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Chap 2
- 2. Objective How accounts, debits and credits are used to record business transaction Indicate how a journal is used in the recording process How a ledger and posting help in the recording process Prepare a trial balance
- 3. Account An individual accounting record of increases and decreases in a specific asset, liability, or owner’s equity item Looks like the letter T, with a horizontal line bisected by a vertical line
- 4. Debit and Credits Debit (Dr) is the left side of the account Credit (Cr) is the right side of the account Debit Balance Vs Credit Balance
- 5. Dr/Cr for Asset Decreases in assets appear on the right side Increases in assets appear on the left side Debit Credit The Company receives $100 cash from a customer 100 Company pays $50 cash to a vendor 50 Cash
- 6. Dr/Cr for Liability Increases in liabilities appear on the right side Decreases in liabilities appear on the left side Debit Credit The Company pays its suppliers the $25 it owed them 25 The Company buys $75 worth supplies from suppliers on account 75 Accounts Payable
- 7. Dr/Cr for Owner’s Equity Increases in owner’s equity appear on the right side Decreases in owner’s equity appear on the left side Debit Credit Ryan has withdrawn $25 for his personal use 25 Ryan invested $7500 to start the business 7500 Owner’s Equity
- 8. Dr/Cr for Revenue Increases in revenue appear on the right side Decreases in revenue appear on the left side Debit Credit Customer returned $25 worth of goods 25 Sold goods for $100 100 Revenue
- 9. Dr/Cr for Expense Decreases in expense appear on the right side Increases in expense appear on the left side Debit Credit Paid $200 for rent 200 Returned $25 worth of materials to suppliers 25 Expense
- 10. Dr Vs Cr Debit (DR) Credit (CR) An entry on the left side 1) An increase in an asset 2) A decrease in a liability 3) A decrease in a shareholders’ equity item 4) A decrease in revenue 5) An increase in expense An entry on the right side 1) A decrease in an asset 2) An increase in a liability 3) An increase in a shareholders’ equity item 4) An increase in revenue 5) A decrease in expense
- 11. Recording process Analyze transaction Enter transaction in Journal Transfer to Ledger accounts Prepare trial balance
- 12. The Journal Complete effect of a transaction Chronological record Prevent or locate error Each journal entry reflects equal debits and credits
- 13. The Journal
- 14. The Ledger Group of accounts maintained by company T-accounts Standard format
- 15. Transactions On October 1, C.R. Byrd invests $10,000 cash in an advertising company called Pioneer Advertising. On October 1, Pioneer purchases office equipment costing $5,000 by signing a 3-month, 12%, $5,000 note payable. On October 2, Pioneer receives a $1,200 cash advance from R. Knox a client, for advertising services that are expected to be completed by December 31. On October 3, Pioneer pays office rent for October in cash, $900.
- 16. Transactions On October 4, Pioneer pays $600 for a one-year insurance policy that will expire next year on September 30. On October 5, Pioneer purchases an estimated 3-month supply of advertising materials on account from Aero Supply for $2,500. On October 9, Pioneer hires four employees to begin work on October 15. Each employee is to receive a weekly salary of $500 for a 5-day work week, payable every 2 weeks --- first payment made on October 26.
- 17. Transactions On October 20, C. R. Byrd withdraws $500 cash for personal use. On October 26, Pioneer owes employees salaries of $4,000 and pays them in cash. On October 31, Pioneer receives $10,000 in cash from Copa Company for advertising services performed in October.
- 18. Trial Balance List of accounts and their balances on a given time Total the debit and credit balances Limitations: A transaction may balance even when • A transaction is not journalized • A correct journal entry is not posted • A journal entry is posted twice • Incorrect accounts are used in journalizing or posting • Offsetting errors are made in recording the amount of a transaction