance Sheet equation is the basis for
the determination.
22. Account Name
Debit Credit
Account Name
Debit Credit
Assign a T-Account to each element of the
Balance Sheet Model
A = L + SE
Account Name
Debit Credit
23. Account Name
Debit Credit
Account Name
Debit Credit
Debits and credits affect the Balance Sheet
Model as follows:
A = L + SE
Account Name
Debit Credit
24. Account Name
A = L + SE
Account Name
Debit Credit Debit Credit
Debits and credits affect the Balance Sheet
Model as follows:
ASSETS
Debit
for
Increase
Credit
for
Decrease
25. A = L + SE
Account Name
Debit Credit
Debits and credits affect the Balance Sheet
Model as follows:
LIABILITIES
Debit
for
Decrease
Credit
for
Increase
ASSETS
Debit
for
Increase
Credit
for
Decrease
26. A = L + SE
Debits and credits affect the Balance Sheet
Model as follows:
ASSETS
Debit
for
Increase
Credit
for
Decrease
EQUITIES
Debit
for
Decrease
Credit
for
Increase
LIABILITIES
Debit
for
Decrease
Credit
for
Increase
27. Recall that Stockholders’ Equity consists
of the following components:
+ Retained Earnings
Capital Stock
C/S + R/E
28. Therefore, the Capital Stock and Retained
Earnings accounts are affected in the
following manner by debits and credits
because they are part of Stockholders’
Equity:
CAPITAL STOCK
Debit
for
Decrease
Credit
for
Increase
RET. EARNINGS
Debit
for
Decrease
Credit
for
Increase
29. Also, because Revenue accounts increase
Stockholders’ Equity, they are affected by
debits and credits as follows:
REVENUES
Debit
for
Decrease
Credit
for
Increase
30. And because Expense accounts decrease
Stockholders’ Equity, they are affected by
debits and credits as follows:
EXPENSES
Debit
for
Increase
Credit
for
Decrease
31. Each of the 5 account types also has a normal
balance side. It is always the side which is
used to record increases in the account.
32. The normal balances for each of the FIVE types
of accounts are as follows:
Account Name
Debit Balance Credit Balance
Assets
Expenses
Liabilities
Stockholders’
Equity
Revenues
33. Alternative #1
◦ The textbook approach on p. 59
Alternative #2
◦ Expanded Accounting Equation
◦ This is Rice’s preferred approach
Alternative #3
◦ “A L O R E” acronym
37. Which of the following accounts would
normally be expected to have a debit (or left-
side) balance?
a. Accounts Payable
b. Buildings
c. Interest Revenue
d. Capital Stock
38. Which of the following accounts would
normally be expected to have a debit (or left-
side) balance?
a. Accounts Payable
b. Buildings
c. Interest Revenue
d. Capital Stock
BUILDINGS is an asset
account and normally
has a DEBIT balance.
The other three
accounts normally
have CREDIT balances.
39. Which of the following accounts would
normally be expected to have a credit (or
right-side) balance?
a. Accounts Receivable
b. Salary Expense
c. Salary Payable
d. Land
40. Which of the following accounts would
normally be expected to have a credit (or
right-side) balance?
a. Accounts Receivable
b. Salary Expense
c. Salary Payable
d. Land
41. Which of the following accounts would
normally be expected to have a credit (or
right-side) balance?
a. Accounts Receivable
b. Salary Expense
c. Salary Payable
d. Land
SALARY PAYABLE is a
liability account and
normally has a CREDIT
balance.
The other three accounts
normally have DEBIT
balances.
42. If the balance in Accounts Receivable (an
asset) is $750 (debit side balance),
Accounts Receivable
750
43. If the balance in Accounts Receivable (an
asset) is $750 (debit side balance),
What would we do to increase the account by
$200?
750
Accounts Receivable
44. If the balance in Accounts Receivable (an
asset) is $750 (debit side balance),
What would we do to increase the account by
$200?
750
200
Accounts Receivable
45. If the balance in Accounts Receivable (an
asset) is $750 (debit side balance),
What would we do to increase the account by
$200?
What would we do to decrease the account by
$350?
750
200
Accounts Receivable
46. If the balance in Accounts Receivable (an
asset) is $750 (debit side balance),
What would we do to increase the account by
$200?
What would we do to decrease the account by
$350?
750
200
350
Accounts Receivable
47. Note the lack of $. It is understood that the
yardstick is dollars.
It is not “money”!
750
200
350
Accounts Receivable
48. To get the balance of the T-Account . . .
. . . net the totals on the two sides against
each other. Place the residual amount on the
appropriate side.
750
200
350
Accounts Receivable
49. To get the balance of the T-Account . . .
. . . net the totals on the two sides against
each other. Place the residual amount on the
appropriate side.
750
200
350
600
Accounts Receivable
50. To get the balance of the T-Account . . .
(Can use the either the approach above to
show the balance, the text’s approach or
Rice’s approach)
750
200
350
600
Accounts Receivable
51. Approach on
Previous slide
Using the example at the bottom of p. 57
(1) 10,000
(2) 5,000
(3) 1,000
13,400
Cash
(4) 600
(5) 2,000
Text Approach
(1) 10,000
(2) 5,000
(3) 1,000
16,000
13,400
Cash
(4) 600
(5) 2,000
2,600
bal
(1) 10,000
(2) 5,000
(3) 1,000
13,400
Cash
(4) 600
(5) 2,000
Rice’s Approach
ALL 3 are O.K.!
52. The Cash account has three entries: a debit
for $1,200, a credit for $300, and another
credit for $400. What is the balance in the
Cash account?
a. $ 1,900 Debit.
b. $ 500 Credit.
c. $ 700 Credit.
d. $ 500 Debit.
53. The Cash account has three entries: a debit
for $1,200, a credit for $300, and another
credit for $400. What is the balance in the
Cash account?
a. $ 1,900 Debit.
b. $ 500 Credit.
c. $ 700 Credit.
d. $ 500 Debit. $1,200
$ 400
$ 500
Cash
$ 300
54. Debits and Credits are used to indicate that
something happened to an account.
Interpreting the implications requires an
analysis of the entire journal entry.
55. If the company made a Credit entry to Notes
Payable, would the account increase or
decrease?
56. If the company made a Credit entry to Notes
Payable, would the account increase or
decrease?
ANSWER:
Notes Payable would increase.
57. Notes Payable is the account where we record
long-term borrowings. What event would
cause us to record an increase in our long-
term borrowings?
58. Notes Payable is the account where we record
long-term borrowings. What event would
cause us to record an increase in our long-
term borrowings?
ANSWER:
Such an increase could imply that the
company borrowed money.
59. If the company borrowed money, which
account would also be affected and in what
way?
60. If the company borrowed money, which
account would also be affected and in what
way?
ANSWER:
There would also be an equal-sized increase
in the Cash account.
61. Suppose instead of an increase to Cash, you
find an increase to the Land account. How do
you interpret the increase in Notes Payable?
62. Suppose instead of an increase to Cash, you
find an increase to the Land account. How do
you interpret the increase in Notes Payable?
ANSWER:
The company acquired land and gave a note
that promised to pay for the land in the
future.
63. Initially, all transactions are recorded in the
General Journal.
64. Initially, all transactions are recorded in the
General Journal.
Each transaction always affects at least
two different accounts.
One account has a debit effect.
The second account has a credit effect.
This methodology was named “double
entry” accounting by whom?
Pacioli
66. On January 1, 19X7, Caldwell Company
borrows $10,000 from the bank.
Prepare the appropriate general journal entry
for the above transaction.
67. Two accounts are affected:
◦ Cash is increased by $10,000.
◦ Notes Payable is increased by $10,000.
68. Two accounts are affected:
◦ Cash is increased by $10,000.
◦ Notes Payable is increased by $10,000.
GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
69. Two accounts are affected:
◦ Cash is increased by $10,000.
◦ Notes Payable is increased by $10,000.
GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
1-Jan Cash 100 10,000
Notes Payable 201 10,000
to record loan from bank
70. Two accounts are affected:
◦ Cash is increased by $10,000.
◦ Notes Payable is increased by $10,000.
GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
1-Jan Cash 100 10,000
Notes Payable 201 10,000
to record loan from bank
Typically, accounts are
numbered. The
account numbers are
used as references for
posting to the General
Ledger. More on
account numbers will
come later.
71. On January 15, 19X7, Caldwell Company
purchases a truck for $19,500 cash.
Prepare the appropriate journal entry for the
above transaction.
72. Two accounts are affected:
◦ Trucks is increased by $19,500.
◦ Cash is decreased by $19,500.
73. Two accounts are affected:
◦ Trucks is increased by $19,500.
◦ Cash is decreased by $19,500.
GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
74. Two accounts are affected:
◦ Trucks is increased by $19,500.
◦ Cash is decreased by $19,500.
GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
15-Jan Trucks 150 19,500
Cash 100 19,500
to record purchase of truck
75. On January 20, 19X7, Caldwell Co. pays the
$400 electric bill for January.
Prepare the appropriate journal entry for the
above transaction.
76. Two accounts are affected:
◦ Utility Expense is increased by $400.
◦ Cash is decreased by $400.
77. Two accounts are affected:
◦ Utility Expense is increased by $400.
◦ Cash is decreased by $400.
GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
78. Two accounts are affected:
◦ Utility Expense is increased by $400.
◦ Cash is decreased by $400.
GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
20-Jan Utility Expense 511 400
Cash 100 400
to record payment of January
electric bill
79. It is a complete collection of all the accounts of
a company
Accounts are individually numbered for easy
reference
It is used to collect the information about all of
the transactions affecting a specific account
A cumulative, running balance is maintained
when using the 3-column type
80. The five types of accounts fall into one
of two categories
Real Accounts
Nominal Accounts
81. 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.
82. 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.
◦ Closing Entries will be discussed in Chapter 4.
83. The listing of all accounts and their account
numbers is called the chart of accounts.
84. The listing of all accounts and their account
numbers is called the chart of accounts.
A typical account numbering scheme might
appear as follows:
Assets 100-199 Revenues 400-499
Liabilities 200-299 Expenses 500-599
Equities 300-399
(See page 63 and inside back cover)
86. Start with the journal entry from the General
Journal.
GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
1-Jan Cash 10,000
Notes Payable 10,000
to record loan from bank
87. GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
1-Jan Cash 10,000
Notes Payable 10,000
to record loan from bank
ACCOUNT NAME: CASH ACCOUNT No. 100
Date Description PR Debit Credit Balance
Beginning Balance 0 0
Next, find the appropriate page
in the General Ledger for Cash.
88. GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
1-Jan Cash 100 10,000
Notes Payable 10,000
to record loan from bank
Post the account reference number.
ACCOUNT NAME: CASH ACCOUNT No. 100
Date Description PR Debit Credit Balance
Beginning Balance 0 0
89. GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
1-Jan Cash 100 10,000
Notes Payable 10,000
to record loan from bank
ACCOUNT NAME: CASH ACCOUNT No. 100
Date Description PR Debit Credit Balance
Beginning Balance 0 0
1-JanLoan G1 10,000
Post the transaction info to the GL.
90. GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
1-Jan Cash 100 10,000
Notes Payable 10,000
to record loan from bank
ACCOUNT NAME: CASH ACCOUNT No. 100
Date Description PR Debit Credit Balance
Beginning Balance 0 0
1-JanLoan G1 10,000 10,000
Update the General Ledger balance.
91. GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
1-Jan Cash 100 10,000
Notes Payable 10,000
to record loan from bank
ACCOUNT NAME: Notes Payable ACCOUNT No. 201
Date Description PR Debit Credit Balance
Beginning Balance 0 0
Next, find the Notes Payable
page in the General Ledger.
92. GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
1-Jan Cash 100 10,000
Notes Payable 201 10,000
to record loan from bank
ACCOUNT NAME: Notes Payable ACCOUNT No. 201
Date Description PR Debit Credit Balance
Beginning Balance 0 0
Post the account reference number.
93. GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
1-Jan Cash 100 10,000
Notes Payable 201 10,000
to record loan from bank
ACCOUNT NAME: Notes Payable ACCOUNT No. 201
Date Description PR Debit Credit Balance
Beginning Balance 0 0
1-JanLoan G1 10,000
Post the transaction info to the GL.
94. GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
1-Jan Cash 100 10,000
Notes Payable 201 10,000
to record loan from bank
ACCOUNT NAME: Notes Payable ACCOUNT No. 201
Date Description PR Debit Credit Balance
Beginning Balance 0 0
1-JanLoan G1 10,000 10,000
Update the General Ledger balance.
95. GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
15-Jan Trucks 9,500
Cash 9,500
to record purchase of truck
ACCOUNT NAME: CASH ACCOUNT No. 100
Date Description PR Debit Credit Balance
Beginning Balance 0 0
1-JanLoan from bank G1 10,000 10,000
Examine the next journal entry.
96. GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
15-Jan Trucks 9,500
Cash 100 9,500
to record purchase of truck
ACCOUNT NAME: CASH ACCOUNT No. 100
Date Description PR Debit Credit Balance
Beginning Balance 0 0
1-JanLoan from bank G1 10,000 10,000
Record the account reference.
97. GENERAL JOURNAL
Page: 3
Date Description PR Debit Credit
15-Jan Trucks 9,500
Cash 100 9,500
to record purchase of truck
ACCOUNT NAME: CASH ACCOUNT No. 100
Date Description PR Debit Credit Balance
Beginning Balance 0 0
1-JanLoan from bank G1 10,000 10,000
15-JanPurchase of truck G3 9,500
Post the entry to the GL.
98. GENERAL JOURNAL
Page: 3
Date Description PR Debit Credit
15-Jan Trucks 9,500
Cash 100 9,500
to record purchase of truck
ACCOUNT NAME: CASH ACCOUNT No. 100
Date Description PR Debit Credit Balance
Beginning Balance 0 0
1-JanLoan from bank G1 10,000 10,000
15-JanPurchase of truck G3 9,500 500
Update the General Ledger balance.
99. Used to periodically test whether the General
Ledger is in balance.
Consists of a listing of each account with its
balance as of a specific date.
◦ All Debit balances are in one column.
◦ All Credit balances are in another column.
101. First Company
Trial Balance
12/31/X8
Debits Credits
Cash 500
$
Accounts Receivable 1,200
Equipment 3,800
Accounts Payable 700
$
Notes Payable 1,450
Capital Stock 3,000
Retained Earnings - 1/1/X8 -
Dividends 250
Revenues 11,000
Salary Expense 5,000
Utility Expense 3,000
Rent Expense 2,400
16,150
$ 16,150
$
Notice that Total
Debits are equal
to Total Credits.
102. The Dividends account is a contra account
to Retained Earnings. Therefore, it is
affected by debits and credits as follows:
DIVIDENDS
Debit
for
Increase
Credit
for
Decrease
103. Analysis of Air & Sea Travel, Inc., Transactions
Panel A - Details of transactions
(1) Issued stock to the owners who invested $50,000 cash
in the business.
(2) Paid $40,000 cash for land.
(3) Bought $500 of office supplies on account.
(4) Received $5,500 cash from customers for service
revenue earned.
Processing Accounting Information
10
3
104. (5) Performed services for customers on account,
$3,000.
(6) Paid cash expenses: rent, $1,100; employee
salary, $1,200; utilities, $400.
(7) Paid $400 on the account payable created in
Transaction 3.
(8) Owners paid personal funds to remodel home.
This is not a transaction of the business.
Processing Accounting Information
10
4
105. (9) Received $1,000 on the account
receivable created in Transaction
5.
(10) Sold land for cash at its cost of
$22,000.
(11) Declared and paid a dividend of
$2,100 to the stockholders.
Processing Accounting Information
10
5
106. Processing Accounting Information 106
Using the Accounting Equation - Exhibit 2-1 (contd.)
Type of
Assets = Liabilities + Stockholders'
Office Comm Retained Equity
Cash + A/R + Sup. + Land A/P + Stock + Earnin Transaction
1 50,000 50,000 Issued stock
to owners
2 -40,000 40,000
3 500 500
4 5,500 5,500 Service rev.
5 3,000 3,000 Service rev.
6 -1,100 = -1,100 Rent exp.
-1,200 -1,200 Salary exp.
-400 -400 Utilities exp.
7 -400 -400
8 Not a transaction of the business
9 1,000 -1,000
10 22,000 -22,000
11 -2100 -2,100 Dividends
Bal. 33,300 2000 500 18,000 100 50,000 3,700
53,800 53,800
Stockholders' Equity
PANEL B - Analysis of transactions
Balance Sheet Data
For Financial statements, see Exhibit 2-2. 106
107. Processing Accounting Information 107
D. Examples of Journalizing and
Posting Transactions
1. Transaction: Air & Sea Travel, Inc., received
$50,000 cash from the business and in turn
issued common stock to them.
Journal Entry:
Cash 50,000
Common Stock 50,000
Issued common stock to owners.
Ledger Accounts:
Cash Common Stock
50,000 50,000
108. Processing Accounting Information 108
D. Examples of Journalizing and
Posting Transactions (contd.)
2. Transaction: The business paid $40,000
cash for land as a future office location.
Journal Entry:
Land 40,000
Cash 40,000
Paid cash for land.
Ledger Accounts:
Cash Land
50,000 40,000 40,000
109. Processing Accounting Information 109
D. Examples of Journalizing and
Posting Transactions (contd.)
3. Transaction: The business purchased $500
office supplies on account.
Journal Entry:
Office Supplies 500
Accounts Payable 500
Ledger Accounts:
Office Supplies Accounts Payable
500 500
110. Processing Accounting Information 110
D. Examples of Journalizing and
Posting Transactions (contd.)
4. Transaction: The business performed travel
service for clients and received cash of $5,500.
Journal Entry:
Cash 5,500
Service Revenue 5,500
Ledger Accounts:
Cash Service Revenue
50,000 40,000 5,500
5,500
111. Processing Accounting Information 111
D. Examples of Journalizing and
Posting Transactions (contd.)
5. Transaction: The business performed service for
clients who did not pay immediately. Air & Sea
Travel billed the clients for $3,000 on account.
Journal Entry:
Accounts Receivable 3,000
Service Revenue 3,000
Ledger Accounts:
Accounts Receivable Service Revenue
3,000 5,500
3,000
8,500
112. Processing Accounting Information 112
D. Examples of Journalizing and
Posting Transactions (contd.)
6. Transaction: The business paid $2,700 for the
following expenses: office rent, $1,100; employee
salary; $1,200; and utilities, $400.
Journal Entry:
Rent Expense 1,100
Salary Expense 1,200
Utilities Expense 400
Cash 2,700
Ledger Accounts:
Cash Rent Expense
50,000 40,000 1,100
5,500 2,700
Salary Expense Utilities Expense
1,200 400
112
113. Processing Accounting Information 113
D. Examples of Journalizing and
Posting Transactions (contd.)
7. Transaction: The business paid $400 on the
account payable created in Transaction 3.
Journal Entry:
Accounts Payable 400
Cash 400
Ledger Accounts:
Cash Accounts Payable
50,000 40,000 400 500
5,500 2,700
400 100
114. Processing Accounting Information 114
D. Examples of Journalizing and
Posting Transactions (contd.)
8. Transaction: The Lyons remodeled their
personal residence. This is not a transaction
of the travel agency, so no journal entry is
made.
115. Processing Accounting Information 115
D. Examples of Journalizing and
Posting Transactions (contd.)
9. Transaction: The business collected $1,000 cash
on account from the clients in transaction 5.
Journal Entry:
Cash 1,000
Accounts Receivable 1,000
Ledger Accounts:
Cash Accounts Receivable
50,000 40,000 3,000 1,000
5,500 2,700
1,000 400 2,000
116. Processing Accounting Information 116
D. Examples of Journalizing and
Posting Transactions (contd.)
10.Transaction; The business sold land for its
cost of $22,000, receiving cash
Journal Entry:
Cash 22,000
Land 22,000
Ledger Accounts:
Cash Land
50,000 40,000 40,000 22,000
5,500 2,700
1,000 400 18,000
22,000
117. Processing Accounting Information 117
D. Examples of Journalizing and
Posting Transactions (contd.)
11.Transaction: Air & Sea Travel, Inc., paid the
Lyons cash dividends of $2,100.
Journal Entry:
Dividends 2,100
Cash 2,100
Ledger Accounts:
Cash Dividends
50,000 40,000 2,100
5,500 2,700
1,000 400
22,000 2,100
33,300
118. Processing Accounting Information 118
D. Examples of Journalizing and
Posting Transactions (contd.)
The followings are examples of T-
accounts, trial balance and financial
statements of the example in Exhibit
2.1.
120. Processing Accounting Information 120
Exhibit 2-4 (from Financial Accounting by
Harrison and Horngren)
Revenue:
Service revenue ($5,500+$3,000) ... $ 8,500
Expenses:
Salary expense ……………………… $1,200
Rent expense ……………………….. 1,100
Utilities expense …………………….. 400
Total expenses ……………………… 2,700
Net income …………………………….. $5,800
AIR & SEA TRAVEL, INC.
Income Statement
Month Ended April 30, 19x1
Retained earnings, April 1, 19x1 ……... $ 0
Add: Net income for the month ..……… 5,800
5,800
Less: Dividends …………………………. 2,100
Retained earnings, April 30, 19x1……… $3,700
AIR & SEA TRAVEL, INC.
Statement of Retained Earnings
Month Ended April 30, 19x1
120
121. Processing Accounting Information 121
Exhibit 2-3 (contd.)
Retained earnings, April 1, 19x1 ……... $ 0
Add: Net income for the month ..……… 5,800
5,800
Less: Dividends …………………………. 2,100
Retained earnings, April 30, 19x1……… $3,700
Statement of Retained Earnings
Month Ended April 30, 19x1
Assets Liabilities
Cash …………... $33,300 Accounts payable …... $ 100
A/R …………….. 2,000
Office supplies .. 500 Stockholders’ Equity
Land …………... 18,000 Common stock ………. 50,000
Retained earnings …... 3,700
Total stockholders’
equity …………….. 53,700
Total liabilities and
Total assets ……. $53,800 stockholders’ equity... $53,800
AIR & SEA TRAVEL, INC.
Balance Sheet
April 30, 19x1
121
122. Processing Accounting Information 122
Exhibit 2-3 (contd.)
Statement of Cash Flows, Month Ended April 30, 19x1
Cash flows from operating activities:
Receipts:
Collections fm customers ($5,500+1,000) …….. $ 6,500
Payments:
To suppliers and employees ($2700+400) ……. (3,100)
Net cash inflow fm operating activities ……... 3,400
Cash flows from investing activities:
Acquisition of land …………………………………..$(40,000)
Sale of land ………………………………………….. 22,000
Net cash outflow from investing activities…... (18,000)
Cash flows from financing activities:
Issuance (sale) of stock to owners ……………….. $50,000
Dividends ……………………………………………. (2,100)
Net cash inflow from financing activities……. 47,900
Net increase in cash ………………………………….. $33,300
Cash balance, April 1, 19x1 …………………………. 0
Cash balance, April 30, 19x1 ………………………... $33,300
Balance Sheet, April 30, 19x1
Assets Liabilities
Cash ……………………. $33,300 Accounts payable ……………... $ 100
A/R ……………………... 2,000
Office supplies ………... 500 Stockholders’ Equity
Land ……………………. 18,000 Common stock ……………….... 50,000
Retained earnings …………….. 3,700
Total stockholders’ equity ….. 53,700
Total liabilities and
Total assets ………….… $53,800 stockholders’ equity………….. $53,800
122
