CHAPTER
APPLE, INC.™
2
Analyzing Transactions
E
veryday it seems like we get an incredible amount ofincoming e-mail messages; you get them from yourfriends,relatives,subscribed e-mail lists,and even spam-mers! But how do you organize all of these messages? Youmight create folders to sort messages by sender,topic,orproject.Perhaps you use keyword search utilities.Youmight even use filters/rules to automatically delete spamor send messages from your best friend to a special folder.In any case,you are organizing information so that it is sim-ple to retrieve and allows you to understand,respond,orrefer to the messages.In the same way that you organize your e-mail,compa-nies develop an organized method for processing,recording,and summarizing financial transactions.For example,Apple,Inc.,has a huge volume of financial transactions,resultingfrom sales of its innovative computers,digital media (likeiPod music and video players),and iPhone mobile phones.When Apple sells an iPhone online or at The Apple Store,acustomer has the option of paying with credit card,a debitor check card,an Apple gift card,a financing arrangement,or cash (using a cashier’s check,a money order,or a wiretransfer).In order to analyze only the information related toApple’s cash transactions,the company must record or sum-marize all these similar sales using a single category or “cash”account.This is comparable to how you summarize cash inthe check register of your checkbook.Similarly,Apple willrecord credit card payments for iPhones and sales from fi-nancing arrangements in different accounts (records).While Chapter 1uses the accounting equation (Assets =Liabilities +Owner’s Equity) to analyze and record financialtransactions,this chapter presents more practical and efficientrecording methods that mostcompanies use.In addition,thischapter discusses possible ac-counting errors that may occur,along with methods to detectand correct them.
© A P P h o t o P a u l S a k u m a
Chapter 02.qxd 4/16/08 5:07 PM Page 49
REVISED
Describe thecharacteristics ofan account and achart of accounts.Using Accountsto RecordTransactionsDescribe andillustratejournalizingtransactionsusing the double-entryaccountingsystem.Double-EntryAccountingSystemBalance SheetAccountsIncomeStatementAccountsOwnerWithdrawalsNormal Balances
EE
2-1
(page 54)
Journalizing
EE
2-2
(page 58)
Describe andillustrate thejournalizing andposting oftransactions toaccounts.Posting JournalEntries toAccounts
EE
2-3
(page 63)
EE
2-4
(page 66)
EE
2-5
(page 66)
Prepare anunadjusted trialbalance andexplain how itcan be used todiscover errors.Trial Balance
EE
2-6
(page 70)
EE
2-7
(page 71)
After studying this chapter, you should be able to:
1
At a GlanceMenuTurn to pg 72
234
1 The terms
debit
and
credit
are derived from the Latin
debere
and
credere
.
Chart ofAccounts
Using Accounts to Record Transactions
In Chapter 1,we recorded the November transactions for NetSolutions using the ac-counting equation format shown in Exhibit 1.However,this format is not efficient orpractical for companies that have to record thousands or millions of transactions daily.As a result,accounting systems are designed to show the increases and decreases ineach accounting equation element as a separate record.This record is called an
account
.To illustrate,the Cash column of Exhibit 1records the increases and decreases incash.Likewise,the other columns in Exhibit 1record the increases and decreases in theother accounting equation elements.Each of these columns can be organized into a sep-arate account.An account,in its simplest form,has three parts.1.A title,which is the name of the accounting equation element recorded in theaccount.2.A space for recording increases in the amount of the element.3.A space for recording decreases in the amount of the element.The account form presented below is called a
T account
because it resembles theletter T.The left side of the account is called the
debit
side,and the right side is calledthe
credit
side.
1
Title
Left sideRight side
debitcredit
Describe thecharacteristicsof an account and achart of accounts.
11
Errors Affectingthe Trial BalanceErrors NotAffecting the TrialBalance
50
Chapter 2 Analyzing Transactions
Chapter 02.qxd 4/16/08 5:07 PM Page 50
REVISED
Chapter 2 Analyzing Transactions
51
The amounts shown in the Cash column of Exhibit 1would be recorded in a cash account as follows:
Cash
(a)25,000(b)20,000Debit (d)7,500(e)3,650Creditside of (f)950side ofaccount(h)2,000account
______________
Balance5,900Balance of account
Assets
Liabilities
Owner’s Equity
AccountsChris Clark,Chris Clark,FeesWagesRentSuppliesUtilitiesMisc.Cash
Supp.
Land
Payable
Capital
Drawing
Earned
Exp.
Exp.
Exp.
Exp.
Exp.a.
25,000
25,000b.
20,000
20,000________________________Bal.5,00020,00025,000c.
1,350
1,350_____________________________________Bal.5,0001,35020,0001,35025,000d.
7,500
7,500____________________________________________Bal.12,5001,35020,0001,35025,0007,500e.
3,650
2,125
800
450
275__________________________________________________________________Bal.8,8501,35020,0001,35025,0007,500
2,125
800
450
275f.
950
950__________________________________________________________________Bal.7,9001,35020,00040025,0007,500
2,125
800
450
275g.
800
800________________________________________________________________________Bal.7,90055020,00040025,0007,500
2,125
800
800
450
275h.
2,000
2,000_______________________________________________________________________________Bal.5,90055020,00040025,000
2,0007,500
2,125
800
800
450
275______________________________________________________________________________________________________________________________________________________________
Exhibit 1
NetSolutions November Transactions
Amounts entered on the left sideof an account are debits, andamounts entered on the right sideof an account are credits.
Recording transactions in accounts must follow certain rules.For example,increasesin assets are recorded on the
debit
(left side) of an account.Likewise,decreases in as-sets are recorded on the
credit
(right side) of an account.The excess of the debits of anasset account over its credits is the
balance of the account
.To illustrate,the receipt (increase in Cash) of $25,000in transaction (a) is enteredon the debit (left) side of the cash account shown above.The letter or date of the trans-action is also entered into the account.This is done so if any questions later arise relatedto the entry,the entry can be traced back to the underlying transaction data.In con-trast,the payment (decrease in Cash) of $20,000to purchase land in transaction (b) isentered on the credit (right) side of the account.The balance of the cash account of$5,900is the excess of the debits over the credits as shown below.
Debits ($25,000
$7,500) . . . . . . . . . . . . . . . . . . . . . . . . . . . .$32,500Less credits ($20,000
$3,650
$950
$2,000) . . . . . . . . . .26,600
_________
Balance of Cash as of November 30, 2009 . . . . . . . . . . . . . . .$5,900
__________________
The balance of the cash account is inserted in the account,in the Debit column.In thisway,the balance is identified as a debit balance.
2
This balance represents NetSolutions’cash on hand as of November 30,2009.This balance of $5,900is reported on the November30,2009,balance sheet for NetSolutions as shown in Exhibit 6 of Chapter 1.In an actual accounting system,a more formal account form replaces the T account.Later in this chapter,we illustrate a four-column account.The T account,however,is
Many times when account-ants analyze complex trans-actions, they use T accountsto simplify the thoughtprocess. In the same way,you will find T accounts auseful device in this andlater accounting courses.
2 The totals of the debit and credit columns may be shown separately in an account. When this is done, these amountsshould be identified in some way so that they are not mistaken for entries or the ending balance of the account.
Chapter 02.qxd 4/16/08 5:07 PM Page 51
REVISED
of 00
Analyzing Transactions
10,228 Reads
Info and Rating
| Category: | Uncategorized. |
| Rating: | (1 Rating) |
| Upload Date: | 03/09/2009 |
| Copyright: | Attribution Non-commercial |
| Tags: |
Leave a Comment