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[object Object],[object Object],Accounting,  Third Edition
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Study Objectives
[object Object],[object Object],[object Object],[object Object],Accounting Transactions The Account Steps in the Recording Process The Recording Process Illustrated The Trial Balance ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],The Accounting Information System
The Accounting Information System The system of  collecting  and  processing  transaction data and  communicating  financial information to decision makers is known as the accounting   information system.
Accounting Transactions ,[object Object],[object Object],[object Object],[object Object]
Accounting Transactions Question:   Are the following events recorded in the accounting records? Event Purchased a computer. Criterion Is the financial position (assets, liabilities, or stockholders’ equity) of the company changed? Pay rent. Record/  Don’t Record Discuss product design with potential customer.
Accounting Transactions Assets Liabilities Stockholders’ Equity = + Transaction Analysis The process of identifying the specific effects of economic events on the accounting equation. SO 1  Analyze the effect of business transactions on the basic accounting equation. Basic Accounting Equation
Accounting Transactions Transaction Analysis SO 1  Analyze the effect of business transactions on the basic accounting equation. Illustration 3-2  Expanded accounting equation
Accounting Transactions Illustration:   1.   On October 1, cash of $10,000 is invested in Sierra Corporation by investors in exchange for $10,000 of common stock. 1. +10,000 +10,000 SO 1  Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions 2.   On October 1, Sierra borrowed $5,000 from Castle Bank by signing a 3-month, 12%, $5,000 note payable. 1. +10,000 +10,000 2. +5,000 +5,000 SO 1  Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions 3.   On October 2, Sierra purchased office equipment by paying $5,000 cash to Superior Equipment Sales Co. 3. -5,000 +5,000 1. +10,000 +10,000 2. +5,000 +5,000 SO 1  Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions 4.   On October 2, Sierra received a $1,200 cash advance from R. Knox, a client. 4. +1,200 +1,200 3. -5,000 +5,000 1. +10,000 +10,000 2. +5,000 +5,000 SO 1  Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions 5.   On October 3, Sierra received $10,000 in cash from Copa Company for advertising services performed. 4. +1,200 +1,200 5. +10,000 +10,000 3. -5,000 +5,000 1. +10,000 +10,000 2. +5,000 +5,000 SO 1  Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions 6.   On October 3, Sierra Corporation paid its office rent for the month of October in cash, $900. 4. +1,200 +1,200 5. +10,000 +10,000 6. -900 -900 3. -5,000 +5,000 1. +10,000 +10,000 2. +5,000 +5,000 SO 1  Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions 7.  On October 4, Sierra paid $600 for a one-year insurance policy that will expire next year on September 30. 4. +1,200 +1,200 5. +10,000 +10,000 6. -900 -900 7. -600 +600 3. -5,000 +5,000 1. +10,000 +10,000 2. +5,000 +5,000 SO 1  Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions 8.  On October 5, Sierra purchased a three-month supply of advertising materials on account from Aero Supply for $2,500. 4. +1,200 +1,200 5. +10,000 +10,000 6. -900 -900 7. -600 +600 8. +2,500 +2,500 3. -5,000 +5,000 1. +10,000 +10,000 2. +5,000 +5,000 SO 1  Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions 10.  On October 20, Sierra paid a $500 dividend. 4. +1,200 +1,200 5. +10,000 +10,000 6. -900 -900 7. -600 +600 8. +2,500 +2,500 10. -500 -500 3. -5,000 +5,000 1. +10,000 +10,000 2. +5,000 +5,000 SO 1  Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions 11.   Employees have worked two weeks, earning $4,000 in salaries, which were paid on October 26. 4. +1,200 +1,200 5. +10,000 +10,000 6. -900 -900 7. -600 +600 8. +2,500 +2,500 10. -500 -500 11. -4,000 -4,000 3. -5,000 +5,000 1. +10,000 +10,000 2. +5,000 +5,000
 
The Account ,[object Object],[object Object],[object Object],Account An Account can be illustrated in a  T-Account form. SO 2  Explain what an account is and how it helps in the recording process.
Debit and Credit Procedures ,[object Object],[object Object],[object Object],[object Object],SO 3  Define debits and credits and explain their use in recording business transactions.
Debit and Credit Procedures If Debits are  greater than  Credits, the account will have a debit balance. $10,000 Transaction #2 $3,000 $15,000 8,000 Transaction #3 Balance Transaction #1 SO 3  Define debits and credits and explain their use in recording business transactions.
Debit and Credit Procedures If Credits are  greater than  Debits, the account will have a credit balance. $10,000 Transaction #2 $3,000 Balance Transaction #1 $1,000 8,000 Transaction #3 SO 3  Define debits and credits and explain their use in recording business transactions.
Dr./Cr. Procedures for Assets and Liabilities ,[object Object],[object Object],[object Object],SO 3  Define debits and credits and explain their use in recording business transactions.
Dr./Cr. Procedures for Stockholders’ Equity ,[object Object],[object Object],SO 3  Define debits and credits and explain their use in recording business transactions.
Dr./Cr. Procedures for Revenue and Expense ,[object Object],[object Object],[object Object],SO 3  Define debits and credits and explain their use in recording business transactions.
Debits and Credits Summary Normal Balance  Credit Normal Balance  Debit SO 3  Define debits and credits and explain their use in recording business transactions.
Debits and Credits Summary Balance Sheet  Income Statement = + = - Asset Liability Equity Revenue Expense Debit Credit SO 3  Define debits and credits and explain their use in recording business transactions.
Debits and Credits Summary ,[object Object],[object Object],[object Object],[object Object],[object Object],Review Question SO 3  Define debits and credits and explain their use in recording business transactions.
Debits and Credits Summary ,[object Object],[object Object],[object Object],[object Object],[object Object],Review Question SO 3  Define debits and credits and explain their use in recording business transactions.
 
Stockholders’ Equity Relationships Illustration 3-15 SO 3  Define debits and credits and explain their use in recording business transactions.
Summary of Debit/Credit Rules ,[object Object],The equation must be in balance after every transaction.  For every  Debit   there must be a  Credit . Illustration 3-16 Assets Liabilities = Stockholders’ Equity Basic Equation Expanded Basic Equation + SO 3  Define debits and credits and explain their use in recording business transactions.
Steps in the Recording Process Business documents , such as a sales slip, a check, a bill, or a cash register tape, provide evidence of the transaction. SO 4  Identify the basic steps in the recording process. Illustration 3-17 Analyze each transaction Enter transaction in a journal Transfer journal information to ledger accounts
The Journal ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],SO 5  Explain what a journal is and how it helps in the recording process.
The Journal Journalizing  - Entering transaction data in the journal. Illustration:  Presented below is information related to Sierra Corporation. SO 4  Explain what a journal is and how it helps in the recording process. Sierra issued common stock in exchange for $10,000 cash. Oct. 1 Sierra borrowed $5,000 by signing a note. 1 Sierra purchased office equipment for $5,000. 2 Instructions  - Journalize these transactions.
Journalizing General Journal SO 4  Explain what a journal is and how it helps in the recording process. Sierra issued common stock in exchange for $10,000 cash. Oct. 1 Cash Common stock 10,000 10,000
Journalizing General Journal SO 4  Explain what a journal is and how it helps in the recording process. Sierra borrowed $5,000 by signing a note. Oct. 1 Cash Notes payable 5,000 5,000
Journalizing General Journal SO 4  Explain what a journal is and how it helps in the recording process. Sierra purchased office equipment for $5,000. Oct. 2 Office equipment Cash 5,000 5,000
 
The Ledger Ledger  contains the entire group of accounts maintained by a company.  SO 6  Explain what a ledger is and how it helps in the recording process. Illustration 3-19
Chart of Accounts Accounts arranged in sequence in which they are presented in the financial statements. SO 6  Explain what a ledger is and how it helps in the recording process.
Posting Posting  – the process of transferring amounts from the journal to the ledger accounts.  General Ledger General Journal Oct. 1 Owner investment J1 10,000 10,000 101 J1 SO 7  Explain what posting is and how it helps in the recording process.
Posting ,[object Object],[object Object],[object Object],[object Object],[object Object],Review Question SO 7  Explain what posting is and how it helps in the recording process.
The Recording Process Illustrated SO 7  Explain what posting is and how it helps in the recording process. Follow these steps: 1.  Determine what type of account is involved. 2.  Determine what items increased or decreased and by how much. 3.  Translate the increases and decreases into debits and credits. Illustration 3-21
The Recording Process Illustrated SO 7  Explain what posting is and how it helps in the recording process. Follow these steps: 1.  Determine what type of account is involved. 2.  Determine what items increased or decreased and by how much. 3.  Translate the increases and decreases into debits and credits. Illustration 3-22
The Recording Process Illustrated SO 7  Explain what posting is and how it helps in the recording process. Follow these steps: 1.  Determine what type of account is involved. 2.  Determine what items increased or decreased and by how much. 3.  Translate the increases and decreases into debits and credits. Illustration 3-23
The Recording Process Illustrated SO 7  Explain what posting is and how it helps in the recording process. Illustration 3-24 Additional Transactions
The Recording Process Illustrated SO 7  Explain what posting is and how it helps in the recording process. Illustration 3-25 Additional Transactions
The Recording Process Illustrated SO 7  Explain what posting is and how it helps in the recording process. Illustration 3-26 Additional Transactions
The Recording Process Illustrated SO 7  Explain what posting is and how it helps in the recording process. Illustration 3-27 Additional Transactions ,
The Recording Process Illustrated SO 7  Explain what posting is and how it helps in the recording process. Illustration 3-28 Additional Transactions
The Recording Process Illustrated SO 7  Explain what posting is and how it helps in the recording process. Additional Transactions Illustration 3-29
The Recording Process Illustrated SO 7  Explain what posting is and how it helps in the recording process. Illustration 3-30 Additional Transactions
The Recording Process Illustrated SO 7  Explain what posting is and how it helps in the recording process. Illustration 3-31 Additional Transactions
Summary Illustration of Journalizing SO 7  Explain what posting is and how it helps in the recording process. Illustration 3-32
Summary Illustration of Journalizing SO 7  Explain what posting is and how it helps in the recording process. Illustration 3-32
Summary Illustration of Posting Illustration 3-33
The Trial Balance ,[object Object],[object Object],Illustration 3-34
The Trial Balance ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],SO 8  Explain the purposes of a trial balance. Limitations of a Trial Balance
The Trial Balance ,[object Object],[object Object],[object Object],[object Object],[object Object],Review Question SO 8  Explain the purposes of a trial balance.
Copyright Copyright © 2009 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

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Ch03

  • 1.  
  • 2.
  • 3.
  • 4.
  • 5. The Accounting Information System The system of collecting and processing transaction data and communicating financial information to decision makers is known as the accounting information system.
  • 6.
  • 7. Accounting Transactions Question: Are the following events recorded in the accounting records? Event Purchased a computer. Criterion Is the financial position (assets, liabilities, or stockholders’ equity) of the company changed? Pay rent. Record/ Don’t Record Discuss product design with potential customer.
  • 8. Accounting Transactions Assets Liabilities Stockholders’ Equity = + Transaction Analysis The process of identifying the specific effects of economic events on the accounting equation. SO 1 Analyze the effect of business transactions on the basic accounting equation. Basic Accounting Equation
  • 9. Accounting Transactions Transaction Analysis SO 1 Analyze the effect of business transactions on the basic accounting equation. Illustration 3-2 Expanded accounting equation
  • 10. Accounting Transactions Illustration: 1. On October 1, cash of $10,000 is invested in Sierra Corporation by investors in exchange for $10,000 of common stock. 1. +10,000 +10,000 SO 1 Analyze the effect of business transactions on the basic accounting equation.
  • 11. Accounting Transactions 2. On October 1, Sierra borrowed $5,000 from Castle Bank by signing a 3-month, 12%, $5,000 note payable. 1. +10,000 +10,000 2. +5,000 +5,000 SO 1 Analyze the effect of business transactions on the basic accounting equation.
  • 12. Accounting Transactions 3. On October 2, Sierra purchased office equipment by paying $5,000 cash to Superior Equipment Sales Co. 3. -5,000 +5,000 1. +10,000 +10,000 2. +5,000 +5,000 SO 1 Analyze the effect of business transactions on the basic accounting equation.
  • 13. Accounting Transactions 4. On October 2, Sierra received a $1,200 cash advance from R. Knox, a client. 4. +1,200 +1,200 3. -5,000 +5,000 1. +10,000 +10,000 2. +5,000 +5,000 SO 1 Analyze the effect of business transactions on the basic accounting equation.
  • 14. Accounting Transactions 5. On October 3, Sierra received $10,000 in cash from Copa Company for advertising services performed. 4. +1,200 +1,200 5. +10,000 +10,000 3. -5,000 +5,000 1. +10,000 +10,000 2. +5,000 +5,000 SO 1 Analyze the effect of business transactions on the basic accounting equation.
  • 15. Accounting Transactions 6. On October 3, Sierra Corporation paid its office rent for the month of October in cash, $900. 4. +1,200 +1,200 5. +10,000 +10,000 6. -900 -900 3. -5,000 +5,000 1. +10,000 +10,000 2. +5,000 +5,000 SO 1 Analyze the effect of business transactions on the basic accounting equation.
  • 16. Accounting Transactions 7. On October 4, Sierra paid $600 for a one-year insurance policy that will expire next year on September 30. 4. +1,200 +1,200 5. +10,000 +10,000 6. -900 -900 7. -600 +600 3. -5,000 +5,000 1. +10,000 +10,000 2. +5,000 +5,000 SO 1 Analyze the effect of business transactions on the basic accounting equation.
  • 17. Accounting Transactions 8. On October 5, Sierra purchased a three-month supply of advertising materials on account from Aero Supply for $2,500. 4. +1,200 +1,200 5. +10,000 +10,000 6. -900 -900 7. -600 +600 8. +2,500 +2,500 3. -5,000 +5,000 1. +10,000 +10,000 2. +5,000 +5,000 SO 1 Analyze the effect of business transactions on the basic accounting equation.
  • 18. Accounting Transactions 10. On October 20, Sierra paid a $500 dividend. 4. +1,200 +1,200 5. +10,000 +10,000 6. -900 -900 7. -600 +600 8. +2,500 +2,500 10. -500 -500 3. -5,000 +5,000 1. +10,000 +10,000 2. +5,000 +5,000 SO 1 Analyze the effect of business transactions on the basic accounting equation.
  • 19. Accounting Transactions 11. Employees have worked two weeks, earning $4,000 in salaries, which were paid on October 26. 4. +1,200 +1,200 5. +10,000 +10,000 6. -900 -900 7. -600 +600 8. +2,500 +2,500 10. -500 -500 11. -4,000 -4,000 3. -5,000 +5,000 1. +10,000 +10,000 2. +5,000 +5,000
  • 20.  
  • 21.
  • 22.
  • 23. Debit and Credit Procedures If Debits are greater than Credits, the account will have a debit balance. $10,000 Transaction #2 $3,000 $15,000 8,000 Transaction #3 Balance Transaction #1 SO 3 Define debits and credits and explain their use in recording business transactions.
  • 24. Debit and Credit Procedures If Credits are greater than Debits, the account will have a credit balance. $10,000 Transaction #2 $3,000 Balance Transaction #1 $1,000 8,000 Transaction #3 SO 3 Define debits and credits and explain their use in recording business transactions.
  • 25.
  • 26.
  • 27.
  • 28. Debits and Credits Summary Normal Balance Credit Normal Balance Debit SO 3 Define debits and credits and explain their use in recording business transactions.
  • 29. Debits and Credits Summary Balance Sheet Income Statement = + = - Asset Liability Equity Revenue Expense Debit Credit SO 3 Define debits and credits and explain their use in recording business transactions.
  • 30.
  • 31.
  • 32.  
  • 33. Stockholders’ Equity Relationships Illustration 3-15 SO 3 Define debits and credits and explain their use in recording business transactions.
  • 34.
  • 35. Steps in the Recording Process Business documents , such as a sales slip, a check, a bill, or a cash register tape, provide evidence of the transaction. SO 4 Identify the basic steps in the recording process. Illustration 3-17 Analyze each transaction Enter transaction in a journal Transfer journal information to ledger accounts
  • 36.
  • 37. The Journal Journalizing - Entering transaction data in the journal. Illustration: Presented below is information related to Sierra Corporation. SO 4 Explain what a journal is and how it helps in the recording process. Sierra issued common stock in exchange for $10,000 cash. Oct. 1 Sierra borrowed $5,000 by signing a note. 1 Sierra purchased office equipment for $5,000. 2 Instructions - Journalize these transactions.
  • 38. Journalizing General Journal SO 4 Explain what a journal is and how it helps in the recording process. Sierra issued common stock in exchange for $10,000 cash. Oct. 1 Cash Common stock 10,000 10,000
  • 39. Journalizing General Journal SO 4 Explain what a journal is and how it helps in the recording process. Sierra borrowed $5,000 by signing a note. Oct. 1 Cash Notes payable 5,000 5,000
  • 40. Journalizing General Journal SO 4 Explain what a journal is and how it helps in the recording process. Sierra purchased office equipment for $5,000. Oct. 2 Office equipment Cash 5,000 5,000
  • 41.  
  • 42. The Ledger Ledger contains the entire group of accounts maintained by a company. SO 6 Explain what a ledger is and how it helps in the recording process. Illustration 3-19
  • 43. Chart of Accounts Accounts arranged in sequence in which they are presented in the financial statements. SO 6 Explain what a ledger is and how it helps in the recording process.
  • 44. Posting Posting – the process of transferring amounts from the journal to the ledger accounts. General Ledger General Journal Oct. 1 Owner investment J1 10,000 10,000 101 J1 SO 7 Explain what posting is and how it helps in the recording process.
  • 45.
  • 46. The Recording Process Illustrated SO 7 Explain what posting is and how it helps in the recording process. Follow these steps: 1. Determine what type of account is involved. 2. Determine what items increased or decreased and by how much. 3. Translate the increases and decreases into debits and credits. Illustration 3-21
  • 47. The Recording Process Illustrated SO 7 Explain what posting is and how it helps in the recording process. Follow these steps: 1. Determine what type of account is involved. 2. Determine what items increased or decreased and by how much. 3. Translate the increases and decreases into debits and credits. Illustration 3-22
  • 48. The Recording Process Illustrated SO 7 Explain what posting is and how it helps in the recording process. Follow these steps: 1. Determine what type of account is involved. 2. Determine what items increased or decreased and by how much. 3. Translate the increases and decreases into debits and credits. Illustration 3-23
  • 49. The Recording Process Illustrated SO 7 Explain what posting is and how it helps in the recording process. Illustration 3-24 Additional Transactions
  • 50. The Recording Process Illustrated SO 7 Explain what posting is and how it helps in the recording process. Illustration 3-25 Additional Transactions
  • 51. The Recording Process Illustrated SO 7 Explain what posting is and how it helps in the recording process. Illustration 3-26 Additional Transactions
  • 52. The Recording Process Illustrated SO 7 Explain what posting is and how it helps in the recording process. Illustration 3-27 Additional Transactions ,
  • 53. The Recording Process Illustrated SO 7 Explain what posting is and how it helps in the recording process. Illustration 3-28 Additional Transactions
  • 54. The Recording Process Illustrated SO 7 Explain what posting is and how it helps in the recording process. Additional Transactions Illustration 3-29
  • 55. The Recording Process Illustrated SO 7 Explain what posting is and how it helps in the recording process. Illustration 3-30 Additional Transactions
  • 56. The Recording Process Illustrated SO 7 Explain what posting is and how it helps in the recording process. Illustration 3-31 Additional Transactions
  • 57. Summary Illustration of Journalizing SO 7 Explain what posting is and how it helps in the recording process. Illustration 3-32
  • 58. Summary Illustration of Journalizing SO 7 Explain what posting is and how it helps in the recording process. Illustration 3-32
  • 59. Summary Illustration of Posting Illustration 3-33
  • 60.
  • 61.
  • 62.
  • 63. Copyright Copyright © 2009 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

Editor's Notes

  1. 1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements? Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases). Forward-looking Information Soft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image). Timeliness (no real time financial information)
  2. Service Cost - Actuaries compute service cost as the present value of the new benefits earned by employees during the year. Future salary levels considered in calculation. Interest on Liability - Interest accrues each year on the PBO just as it does on any discounted debt. Actual Return on Plan Assets - Increase in pension funds from interest, dividends, and realized and unrealized changes in the fair market value of the plan assets. Amortization of Unrecognized Prior Service Cost - The cost of providing retroactive benefits is allocated to pension expense in the future, specifically to the remaining service-years of the affected employees. Gain or Loss - Volatility in pension expense can be caused by sudden and large changes in the market value of plan assets and by changes in the projected benefit obligation. Two items comprise the gain or loss: difference between the actual return and the expected return on plan assets and, amortization of the unrecognized net gain or loss from previous periods