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C T 2 0 1 A C C T 2 0 1 A C C T 2 0 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee C h a p t e r 2

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Page 1: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Accounting Information System

UAA – ACCT 201 Principles of Financial

Accounting Dr. Fred Barbee

Chap

ter 2

Page 2: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Accounting Information System

First . . . A brief review of Day #2

Topics.

Chap

ter 2

Page 3: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Page 4: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Debits and Credits

The debit/credit convention or coding system is very simple.

Do not make it difficult because you cannot accept its simplicity.

Page 5: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Debits

Debit comes from Latin and merely means “left,” or the “left-hand” side of an account. Abbreviated “DR.”

Page 6: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

Account Title

Left Side

Debit Side

We need to stop here

and change our way of thinking!

Page 7: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

Symbolically, let’s erase that memory

C:\memory\debit\erase *.*

Are you sure (Y/N)?

All files in directory will be deleted

Page 8: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Credits

Credit also comes from the Latin, and means “right,” or the “right-hand” side of an account. Abbreviated “CR.”

Page 9: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

Account Title

Right Side

Credit Side

Let’s stop here and

modify our thinking – at least for this

class!

Page 10: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

Symbolically, let’s erase that

memory

C:\memory\credit\erase *.*

Are you sure (Y/N)?

All files in directory will be deleted

Page 11: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

Assets

Liabilities

Owners’ Equity

The algebraic relationship in the fundamental accounting model.

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Page 12: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

Account Title

Debit

Credit

Always

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Page 13: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

DR CR

Assets

LiabilitiesDR CR

DR CR

Owners’ Equity

Page 14: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

Debits Credits

The Second Equality . . .

The algebraic relationship

between account increases and

decreases.

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Page 15: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

Expenses

Revenue

Owners’ Equity

Liabilities

Assets

Debit-Credit Rules . . .

Debit Credit

Credit Debit

Credit Debit

Credit Debit

Debit Credit

Account Inc. Dec.

Page 16: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

Debit-Credit Rules . . .

Debits Credits

Assets Expenses

Liabilities Equity

RevenueIncrease

Decrease Liabilities

Equity Revenue

Assets Expenses

Page 17: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

ebits

ncrease

ssets

xpenses

Page 18: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

iabilities

evenues

redits

ncrease

quity

Page 19: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

ACCOUNT NAME: ACCOUNT No.

Date Description PR Debit Credit Balance

Step 4: Record the journal information in

a ledger.

Step 3: Record transactions in

a journal.

Step 5: Prepare a trial balance.

Steps in Processing Transactions

Step 1: Examine source

documents.

LiabilitiesLiabilities EquityEquityAssetsAssets = +

Step 2: Analyze transactions.

Page 20: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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General Journal Page 1

Date Description PR Debit Credit

Jan 6 Art Supplies 1,800

Office Supplies 800

Accounts Payable

2,600

Purchase of art and office supplies on credit

Page 21: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

Transaction Date

Titles of Affected Accounts

Dollar amount of debits and credits

Transaction explanation

General Journal for FastForward

Page 22: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

T-accounts are useful illustrations, but balance column ledger

accounts are used in practice.

Balance Column Ledger

Page 23: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

1 Identify the account.

Posting Journal Entries - Example

Page 24: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

2 Enter the date.

Posting Journal Entries - Example

Page 25: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

3Enter the amount.

Posting Journal Entries - Example

Page 26: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

4Enter the journal reference.

Posting Journal Entries - Example

Page 27: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

5

Compute the balance.

Posting Journal Entries - Example

Page 28: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

Enter the ledger reference. 6

Posting Journal Entries - Example

Page 29: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Accounting Information System

Text Section:Trial Balance (p. 63)

Chap

ter 2

Page 30: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Learning Objective

Prepare and explain the use of a trial balance.

P2

Procedural

Page 31: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Trial Balance

A Trial Balance is a listing of all accounts and their balances at a point in time.

Page 32: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2
Page 33: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Accounting Information System

Text Section:Unadjusted Financial

Statements (p. 68)

Chap

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Page 34: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Learning Objective

Prepare unadjusted financial statements from business transactions.

P3

Procedural

Page 35: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Income Statement

A statement showing revenues and expenses for a period of time.

Revenues = Inflows of assets in exchange for products and services provided to customers.

Expenses = Outflows or the using up of assets that result from providing products and services to customers.

Page 36: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

Exh.2.19

Page 37: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Statement of Retained Earnings

A statement showing additions to (net income) and deductions from (net loss, dividends) the Retained Earnings account.

Page 38: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

Exh.2.19

Page 39: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Balance Sheet

A statement showing the balances in asset, liability, and equity accounts at a point in time.

Page 40: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

Exh.2.19

Page 41: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Statement of Cash Flows

A statement showing the sources and uses of funds relating to the

Operating

Investing, and

Financing

Activities of a company.

Page 42: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

Exh.2.19

Page 43: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

Generally, dollar signs ($) are not used in the journals

or ledgers.

Generally, dollar signs ($) are not used in the journals

or ledgers.

RoundingRoundingRound numbers in

financial statements to the nearest dollar.

Round numbers in financial statements to the

nearest dollar.

ACCOUNT NAME: ACCOUNT No.

Date Description PR Debit Credit Balance

Formatting Conventions

Page 44: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Accounting Information System

Text Section:Decision Analysis (p. 70)

Chap

ter 2

Page 45: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Learning Objective

Analyze the impact of transactions on accounts and financial statements.

A2

Analytical

Page 46: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Learning Objective

Compute return on equity and use it to analyze company performance.

A3

Analytical

Page 47: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Describes the relationship between net income for the period and average equity.

Helps an owner judge the compnay’s profitability compared to other business or personal opportunities.

Using the Information - Return on Equity

Page 48: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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Learning Objective

Compute the debt ratio and describe its use in analyzing company performance.

A4

Analytical

Page 49: ACCT 201 ACCT 201 ACCT 201 Accounting Information System UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 2

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