cacc100 porter chapter 3 - master - student copy

7/28/2019 CACC100 Porter Chapter 3 - Master - Student Copy

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ACC100

Introductory Financial Accounting

Chapter 2 - REVIEW


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Review

Be prepared to answer 5-7 M/C questions at

the beginning of class.

These questions are for YOUthey provideyou with an understanding of your learning

process.

My expectation is that you will be able to getat least 80% of the questions correct.

Note the questions you were unable to

answer and review that content again!


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ACC100

Introductory Financial Accounting

Chapter 3Processing

Accounting Information


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LO1: Identify transactions for recording

LO2: Analyze the effects of transactions

on the accounting equation

LO3: The double entry accountingsystem.

LO5: The Trial Balance

Learning Objectives


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External vs. Internal Events

external events: interaction between entity

and outside environment

internal events:

interaction within

entity

LO1


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Events vs. Transactions

If an event is

measurable

and

realizedthen its a transaction

Only transactions

are recorded!

LO1


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Working with a partner answer thequestion.

Then answer the next 2 M/C questions!

You have 5 minutes.

Exercise 3-1 page 121

LO1


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Item 3 in E3-1, page 121, is an

A. External event

B. Internal event

C. Not recordedD. None of the above.


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Item 8 in E3-1, page 121, is an

A. External event

B. Internal event

C. Not recordedD. None of the above.


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What do we use in order to determine ifan event is a transaction, i.e.,

measurable and realized?

Question

LO1


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Source Documents

Evidence needed

in an accounting

system to record

transactions

Purchase

Invoice

Cash

Register

Tape

SalesInvoice

Receiving

DocumentPayroll

Records

Shipping

Document

Cheques

LO1


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Once we have determined, usingsource documents, that an event is a

transaction, we use the accountingequation to analyze the impact on thcompany.

Transaction Analysis:

LO1


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A. 15

B. 35C. 75

D. 125

E. Did not have time to finish/Im lost!

At the beginning of the year assets were $100 and liabilities

were $60. During the year Assets increased by $25 and

Liabilities decreased by $10.

The ending shareholders equity would be:

LO4


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Assets = Liabilities + Shareholders Equity100 = 60 + ?

25 = -10 + ?

?? = ?? + ??

The accounting equation must BALANCE

both at the beginning, during and end of

the year!

Remember to deconstruct the question!

LO4


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If we can do that for a WHOLE years worth of transactions,

we can do the SAME THING forindividual transactions!

LO4

For every transaction we would have tohave the accounting equation hold true!

Assets = Liabilities + Shareholders Equity

??? = ?? + ??

We can use this for EVERY transaction!


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??? = ??? + ???

The accounting equation must

always remain in balance!

Issue capital stock for cash $50,000

Transactions for

Glengarry Health Club

Share

Certificate

LO2


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LO2

The impact on the accounting equation would be:

A. Increase assets, decrease liabilities.

B. Increase assets, increase liabilities.C. Increase assets, decrease shareholders/ equity.

D. Increase assets, increase shareholders equity.

E. Increase liabilities, decrease shareholders equity.

Extend your learning: Name the ACCOUNTS under each

category that would be affected and the $ value of the

effect!


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The accounting equation must

always remain in balance


Transactions for


Share

Certificate

LO2


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We can do that for EVERYtransaction!

BUT we need to:

1. understand which accounts go in each category (tie into

your understanding of the characteristics of everycategory!)

2. understand how transactions affect the accounting equation

(increase, decrease, etc)

3. Understand that the accounting equation is ALWAYS inbalancethat = sign is IMPORTANT!


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Acquire $75,000 in equipment. Paid$25,000 cash and issued a note payable for

the rest

LO2






HINT: DRAW out your accounting equation, then THINK:

What did I GET? What did I GIVE UP? What do I have

to GIVE UP in the FUTURE?


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Acquire $75,000 in equipment. Paid$25,000 cash and issued a note payable for

the rest

Increase on left has

corresponding increase on right


LO2


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Purchase supplies for $800 on credit.

LO2








effect!


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Purchase supplies for $800on credit.

At least two accounts affected

by every transaction

I.O.U.

LO2


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Lets quickly look at one moreexample.

These examples are for your benefit.

Even though I am not giving you M/C

questions for every one, YOU should be ableto provide the impact on the accounting

equation AND the accounts affected!


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Paid $6,000 for the first six-monthsrent


Consider: Is this an EXPENSE?

Think of the CHARACTERISTICS!

LO2


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Sold $5,000 in day passes for cash.

LO2



B. Increase assets, increase liabilities.C. Increase assets, decrease shareholders equity.





effect!


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Sold $5,000 in day passes for cash.


Revenues increase retained earnings,

which increases shareholders equity!

LO2


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Sold $12,000 in annual memberships forcash.

LO2



B. Increase assets, increase liabilities.C. Increase assets, decrease shareholders equity.





effect!

S ld $12 000 i l


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Sold $12,000 in annualmemberships for cash.

Receipt of annual membership

payment creates liabilities

LO2


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Pay wages and salaries of $3,000.

Expenses decrease

retained earnings

LO2


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Pay dividends of $400.

Dividends directly reduce

retained earnings

LO2


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Pay dividends of $400.

Dividends directly reduce

retained earnings

LO2


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Although we analyze the transactionsINDIVIDUALLY, we have to gather the

information together in order to help usproduce the financial statements.

Move from transaction analysis (individual)

to financial statements (cumulative):


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Assets = Liabilities + ShareholdersEquity

Cumulative Effect of Transactions for


LO2


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Glengarry Health ClubIncome Statement

For the Month ended January 31, 2008

Revenues:

Day passes $

Expenses:

Salaries and wages $Net income $

LO2


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Glengarry Health ClubStatement of Retained Earnings

For the Month ended January 31, 2008

Opening R/E: $

+ Net Income $- Dividends

Closing R/E:

LO2

Carried to the

Balance Sheet!


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Glengarry Health ClubBalance Sheet

January 31, 2008Assets:

Cash

Supplies

Prepaid rent

Equipment

Total assets

Liabilities:Accounts payableUnearned revenue

Notes payableOwners EquityCapital stockRetained earnings

Total liabilities &owners equity

LO2


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Complete this question with a partner. Complete

only Part (1).

HINT: Use the format noted on the following slide.

You have 10 minutes to complete

this question and answer the M/C questions that follow.

Problem 3-2 Part Ipage 126


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Assets = Liab.

+ Shareholders'

Equity

Date Cash A/R Equip. Supplies A/P Capital Retained

Stock Earnings

01-May

01-May05-May

09-May

10-May

15-May

May 17

24-May

29-May

30-May

30-May

31-May

Balance

Problem 3-2 Part Ipage 126


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For P3-2, Part 1, on page 126: what is the impact on the

accounting equation for the second transaction on May 1st?

May 1: Purchased 10 bicycles for $300 each on an open

account. The company has 30 days to pay for the

bicycles.


B. Increase assets, decrease shareholders equity.

C. Increase assets, increase liabilities.D. Increase assets, increase shareholders equity.

E. None of the above.


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For P3-2, Part 1, on page 126: what is the impact on the

accounting equation for the second transaction on May 24st?

May 24: Billed the local park district $1,200 for in-line

skating lessons provided to neigbourhood kids.

The park district is to pay of the bill within 5working days and the rest within 30 days.

A. Increase assets, increase liabilities.

B. Increase assets, increase shareholders equity.C. Increase liabilities, increase shareholders equity.

D. increase liabilities, decrease shareholders equity.



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Using this information can we create the

financial statements??

Assets Liab.

Shareholders'

Equity


Stock Earnings

Balance

The issue: we have the accounts to produce the Balance

Sheet but we do not have the necessary detailed information

to create the Income Statement!

For that we would have to record all the transactions at the

ACCOUNT level.


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Account

Account is record for each individualassets, liabilities, revenue, expenses,

and component of owners equity.

Cash

A/R

SalesSupplies

Rent

WagesA/P

Dividends

LO3


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Using this information can we create the

financial statements??

Assets Liab.

Shareholders'

Equity


Stock Earnings

Balance

The balance in the Retained Earnings Accounts would have

to be broken down into accounts in order to create the

income statement.

Using this format input the necessary transactions to


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Retained Earnings

Date Revenue Vendor Advertising Wage

Expense Expense Expense

01-May

01-May05-May

09-May

10-May

15-May

May-17

24-May

29-May

30-May

30-May

31-May

Balance

Using this format, input the necessary transactions to

help you create the income statement. You have 5

minutes!

Q i Wh l ?


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Question: What are total revenues?

A. 1,800

B. 3,000

C. 4,800D. 6,000


The breakdown into accounts showing the


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Retained Earnings

Date Revenue Vendor Advertising Wage

Expense Expense Expense

01-May

01-May05-May

09-May

10-May

15-May

May-17

24-May

29-May

30-May

30-May

31-May

Balance

The breakdown into accounts showing the

revenue and expenses allows the creation of the

income statement.

FUN ON WHEELS INC


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Revenues:

Rental fees

Lessons

Expenses:Registration fee

Advertising

Salaries and wages

Net income

FUN-ON-WHEELS INC.

INCOME STATEMENT

FOR THE MONTH ENDED MAY 31, 2008


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We can then use the accounts under assets,

liabilities and shareholders equity to

produce the classified balance sheet.

Assets Liab.

Shareholders'

Equity


Stock Earnings

Balance

Balance Sheet:

FUN ON WHEELS INC


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AssetsCurrent assets:

CashAccounts receivableSupplies

Total current assetsProperty, plant, and equipment:

EquipmentTotal assetsLiabilities and ShareholdersEquity

Current liabilities:Accounts payable

Capital stockRetained earnings (0+$5,700 0 =)

Total shareholders equity

Total liabilities and shareholders equity

FUN-ON-WHEELS INC.

BALANCE SHEET

AT MAY 31, 2008


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With an understanding of the impact of

transactions on the accounting equation, you

should be able to work backwardsgiven theaffect on the accounting equation, provide an

entry which would cause this affect.

With a partner complete E3-4.

You have 5 minutes.

Exercise 3-4 page 122-123

E3 4 122 123 O ibl t ti th t ld ti f


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E3-4, pages 122-123: One possible transaction that would satisfy

the changes in the accounting equation for Part (1) of this question

is:

A. Sell goods for cash.

B. Purchase office equipment on account.

C. Sell common shares to investors.D. Sell goods on account.

E. Repay a bank loan with cash.

E3 4 pages 122 123: One possible transaction that would satisfy


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E3-4, pages 122-123: One possible transaction that would satisfy

the changes in the accounting equation for Part (4) of this question

is:

A. Sell goods for cash.

B. Sell common shares to investors.

C. Pay wages to employees.D. Repay a bank loan with cash.



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For Next Week:

1. Complete the Chapter 3 Homework

Assignment

2. Read Chapter 4, pages 146-154 (top)3. Complete the Chapter 4 Pre-Lecture

Quiz.


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End of Chapter 3