PowerPoint Authors:Susan Coomer Galbreath, Ph.D., CPACharles W. Caldwell, D.B.A., CMAJon A. Booker, Ph.D., CPA, CIACynthia J. Rooney, Ph.D., CPA

Chapter 02

ANALYZING AND RECORDING TRANSACTIONS

McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

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Analyze each transaction and event from source documents

ANALYZING AND RECORDING PROCESS

Record relevant transactions and events in a journal

Post journal information to ledger accounts

Prepare and analyze the trial balance

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Sales Tickets

Bank Statements

Purchase Orders

Checks

SOURCE DOCUMENTSBills from Suppliers

Employee EarningsRecords

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JOURNALIZING & POSTING TRANSACTIONS

Step 1: Analyze transactions and source

documents.

LiabilitiesLiabilities EquityEquityAssetsAssets = +

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 ledger Step 3: Record journal entry

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LEDGER AND CHART OF ACCOUNTS

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

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

The chart of accounts is a list of all accounts and includes anidentifying number for each account.

The chart of accounts is a list of all accounts and includes anidentifying number for each account.

Account Number Account Name Account Number Account Name101 Cash 302 C. Taylor, Withdrawals106 Accounts receivable 403 Revenues126 Supplies 406 Rental revenue128 Prepaid insurance 622 Salaries expense167 Equipment 637 Insurance expense201 Accounts payable 640 Rent expense236 Unearned revenue 652 Supplies expense301 C. Taylor, Capital 690 Utilities expense

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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.

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DEBITS AND CREDITS

A T-account represents a ledger account and A T-account represents a ledger account and is a tool used to understand the effects of is a tool used to understand the effects of

one or more transactions. one or more transactions.

(Left side) (Right side)Debit Credit

Account Title

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LiabilitiesLiabilities EquityEquityAssetsAssets = +

DOUBLE-ENTRY ACCOUNTING

Debit Credit Debit Credit Debit Credit

ASSETS

+ - + -

LIABILITIES

- + - +

EQUITIES

- + - +

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NormalNormal NormalNormal NormalNormal

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RevenuesRevenuesRevenuesRevenues ExpensesExpensesExpensesExpensesOwner’sOwner’sCapitalCapital

Owner’sOwner’sCapitalCapital

Owner's Owner's WithdrawalsWithdrawals

Owner's Owner's WithdrawalsWithdrawals

__ ++ __

Debit Credit

Owner’s Capital

- + - + Debit Credit

Owner's Withdrawals

+ - + - Debit Credit

Expenses

+ - + -Debit Credit

Revenues

- + - +

DOUBLE-ENTRY ACCOUNTING

EquityEquityEquityEquity

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ANALYZING TRANSACTIONS

Analysis:

(1) Cash 101 30,000 C. Taylor, Capital 301 30,000

Double entry:

(1) 30,000Cash 101 301

(1) 30,000C. Taylor, Capital 301

Posting:

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DOUBLE-ENTRY ACCOUNTING

An account balance is the difference between the increases and decreases in an account. Notice the T-Account.

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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 C. Taylor, Capital 30,000 Owner's Withdrawals 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, 2009The 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.

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END OF CHAPTER 2