ANALYZING AND RECORDING

TRANSACTIONS

Dr. Michael Shen

© Copy right National Univ ersity of Singapore. All Rights Reserv ed.
 LLEARNING OBJECTIVES
EARNING O BJECTIVES

❑ Analyze business transactions using the accounting

equation
❑ Define debits and credits and explain double-entry
accounting
❑ Record transactions in the journal and post entries to a
ledger
 LECTURE OBJECTIVE 1
Analyze business transactions using
the accounting equation
 BUSINESS ACTIVITIES
▪ Business activities can be transactions and events
▪ Record those that affect the accounting equation and can be reliably
measured

▪ Examples of transactions:
▪ Selling products and services
▪ Borrowing money
▪ Purchasing products and services
▪ Examples of events:
▪ Decreases in the value of assets such as investments
▪ Natural events such as floods and fires that destroy assets and create losses
 TRANSACTION ANALYSIS
Are the following recordable business transactions?
▪ New members elected to the corporation’s Board of
Directors

▪ A direct competitor introduces a new line of products

▪ Management intends to buy a new machine next year

 TRANSACTION ANALYSIS
The accounting equation MUST remain in balance
after each transaction

Assets = Liabilities + Equity

Net Profit
 TRANSACTION 1: ISSUANCE OF SHARES
Taylor receives shares for investing $30,000 cash to start a consulting
business set up as a corporation called Fastforward. Transactions 1 to
11 are for the 1st month of December for Fastforward.

(1) Cash (asset)

(2) Share Capital (equity)
 TRANSACTION 2:
PURCHASE OF SUPPLIES FOR CASH
Purchase of supplies for $2,500 cash.

(1) Cash (asset)

(2) Supplies (asset)
 TRANSACTION 3:
PURCHASE OF EQUIPMENT FOR CASH
Purchase of equipment for $26,000 cash.

(1) Cash (asset)

(2) Equipment (asset)
 TRANSACTION 4:
PURCHASE OF SUPPLIES ON CREDIT
Purchase of supplies $7,100 on account.

(1) Supplies (asset)

(2) Accounts Payable (liability)

“on credit” and “on account” are used interchangeably to mean cash later
 TRANSACTION 5:
PROVISION OF SERVICES FOR CASH

Provision of consulting services receiving $4,200 cash.

(1) Cash (asset)

(2) Revenue (equity)
 TRANSACTIONS 6 AND 7:
PAYMENT OF EXPENSES
Payment of $1,000 rent and $700 in salary to the company’s
only employee.

(1) Cash (asset)

By definition, increases in
(2) Expenses (equity) expenses yield decreases
in equity
 TRANSACTION 8:
PROVISION OF SERVICES AND RENTAL

Provision of consulting services for $1,600 and rents out its

test facilities for $300, both on account.

(1) Accounts Receivable (asset)

(2) Revenues (equity)
 TRANSACTION 9:
COLLECTION OF CASH ON ACCOUNT
Collection of of $1,900 for transaction 8.
(1) Cash (asset)
(2) Accounts Receivable (asset)
 TRANSACTION 10:
PAYMENT OF ACCOUNTS PAYABLE
$900 as partial payment for transaction 4.

(1) Cash (asset)

(2) Accounts Payable (liability)
 TRANSACTION 11:
PAYMENT OF DIVIDEND
Payment of $200 dividend.

(1) Cash (asset)

(2) Dividends (equity)

By definition, increases in dividends yield decreases in equity

SUMMARY OF TRANSACTIONS
LECTURE OBJECTIVE 2
Define debits and credits and explain
double-entry accounting
 THE ACCOUNT AND ITS ANALYSIS

An account is a
record of increases
and decreases in a The general ledger is
specific asset, a record containing
liability, equity, all accounts used by
revenue, or expense the company.
item.
 LEDGER AND CHART OF ACCOUNTS
The ledger is a collection of all accounts for an information
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 and includes an

identifying number for each account.
 DEBITS AND CREDITS
A T-account represents a ledger account and is a tool used
to understand the effects of one or more transactions.

Account Title
(Left side) (Right side)
Debit Credit

Debit or credit does not mean increase or decrease

Short forms: DR, Dr or dr for debit and CR, Cr, or cr for credit
 DOUBLE-ENTRY ACCOUNTING

For each transaction:

▪ At least two accounts are involved, with at least one
debit and one credit
▪ The total amount debited must equal the total amount
credited
▪ The accounting equation must not be violated
 DOUBLE-ENTRY ACCOUNTING

Assets = Liabilities + Equity

Debit Credit Debit Credit Debit Credit

+
Normal
- - +
Normal
- +
Normal

An account’s normal balance is on the side that increases the account

 DOUBLE-ENTRY ACCOUNTING
Equity

Share
Capital
_ Dividends
+
Revenues
_ Expenses

Gains Losses

Debit Credit Debit Credit Debit Credit Debit Credit

- + + - - + + -
Normal Normal Normal Normal

Gains and losses may include those activities that do not arise in the ordinary course of
business. Examples of gains or losses include those from sale of assets used in the
business or those from lawsuit settlements.
DOUBLE-ENTRY ACCOUNTING CHEAT SHEET

⚫ Accounts that increase with a debit are the DEAL

accounts: dividends, expenses, assets, and losses

⚫ Accounts that increase with a credit are the GIRLS

accounts: gains, income, revenues, liabilities, and
shareholder’s equity (share capital so far)
 COMPUTING THE BALANCE FOR A T-ACCOUNT
A business started with cash of $35. It used $12 to pay for supplies.
There are no other cash transactions for the period. Using a T-
account, what is the ending balance of the cash account?

Cash
Cash is an asset so Cash is an asset
an increase is on 35 12 so a decrease is on
the debit side. the credit side.
23 The ending balance is
the difference between
the debit and credit
entries in the account.
 COMPUTING THE BALANCE FOR A T-ACCOUNT
A business started with cash of $35. It used $12 to pay for supplies.

Supplies
Supplies
is an asset so an 12
increase is on the
debit side.
 LECTURE OBJECTIVE 3
Record transactions in the journal
and post entries to a ledger
ACCOUNTINGPROCESS OR
ACCOUNTING CYCLE
 ANALYZING TRANSACTIONS

Analyze each transaction and

event from source documents
Bills from Purchase
Suppliers Orders
Receipts

Employee Bank
Earnings Statements
Records
 JOURNALIZING & POSTING TRANSACTIONS
Assets = Liabilities + Equity
T- Account
(Left side) (Right side)
Debit Credit

Apply double-entry accounting

GENERAL JOURNAL Page 123

Post.
ACCOUNT NAME: ACCOUNT No.
Date Description Ref. Debit Credit
Date Description PR Debit Credit Balance

Record journal entry Post entry to ledger

 THE JOURNAL ENTRY
Transaction Titles of Affected
Date Accounts

Transaction Dollar amount of debits

explanation and credits
ANALYZING TRANSACTIONS
 BALANCE COLUMN ACCOUNT
T-accounts are useful illustrations, but balance column ledger
accounts are used in practice.

PR: Posting
Reference
 JOURNALIZING AND POSTING
Acceptable Ways to write journal entry for ACC1002/ACC1701:
Dr Cash 1,000
Cr Revenue 1,000
OR
Cash 1,000
Revenue 1,000

The following are NOT examinable for ACC1002/ACC1701:

▪ Explanation or description below the journal entry.
▪ The balance column format for ledger accounts.
▪ Posting reference and cross-reference to numbers in chart of accounts.
 JOURNALIZING AND POSTING
EXERCISES 2-7 AND 2-8 PAGE 80 OF TEXTBOOK

Aug.1 Kasey Madison received shares for investing $7,500 cash and
$32,500 of photography equipment in the company.

Cash 7,500
Cash 7,500
Share Capital 7,500
Photography Equipment 32,500
Photography Equipment 32,500
Share Capital 40,000 Share Capital 32,500

A compound journal entry: more than one debit, more than

one credit, or more than one of both debits and credits. It is
essentially a combination of several simple journal entries.
 JOURNALIZING AND POSTING
EXERCISES 2-7 AND 2-8 PAGE 80 OF TEXTBOOK

Aug.1 Kasey Madison received shares for investing $7,500 cash

and $32,500 of photography equipment in the company.
Cash 7,500
Photography Equipment 32,500
Share Capital 40,000
 JOURNALIZING AND POSTING
EXERCISES 2-7 AND 2-8 PAGE 80 OF TEXTBOOK

Aug. 2 The company paid $3,000 cash for an insurance policy

covering the next 24 months.

Prepaid Insurance 3,000

Cash 3,000

Prepaid accounts (also called prepaid expenses) are assets that

represent prepayments of future expenses (not current expenses).
When the expenses are later incurred, the amounts in prepaid
accounts are transferred to expense accounts (will be shown next
lecture).
 JOURNALIZING AND POSTING
EXERCISES 2-7 AND 2-8 PAGE 80 OF TEXTBOOK

Aug. 2 The company paid $3,000 cash for an insurance

policy covering the next 24 months.
Prepaid Insurance 3,000
Cash 3,000
 JOURNALIZING AND POSTING
EXERCISES 2-7 AND 2-8 PAGE 80 OF TEXTBOOK

Aug. 5 The company purchased office supplies for $1,400 cash.

Office Supplies 1,400
Cash 1,400
 JOURNALIZING AND POSTING
EXERCISES 2-7 AND 2-8 PAGE 80 OF TEXTBOOK

Aug. 20 The company received $2,650 cash in photography fees

earned.

Cash 2,650
Photography Fees Earned 2,650
 JOURNALIZING AND POSTING
EXERCISES 2-7 AND 2-8 PAGE 80 OF TEXTBOOK

Aug. 31 The company paid $875 cash for August utilities.

Utilities Expense 875
Cash 875
THE END