1 chapter 3 processing accounting information annual report financial accounting, alternate 4e by...
DESCRIPTION
3 Source Documents Evidence needed in an accounting system to record transactions Purchase Invoice Cash Register Tape Sales Invoice Receiving Document Payroll Records Shipping Document ChecksTRANSCRIPT
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Chapter 3
Processing Accounting Information
AnnualReport
Financial Accounting, Alternate 4e by Porter and Norton
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External vs. Internal Events
external events: interaction between entity and outside environment
internal events: interaction within
entity
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Source Documents
Evidence neededin an accountingsystem to record
transactions
PurchaseInvoice
CashRegister
Tape
SalesInvoice
ReceivingDocument
PayrollRecords
ShippingDocument
Checks
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Assets = Liab. + O/E + Rev – Exp.
Cash Capital Stock+ 100,000 = + 100,000
The accounting equation must always remain in balance
Issue capital stock for cash
1/04 Transactions for Glengarry Health Club
StockCertificate
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Assets = Liab. + O/E + Rev. – Exp.Land Note Pay.+ $50,000 + $200,000Building+ $150,000
Purchase of property in exchange for note payable
Increase on left has corresponding increase on right
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Assets = Liab. + O/E + Rev. – Exp.
Equip. Accts. Pay.+ $20,000 = + $20,000
Purchase of equipment on account
At least two accounts affected by every transaction
I.O.U.
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Sell monthly memberships on account
Assets = Liab. + O/E + Rev. – Exp.
Accts. Rec. Memberships+ $15,000 = + $15,000
Revenues increase retained earnings
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Sell court time
Assets = Liab. + O/E + Rev. – Exp. Cash Court Fees+ 5,000 = + 5,000
Revenues increase retained earnings
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Assets = Liab. + O/E + Rev. – Exp. Cash Wages - 10,000 = -
10,000
Payment of wages and salaries
Expenses decrease retained earnings
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Assets = Liab. + O/E + Rev. – Exp. Cash Utilities- 3,000 = - 3,000
Payment of utilities
Expenses also decrease assets orincrease liabilities
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Collection of accounts receivable
Assets = Liab. + O/E + Rev. - Exp. Cash + $4,000 = (no change)
Accts. Rec. - $4,000
Assets were traded: accounts receivable for cash
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Assets = Liab. + O/E + Rev. – Exp. Cash Ret. Earn. - 2,000 = - 2,000
Payment of dividends
Dividends directly reduce retained earnings
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Assets = Liab. + O/E + Rev. – Exp.
Sold stock + $100,000 = + $100,000Bought prop.with note + 200,000 = + $200,000Bought equip.on acct. + 20,000 = + 20,000Sold memberships + 15,000 = + $15,000Sold court time + 5,000 = + 5,000Paid wages - 10,000 = - $10,000Paid utilities - 3,000 = - 3,000Collected A/R + 4,000 = ------------ (no change) ---------------- - 4,000Paid dividends - 2,000 = - 2,000
Cumulative Effect of Transactions for Glengarry Health Club
+ $325,000 = $220,000 + $98,000 + $20,000 - $13,000
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Revenue- Expenses= Net income (loss)
Income Stmt. Stmt. of R/E
Beginning R/E+ Net income
(or – net loss)- Dividends= Ending R/E
Effect of Revenue and Expenses on Retained Earnings
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Glengarry Health ClubIncome Statement
For the Month Ended January 31, 2004
Revenues: Memberships $15,000 Court fees 5,000 $20,000Expenses: Salaries and wages $10,000 Utilities 3,000 13,000Net income $ 7,000
Net increase to retained earnings
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Glengarry Health ClubStatement of Retained Earnings
For the Month Ended January 31, 2004
Beginning balance, Jan. 1, 2004: $ 0Add: Net income for January 7,000Deduct: Dividends for January 2,000Ending balance, Jan. 31, 2004: $ 5,000
Distribution of
net income
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Glengarry Health ClubBalance Sheet
January 31, 2004
Assets:Cash $ 94,000Accts. Rec. 11,000Equipment 20,000Building 150,000Land 50,000 Total assets $325,000
Liabilities & Owners’ Equity:Accounts payable $ 20,000Notes payable 200,000Capital stock 100,000Retained earnings 5,000 Total liabilities & owners’ equity $325,000
Cost principle requires recording assets at cost
Sample Chart of Accounts100 - 199 ASSETS
100 - 109: Cash101: Checking Account102: Savings Account110 - 119: Receivables111: Accts. Receivable:120 - 129: Prepaid Assets121: Cleaning Supplies122: Prepaid Insurance130 - 139: Property, Plant & Equipment131: Land132: Building:
200 - 299 LIABILITIES200 - 209: Short-Term Liab.201: Accts. Payable202: Wages Payable:
300 - 399 OWNERS’ EQUITY301 Preferred Stock302 Common Stock303 Retained Earnings
400 - 499 REVENUES:
500 - 599 EXPENSES:
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General Ledger
File or book that contains one page (or entry) for each account.
Cash+100
-50
A/R +400
- 100
Cash: +100 - 50
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Re-examine the Accounting Equation
Assets = Liab. + O/E + Rev. – Exp.Balance Sheet Income Statement
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End of Chapter 3