Lecture Slides- Module 2- FULL.ppt

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© Copyrright Doug Hillman 1997
The System of
Accounting

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The Account
Account Title

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The Account
Left side
Account Title

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The Account
Left side Right side
Account Title

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The Account
the debit side
Account Title

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The Account
the debit side the credit side
Account Title

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Summary of the Debit/Credit
Rules
 Assets

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Rules
 Assets
» Appear on the left (debit) side of the
equation

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Rules
 Assets
» Appear on the left (debit) side of the
equation
» Therefore we:
– Increase them with debits
– Decrease them with credits

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Summary of Debit/Credit
Rules
 Liabilities

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Rules
 Liabilities
» Appear on the right (credit) side of the
equation

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Rules
 Liabilities
equation
» Therefore we:
– Increase them with credits
– Decrease them with debits

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Rules
 Owners' Equity

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Rules
 Owners' Equity
equation

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Rules
 Owners' Equity
equation
» Therefore:
– Increase them with credits
– Decrease them with debits

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Rules
 Changes in owners' equity
 Issuances of common stock

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Rules
» Causes increase in owners' equity

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Rules
» Causes increase in owners' equity
» Recorded by regular owners' equity
rules
– Increased with credits
– Decreased with debits

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Rules
 Revenues

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Rules
 Revenues
» Cause increases in owners' equity

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Rules
 Revenues
» Cause increases in owners' equity
» Recorded by regular owners' equity
rules
– Increased with credits
– Decreased with debits

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Rules
 Expenses

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Rules
 Expenses
» Cause decreases in owners' equity

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Rules
 Expenses
» Cause decreases in owners' equity
» Recorded opposite as regular owners'
equity
– Increase with debits
– Decreased with credits

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Records in the Accounting
System
 Journal
» Book of original entry
 Ledger
» Book of final entry
» Categorical record of events

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Journal Entries
 What information do we need to record?
» Date

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Journal Entries
» Date
» Debit account

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Journal Entries
» Date
» Debit account
» Debit amount

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Journal Entries
» Date
» Debit account
» Debit amount
» Credit account

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Journal Entries
» Date
» Debit account
» Debit amount
» Credit account
» Credit amount

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Journal Entries
» Date
» Debit account
» Debit amount
» Credit account
» Credit amount
» Supplementary information

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Journal Entry
Dec. 1

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Journal Entry
Dec. 1 Cash

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Journal Entry
Dec. 1 Cash 25,000

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Journal Entry
Dec. 1 Cash 25,000
Common Stock

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Journal Entry
Dec. 1 Cash 25,000
Capital 25,000

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Journal Entry
Dec. 1 Cash 25,000
Capital 25,000
Introduced capital

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Posting
Process of transferring

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Posting
Process of transferring the
amounts in the journal

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Posting
Process of transferring the
amounts in the journal to
the ledger

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Posting Process
 Locate the ledger account for the debit
account
 Enter the date, journal page number,
and debit amount in the ledger
 Enter the ledger account number in the
journal entry

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Posting Process
 Locate the ledger account for the credit
account
 Enter the date, journal page number,
and credit amount in the ledger
 Enter the ledger account number in the
journal

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Trial Balance
 A test of the accuracy of journalizing and
posting process
 Preparation

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Trial Balance
posting process
 Preparation
» List each ledger account and place
the ending account balance in the
proper column

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Trial Balance
posting process
 Preparation
proper column
» Total the debit and credit columns

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Trial Balance
posting process
 Preparation
proper column
» Total the debit and credit columns
» Compare the totals

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Financial Statements
 Prepared from the information contained
in the trial balance
 Three primary statements

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» Income Statement

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» Income Statement

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» Income Statement
» Balance Sheet

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» Income Statement
» Balance Sheet
» Statement of Cash Flows

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 Title

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Income statement
 Title
» Company name

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Income statement
 Title
» Company name
» Statement name

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Income statement
 Title
» Company name
» Statement name
» For the period ending date or date

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Income statement
 Title - For the period ending date
 List revenues and subtotal
 List expenses and subtotal
 Subtract expenses from revenues

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Balance Sheet
 Title
» Date
 Assets

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Balance Sheet
 Title
» Date
 Assets
» First list and subtotal current assets

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Balance Sheet
 Title
» Date
 Assets
» Then list and subtotal property, plant,
and equipment

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Balance Sheet
 Title
» Date
 Assets
» Then list and subtotal property, plant,
and equipment
» Determine total assets

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Balance Sheet
 Liabilities

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Balance Sheet
 Liabilities
» First list and subtotal current liabilities

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Balance Sheet
 Liabilities
» Then list and subtotal long-term
liabilities

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Balance Sheet
 Liabilities
» Then list and subtotal long-term
liabilities
 Total all liabilities

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Balance Sheet
 Owners’ Equity

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Balance Sheet
»Enter ending capital and retained
earnings

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Balance Sheet
»Enter ending common stock and
retained earnings

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Statement of Cash Flows
 Title
» For the period ending
 Three sections

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 Title
 Three sections
» Cash Flows from Operating Activities

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 Title
 Three sections
» Cash Flows from Investing Activities

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 Title
 Three sections
» Cash Flows from Investing Activities
» Cash Flows from Financing Activities

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