journal ledger and trial
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Recording BusinessRecording Business
TransactionsTransactions
Recording BusinessRecording Business
TransactionsTransactions
Chapter 2
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The Accounting ProcessThe Accounting ProcessThe Accounting ProcessThe Accounting Process
Record Transactions in the
Journal
Copy (post) to the Ledger
Prepare the Trial Balance
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AccountAccountAccountAccount
Basic summary device
Detailed record of increases and
decreases in specific assets, liabilities, orowners equity during a period
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LedgerLedgerLedgerLedger
Book or printout holding all the accounts
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Liabilities EquityAssets = +
Accounting EquationAccounting EquationAccounting EquationAccounting Equation
Accounts are grouped in 3 broad categories:
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Revenues
NotesPayable
AccountsReceivable
C. Lapp,Capital
AccountsPayable
Ledger
Cash
All Individual Accounts CombinedAll Individual Accounts Combined
Make Up the LedgerMake Up the Ledger
All Individual Accounts CombinedAll Individual Accounts Combined
Make Up the LedgerMake Up the Ledger
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Chart of AccountsChart of AccountsChart of AccountsChart of Accounts
List of all accounts used by a company
along with the account numbers
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Objective 2Objective 2Objective 2Objective 2
Apply the rules of debit and credit
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Double Entry SystemDouble Entry SystemDouble Entry SystemDouble Entry System
Record dual effects of each transaction
Each transaction affects at least two
accounts Each transaction is recorded with at least
One debit
One credit Total debits must equal total credits
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Account Name
(Left Side)
Debit
(Right Side)
Credit
Simple tool for analyzing and determining thebalance in a given account
TT--AccountAccountTT--AccountAccount
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Debit CreditDebit Credit
AssetsAssets
++ --
Rules of Debit and CreditRules of Debit and CreditRules of Debit and CreditRules of Debit and Credit
LiabilitiesLiabilities EquityEquity== ++Debit CreditDebit Credit
-- ++Debit CreditDebit Credit
-- ++
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Rules of Debit and CreditRules of Debit and CreditRules of Debit and CreditRules of Debit and Credit
Owners EquityOwners EquityDebit CreditDebit Credit
-- ++
RevenuesRevenues
-- ++Debit CreditDebit Credit
OwnersOwners
CapitalCapital
Debit CreditDebit Credit-- ++
OwnersOwners
WithdrawalsWithdrawalsDebit CreditDebit Credit
++ --
ExpensesExpensesDebit CreditDebit Credit
++ --
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RevenuesRevenues ExpensesExpensesOwnersOwners
CapitalCapital
OwnersOwners
WithdrawalsWithdrawals__ ++ __
Expanding theExpanding the
Rules of Debit and CreditRules of Debit and Credit
Expanding theExpanding the
Rules of Debit and CreditRules of Debit and CreditOwners Equity
Debit CreditDebit Credit-- ++
Debit CreditDebit Credit
-- ++Debit CreditDebit Credit
++ --Debit CreditDebit Credit
++ --
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Remember: Just ask ALICE!Remember: Just ask ALICE!Remember: Just ask ALICE!Remember: Just ask ALICE!
Debit Credit
+ A = Assets -
- L = Liabilities +
- I = Income* +
- C = Capital +
+ E = Expenses -
* Really, this is revenues, but r just doesnt fit in!
The first and the
last are increasedwith a debit
The middle three
are increased with
credits
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LiabilitiesLiabilities EquityEquityAssetsAssets == ++
Normal BalancesNormal BalancesNormal BalancesNormal Balances
Debit CreditDebit Credit
++ --Debit CreditDebit Credit
-- ++Debit CreditDebit Credit
-- ++
NormalNormal
BalanceBalance
NormalNormal
BalanceBalance
NormalNormal
BalanceBalance
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++++
Owners Equity
Normal BalancesNormal BalancesNormal BalancesNormal Balances
Debit CreditDebit Credit
++ --Debit CreditDebit Credit
-- ++Debit CreditDebit Credit
-- ++
NormalNormal
BalanceBalance
NormalNormal
BalanceBalance
NormalNormal
BalanceBalance
RevenuesRevenuesRevenuesRevenues ExpensesExpensesExpensesExpensesOwnersOwners
CapitalCapital
OwnersOwners
CapitalCapital
OwnersOwners
WithdrawalsWithdrawals
OwnersOwners
WithdrawalsWithdrawals____ ____
Debit CreditDebit Credit
++ --
NormalNormal
BalanceBalance
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Objective 3Objective 3Objective 3Objective 3
Record transactions in the journal
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JournalJournalJournalJournal
Chronological record of the transactions
Consists of at least one debit and one
credit
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Journalizing TransactionsJournalizing TransactionsJournalizing TransactionsJournalizing Transactions
Identify each account affected and its type
Determine whether each account is
increased or decreased. Use the rules ofdebit and credit
Record transaction in journal, including a
brief explanation
Debit side of entry is entered first
Total debits should always equal total credits
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General JournalGeneral JournalGeneral JournalGeneral Journal
Style conventions that must be followed:
Year is entered at the top of each page
The month is only entered for the firstentry on a page unless the month changes
in the middle of the page. The month may
be abbreviated
Enter numerical date for each transaction,
even if there are many entries on same
date
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General JournalGeneral JournalGeneral JournalGeneral Journal
Debits are ALWAYS entered first in an
entry. Use the EXACT account title and
do not abbreviate
Credits are INDENTED and listed second
Do not use dollar signs
SKIP A LINE between each entry Never split an entry between two pages
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Exercise 2Exercise 2--55Exercise 2Exercise 2--55
Analysis of June 1 transaction:
Cash is increasing
Cash is an asset account Increase an asset with a debit
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Jun 1 Cash 25,000
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Exercise 2Exercise 2--55Exercise 2Exercise 2--55
Analysis of June 1 transaction:
M. Brown, Capital is increasing
Capital is an owners equity account Increase owners equity with a credit
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Jun 1 Cash 25,000
M. Brown, Capital 25,000
Owner invested in business
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Exercise 2Exercise 2--55Exercise 2Exercise 2--55
Analysis of June 2 transaction:
Medical Supplies is increasing
Medical Supplies is an asset account Increase an asset with a debit
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Jun 2 Medical Supplies 10,000
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Exercise 2Exercise 2--55Exercise 2Exercise 2--55
Analysis of June 2 transaction:
Accounts Payable is increasing
Accounts Payable is a liability account Increase a liability with a credit
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Jun 2 Medical Supplies 10,000
Accounts Payable 10,000
Purchased medical supplies
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Exercise 2Exercise 2--55Exercise 2Exercise 2--55
Analysis of June 2 transaction:
Rent Expense is increasing
Rent Expense is an expense account Increase an expense with a debit
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Jun 2 Rent Expense 4,000
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Exercise 2Exercise 2--55Exercise 2Exercise 2--55
Analysis of June 2 transaction:
Cash is decreasing
Cash is an asset account Decrease an asset with a credit
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Jun 2 Rent Expense 4,000
Cash 4,000
Paid rent for the month
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Exercise 2Exercise 2--55Exercise 2Exercise 2--55
Analysis of June 3 transaction:
Accounts Receivable is increasing
Accounts Receivable is an asset account Increase an asset with a debit
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Jun 3 Accounts Receivable 12,000
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Exercise 2Exercise 2--55Exercise 2Exercise 2--55
Analysis of June 3 transaction:
Service Revenue is increasing
Service Revenue is a revenue account Increase a revenue with a credit
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Jun 3 Accounts Receivable 12,000
Service Revenue 12,000
Performed services
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Objective 4Objective 4Objective 4Objective 4
Post from the journal to the ledger
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PostingPostingPostingPosting
Periodically, journal entries are posted to
ledger accounts to determine balances in
each account
Posting copying amounts from the
journal to the ledger
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Exercise 2Exercise 2--99Exercise 2Exercise 2--99Cash Accounts Payable Service Revenue
Accounts Receivable M. Brown, Capital Rent Expense
Medical Supplies
GENERAL JOURNAL
DATE
DESCRIPTI
ON REF
DEBIT CRE
DIT
Jun 1 Cash 25,000
M. Brown, Capital 25,000
Owner invested in business
25,000
25,000
25,000
25,000
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Cash
25,000
Accounts Payable Service Revenue
M. Brown, Capital Rent Expense
25,000
Accounts Receivable
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Jun 2 Medical Supplies 10,000
Accounts Payable 10,000
Purchased medical supplies
Exercise 2Exercise 2--99Exercise 2Exercise 2--99
Medical Supplies
10,000
10,000
10,000
10,000
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Cash
25,000
Accounts Payable Service Revenue
M. Brown, Capital Rent Expense
25,000
Accounts Receivable
Exercise 2Exercise 2--99Exercise 2Exercise 2--99
Medical Supplies
10,000
10,000
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Jun 2 Rent Expense 4,000
Cash 4,000
Paid rent for the month
4,000
4,000
4,000
4,000
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Cash
25,000
Accounts Payable Service Revenue
M. Brown, Capital Rent Expense
25,000
Accounts Receivable
Exercise 2Exercise 2--99Exercise 2Exercise 2--99
Medical Supplies
10,000
10,0004,000
4,000
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Jun 3 Accounts Receivable 12,000
Service Revenue 12,000
Performed services
12,000
12,000
12,000
12,000
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Cash
25,000
Accounts Payable Service Revenue
M. Brown, Capital Rent Expense
25,000
Accounts Receivable
Exercise 2Exercise 2--99Exercise 2Exercise 2--99
Medical Supplies
10,000
10,0004,000
4,00012,000
12,000
Bal 21,000Bal 21,000 Bal 10,000Bal 10,000 Bal 12,000Bal 12,000
Bal 4,000Bal 4,000Bal 25,000Bal 25,000Bal 12,000Bal 12,000
Bal 10,000Bal 10,000
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Flow of Accounting DataFlow of Accounting DataFlow of Accounting DataFlow of Accounting Data
Transaction Occurs
Source Documents Prepared
Transaction Analyzed
Transaction Journalized & Posted
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Objective 5Objective 5Objective 5Objective 5
Prepare and use a trial balance
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Trial BalanceTrial BalanceTrial BalanceTrial Balance
List of all accounts with their balances
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Mike Brown, M.D.Trial Balance
June 30, 2008
Cash 21,000
Accounts Receivable 12,000
Medical Supplies 10,000
Accounts Payable 10,000
M. Brown, Capital 25,000Service Revenue 12,000
Rent Expense 4,000
Totals 47,000 47,000
Exercise 2Exercise 2--9 (part 3)9 (part 3)Exercise 2Exercise 2--9 (part 3)9 (part 3)
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GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Exercise 2Exercise 2--1818Exercise 2Exercise 2--1818
Aug 1 Cash 60,000
R. Woodward, Capital 60,000To record investment by owner
2 Supplies 200
Accounts Payable 200
Purchased supplies on account
Cash increases. It is
an asset. Increase
assets with debits.
Capital increases.
Owners equity is
increased with a
credit.
Supplies, an asset,
increases. Increase
assetswith debits.
Accounts Payable
increases. It is a
liability. Increase
liabilitieswith a credit
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GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Exercise 2Exercise 2--55Exercise 2Exercise 2--55
Aug 4 Building 50,000
Cash 50,000
Purchased building
6 Cash 3,000
Service Revenue 3,000
Performed service
Both of these
accounts are assets.
Building is increasing.
Increase assets with
debits. Cash is
decreasing. Decrease
assetswith credits.
Cash, an asset, is
increasing. Increase
assetswith debits.
Revenue accounts areincreased with credits
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GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Exercise 2Exercise 2--1818Exercise 2Exercise 2--1818
Aug 9 Accounts Payable 100
Cash 100Paid on account
17 Accounts Receivable 2,100
Service Revenue 2,100
Performed services
Accounts Payable,
which is decreasing, is
a liability. Decrease
liabilities by debiting
them. Decrease the
asset, Cash, with a
credit.
Both of theseaccounts are assets.
Building is increasing.
Increase assets with
debits. Cash is
decreasing.D
ecreaseassetswith credits
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GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Exercise 2Exercise 2--1818Exercise 2Exercise 2--1818
Aug 23 Cash 1,200
Accounts Receivable 1,200Received payment on account
Both of these accounts
are assets. Cash is
increasing debit.
Accounts Receivable isdecreasing - credit
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GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Exercise 2Exercise 2--1818Exercise 2Exercise 2--1818
Aug 31 Salary Expense 1,200
Cash 1,200Paid salaries
31 Rent Expense 500
Cash 500
Paid rent for the month
Both of these
transactions involve
recognizing expenses.Since expenses
decrease owners
equity, and owners
equity is decreased
with a debit, debit
expenses. Cash is
decreasing credit
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Exercise 2Exercise 2--1919Exercise 2Exercise 2--1919Aug 9 100
Cash
Aug 1 60,000 Aug 4 50,000Aug 6 3,000
Accounts Receivable
Aug 17 2,100
Service Revenue
Aug 6 3,000
Bal. 12,400
Building
Aug 4 50, 000
R. Woodward, Capital
Aug 1 60,000
Rent Expense
Salary Expense
Aug 2 200
Supplies
Aug 2 200
Accounts Payable
Aug 9 100
Bal. 100
Aug 17 2,100
Aug 23 1,200
Aug 23 1,200
Aug 31 1,200Aug 31 500
Bal. 900Bal. 5,100
Aug 31 1,200
Aug 31 500
Take the difference
between total debitsand total credits to
determine the balance
in each account. If
debits are greater than
credits, the account
has a debit balance
and vice versa
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Woodward Technology Solutions
Trial Balance
August 31, 2008
Cash 12,400
Accounts Receivable 900
Supplies 200
Building 50,000
Accounts Payable 100
R. Hawk, Capital 60,000
Service Revenue 5,100
Salary Expense 1,200
Rent Expense 500
Totals 65,200 65,200
Exercise 2Exercise 2--1919Exercise 2Exercise 2--1919
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End of Chapter 2End of Chapter 2End of Chapter 2End of Chapter 2