analyzing and recording transactions pr. samlal zoubida

Analyzing and Recording Transactions

Pr. SAMLAL Zoubida

Procedural Learning Objectives

P1: Record transactions in a journal and

post entries to a ledger (T account).

P2: Prepare and explain the use of a trial

balance.

P3: Prepare financial statements from business transactions.

2-2

External Transactions occur between the

organization and an outside party.

Internal Transactions occur within the

organization.

Analyzing and Recording Process

Exchanges of economic consideration between two parties.

C 1

2-3


Accounting process: -Identifies business transactions and events, -Analyzes and records their effects, and -Summarizes and presents information in reports and financial statements.

Steps in accounts process that focus on analyzing and recording transactions and events are: (1)Record relevant transactions and events in a journal, (2) Post journal information to ledger accounts, and(3) Prepare a trial balance.

Accounting records are informally referred as theaccounting books, or simply the books.

Analyze each transaction and event from source documents


Record relevant transactions and events in a journal

Post journal information to

ledger (T) accountsPrepare and analyze

the trial balance

C 1

2-5

Sales Tickets

Bank Statements

Purchase Orders

Checks

Source Documents

Bills from Suppliers

Employee EarningsRecords

C 2

2-6

An account is a record of

increases and decreases in a specific asset, liability, equity,

revenue, or expense item.

An account is a record of

increases and decreases in a specific asset, liability, equity,

revenue, or expense item.

The Account and its Analysis

The general ledger is a record

containing all accounts used by

the company.

The general ledger is a record

containing all accounts used by

the company.

C 3

2-7

AssetsAccountsAssets

AccountsAssets

AccountsAssets

AccountsAsset

AccountsAsset

Accounts =


+LiabilityAccountsLiability

AccountsLiability

AccountsLiability

AccountsLiability

AccountsLiability

AccountsEquity

AccountsEquity

AccountsEquity

AccountsEquity

AccountsEquity

AccountsEquity

Accounts

C 3

2-8

LandLand

EquipmentEquipment

BuildingsBuildings

CashCash

Notes Receivable

Notes Receivable

SuppliesSupplies

Prepaid AccountsPrepaid

Accounts

Accounts ReceivableAccounts

Receivable

AssetAccounts

AssetAccounts

Asset AccountsC 3

2-9

Accrued LiabilitiesAccrued

Liabilities

Unearned Revenue

Unearned Revenue

Notes PayableNotes

PayableAccounts Payable

Accounts Payable

LiabilityAccountsLiability

Accounts

Liability AccountsC 3

2-10

DividendsPayable

DividendsPayable

EquityAccounts

EquityAccounts

RevenuesRevenues

CommonStock

CommonStock

DividendsDeclared

DividendsDeclared

ExpensesExpenses

Equity AccountsC 3

RetainedEarningsRetainedEarnings

2-11

LiabilitiesLiabilities EquityEquityAssetsAssets = +


CommonStock

CommonStock Dividends Dividends RevenuesRevenues ExpensesExpenses

+ +– –

C 3

2-12

Ledger and Chart of Accounts

The ledger is a collection of all accounts for aninformation system. A company’s size and diversity of operations affect the number of accounts needed.

The ledger is a collection of all accounts for aninformation system. A company’s size and diversity of operations affect the number of accounts needed.

The chart of accounts is a list of all accounts andincludes an identifying number for each account.The chart of accounts is a list of all accounts andincludes an identifying number for each account.

101 Cash 319 Dividends106 Accounts receivable 403 Consulting Revenues126 Supplies 406 Rental revenue128 Prepaid insurance 622 Salaries expense167 Equipment 637 Insurance expense

201 Accounts payable 640 Rent expense

236 Unearned revenue 652 Supplies expense307 Common stock 690 Utilities expense318 Retained Earnings

C 4

2-13

A T-account represents a ledger account and is a tool used to understand the effects of one or more transactions.

Debits and Credits

(Left side) (Right side)Debit Credit

T- Account

C 5

2-14

Double-Entry Accounting

NORMAL Balance

ASSETS = LIABILITIES + EQUITY DR = CR CR

Assets are on the left side of the equation; therefore, the left, or debit side is the normal balance side for assets.

Liabilities and equities are on the right side; therefore, the right, or credit side is the normal balance side for liabilities and equity.

Double-Entry Accounting

Total amount that is debited to accounts must equal the total amount credited to accounts for each transaction.

Sum of debit account balances in the ledger must equal the sum of credit account balances.

ASSETS = LIABILITIES + EQUITY ||

ASSETS = LIABILITIES + Common Stock – DIV + REV - EXP


Double-Entry AccountingNORMAL Balance

Debit Credit Debit Credit Debit Credit

ASSETS

+ - + -

LIABILITIES

- + - +

EQUITIES

- + - +

C 5

2-17

Whether a debit or a credit is an increase or decrease depends on the NORMAL Balance of the account.

RevenuesRevenues ExpensesExpensesCommon

StockCommon

StockDividendsDividends__ ++ __

Debit Credit

Stock

- + - + Debit Credit

Dividends

+ - + - Debit Credit

Expenses

+ - + -Debit Credit

Revenues

- + - +

EquityEquity

C 5

2-18


An account balance is the difference between the increases and decreases in an account.

Notice the T-Account

C 5

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Journalizing & Posting Transactions

Step 1: Analyze transactions and source documents.


Step 2: Apply double-entry accounting

(Left side) (Right side)Debit Credit

T- Account

ACCOUNT NAME: ACCOUNT No.

Date Description PR Debit Credit Balance

Step 4: Post entry to ledgerStep 3: Record journal entry

P1

2-20

Dollar amount of debits and credits

Dollar amount of debits and credits

Journalizing Transactions

Transaction Date

Transaction Date

Transaction explanation

Transaction explanation

Titles of Affected Accounts

Titles of Affected Accounts

P1

2-21

T-accounts are useful illustrations, but balance column accounts are used in practice.

Balance Column AccountP1

2-22

11 Identify the debit account in ledger.

Posting Journal EntriesP1

2-23

22 Enter the date.


2-24

33 Enter the amount and description.


2-25

44 Enter the journal reference.


2-26

55 Compute the balance.


2-27

Enter the ledger reference.66


2-28

Analyzing Transactions

Analysis:

(1) Cash 101 30,000 Common stock 301 30,000

Double entry:

(1) 30,000Cash 101

(1) 30,000Common Stock 301

Posting:

A1

2-29


Analysis:

(2) Supplies 126 2,500 Cash 101 2,500

Double entry:

(2) 2,500Supplies 126

(1) 30,000 (2) 2,500Cash 101

Posting:

A1

2-30


(3) Equipment 167 26,000 Cash 101 26,000

Double entry:

(1) 30,000 (2) 2,500(3) 26,000

Cash(3) 26,000

Equipment 167 101

Posting:

A1

Analysis:

2-31


Analysis:

(4) Supplies 126 7,100 Accounts payable 201 7,100

Double entry:

2,500 (4) 7,100

Supplies 126

(4) 7,100Accounts Payable 201

Posting:

A1

2-32


Analysis:

(5) Cash 101 4,200 Consulting Revenue 403 4,200

Double entry:

(1) 30,000 (2) 2,500(5) 4,200 (3) 26,000

Cash(5) 4,200

Consulting Revenue 403 101

Posting:

A1


Analysis:

(6) Rent Expense 640 1,000 Cash 101 1,000

Double entry:

(1) 30,000 (2) 2,500 (5) 4,200 (3) 26,000

(6) 1,000

Cash(6) 1,000

Rent Expense 640 101

Posting:

A1


Transactions 7: Payment of Salaries expenses in cash Analysis: - Assets (Cash) = – Equity (Expenses)Double entry: Debit Salaries Expenses and credit Cash

Transaction 8: Provide services and rents test facilities for creditAnalysis: + Assets (Accts Receivable) = + Equity (Revenues) Double entry: Debit Accounts Receivable and Credit Consulting Revenue and Credit Rental Revenue

Transaction 9: Receipt of cash from accounts receivable Analysis: + Assets (Cash) = – Assets (Accounts Receivable)Double entry: Debit Cash and credit Accounts Receivable


Transaction 10: Payment of accounts payableAnalysis: – Assets (Cash) = – Liability (Accounts Payable) Double entry: Debit Accounts Payable and credit Cash

Transaction 11: Payment of cash dividendAnalysis: – Assets (Cash) = – Equity (Dividends)Double entry: Debit Dividends and credit Cash

Transaction 12: Receipts of cash from a customer for future consulting servicesAnalysis: + Assets (Cash) = + Liabilities (Unearned Revenue)Double entry: Debit Cash and credit Unearned Consulting Revenue


Transaction 13: Pay cash for future insurance coverageAnalysis: – Assets (Cash) = + Assets (Prepaid Insurance)Double entry: Debit Prepaid Insurance and credit Cash

Transaction 14: Purchase supplies for cash Analysis: - Assets (Cash) = + Assets (Supplies)Double entry: Debit Supplies and credit Cash

Transactions 15: Payment of utilities expenses in cashAnalysis: – Assets (Cash) = – Equity (Expenses)Double entry: Debit Utilities Expense and credit Cash

Transactions 16: Payment of salaries expenses in cashAnalysis: – Assets (Cash) = – Equity (Expenses)Double entry: Debit Salaries Expense and credit Cash

After processing its remaining transactions for December, FastForward’s Trial Balance is prepared.

After processing its remaining transactions for December, FastForward’s Trial Balance is prepared.

Debits CreditsCash 4,350$ Accounts receivable - Supplies 9,720 Prepaid Insurance 2,400 Equipment 26,000 Accounts payable 6,200$ Unearned consulting revenue 3,000 Common stock 30,000 Dividends 200 Consulting revenue 5,800 Rental revenue 300 Salaries expense 1,400 Rent expense 1,000 Utilities expense 230 Total 45,300$ 45,300$

FastForwardTrial Balance

December 31, 2009 The trial balance lists all account balances in the general ledger.

If the books are in balance, the total

debits will equal the total credits.

The trial balance lists all account balances in the general ledger.

If the books are in balance, the total

debits will equal the total credits.

A1

Six Steps for Searching for and Correcting Errors

If the trial balance does not balance, the error(s) must be found and corrected.

Make sure the trial balance columns are correctly added.Make sure the trial balance columns are correctly added.

Make sure account balances are correctly entered from the ledger.

Make sure account balances are correctly entered from the ledger.

See if debit or credit accounts are mistakenly placed on the trial balance.

See if debit or credit accounts are mistakenly placed on the trial balance.

Recompute each account balance in the ledger.Recompute each account balance in the ledger.

Verify that each journal entry is posted correctly.Verify that each journal entry is posted correctly.

Verify that each original journal entry has equal debits and credits.

Verify that each original journal entry has equal debits and credits.

P2

Using a Trial Balance to Prepare Financial Statements

Statement of Cash Flows

Income StatementStatement of Retained Earnings

Beginning Balance Sheet

Ending Balance Sheet

Period of TimePoint inTime

Point inTime

P3

Income Statement

Revenues: Consulting revenue 5,800$ Rental revenue 300 Total revenues 6,100$ Expenses: Salaries expense 1,400 Rent Expense 1,000 Utilities Expense 230 Total expenses 2,630 Net income 3,470$

FASTFORWARDIncome Statement

For the Month Ended December 31, 2009

P3

Statement of Retained Earnings

Balance, 12/1/09 -$ Net income for December 3,470

3,470 Less: Dividends (200) Balance, 12/31/09 3,270$

FASTFORWARDStatement of Retained Earnings


Revenues: Consulting revenue 5,800$ Rental revenue 300 Total revenues 6,100$ Expenses: Rent expense 1,000 Salaries expense 1,400 Utilities expense 230 Total expenses 2,630 Net income 3,470$

FASTFORWARDIncome Statement


P3

Balance Sheet

AssetsCash 4,350$ Supplies 9,720 Prepaid insurance 2,400 Equipment 26,000 Total assets 42,470$

LiabilitiesAccounts payable 6,200$ Unearned revenue 3,000 Total liabilities 9,200

EquityCommon stock 30,000 Retained earnings 3,270 Total equity 33,270 Total liabilities and equity 42,470$

FASTFORWARDBalance Sheet

December 31, 2009

Balance, 12/1/09 -$ Net income for December 3,470

3,470 Less: Dividends 200 Balance, 12/31/09 3,270$

FASTFORWARDStatement of Retained Earnings


P3