ACCTG 211 Lesson 2

ACCTG 211
Lesson 2: The Language of

Business
Chapter 2: Accounting for Business Transactions
© 2021 Schalyn Sohn
Cr eated f or classr oom use only. Do not distr ibute or post to
exter nal websites without per m ission.
1

Created for classroom use only. Do not distribute or post to external websites without permission.
Lesson 2: “The Language of Business”
Learning Objectives
1. Identify different types of accounts and the general
ledger system.
2. Define debits and credits and their role in recording
transactions.
3. Record transactions in a journal and use T-Account to
post entries.
4. Prepare and explain the use of a trial balance.
5. Prepare financial statements from business transactions.
2

Asset Accounts

Liability Accounts

Equity Accounts

Double-Entry Bookkeeping
•Each party in a business transaction will receive something
and give something in return.
•T-account is a visual depiction of a particular account
•Debit simply means to enter on the left side.
•Credit simply means enter on the right side.
Account Name
LEFT side RIGHT side

Debit (Dr.) Credit (Cr.)
6

Debit and Credit
ASSETS = LIABILITIES +
SHAREHOLDERS’ EQUITY
1.The balance in the 2. The balance in the accounts
accounts on the left side on the right side of the
of the equation (ASSETS) equation (LIABILITIES and
will increase with debits SHAREHODLERS’ EQUITY)
and decrease with credits. will increase with credits
and decrease with debits.

Debit and Credit
Assets = Liabilities + Shareholders' Equity

Debit Credit Debit Credit Debit Credit
+ - - + - +
Normal Normal Normal
Total $ Debits = Total $ Credits

8

Debit and Credit
Shareholders' Equity
Debit Credit
- +
Normal
Contributed Capital
Common Stock + Retained Earnings
Debit Credit Debit Credit
- + - +
Normal Normal
(Contra Equity)
+ Revenue - Expense - Dividend
Debit Credit Debit Credit Debit Credit
- + + - + -
Normal Normal Normal 9

The Accounting Cycle (Steps 1 - 3)
1. Analyze Transactions and Create Journal Entries
2. Post Journal Entries to Ledger Accounts (T-Account)
3. Balance Ledger Accounts and Transfer Balances to Unadjusted Trial Balance
4. Determine Required Adjustments and Create Adjusting Journal Entries
5. Post Adjusting Journal Entries to Ledger Accounts in #2 Above (Creating
New Ledger Accounts as Needed)
6. Rebalance Ledger Accounts and Transfer Balances to Adjusted Trial Balance
7. Create Financial Statements from Adjusted Trial Balance.
8. Create Closing Journal Entries
9. Post Closing Journal Entries to Ledger Accounts in #5 above
10. Rebalance Ledger Accounts and Transfer Balances to Post-Closing Trial
10
Balance
Journal Entry Process
1. Determine which accounts are affected by the
transaction.
2. Classify each account as being an asset, liability, equity,
revenue, or expense account.
3. Determine whether account increases / decreases.
4. Based on the “normal” balance determine if debit (dr.)
or credit (cr.) account.
5. Record transaction in journal entry form.
6. Post the transaction to ledger through use of T-Account.
11

Journal Entry
Date Account Titles and Explanations PR Debit Credit

Jan 1 Cash 30,000
Common Stock 30,000
Issue stock to investors.
12

Issue Stock: Transaction #1
Date Transaction
Dec. 1 Company issues $30,000 of stock to investors.
Assets = Liabilities + Stockholders’ Equity
$30,000
$30,000
C/S (Common Stock)
Cash
13

Issue Stock (Journal & Post Journal)
Dec 1 Dr. Cash 30,000
Cr. Common Stock 30,000
Issue common stock for cash.
Cash Common Stock
30,000 30,000
30,000 30,000
14

Purchase Supplies: Transaction #2, #4, and #14
Date Transaction
Dec 5 The company paid $2,500 cash and $120 cash to
purchase supplies and also bought $7,100
supplies on credit.
$9,720 $2,620 $7,100

Supplies Cash Accounts
Payable
15

Purchase Supplies (Journal & Post Journal)
Dec 5 Dr. Supplies 9,720 We will cover
Cr. Accounts Payable 7,100 “Use”
Cr. Cash 2,620 Supplies in
Lesson 3.
Purchase supplies with cash and on account.
Cash Supplies Accounts Payable

2,500 2,500
120 120 7,100
7,100
… 9,720 7,100
16

Purchase Equipment: Transaction #3
Date Transaction
Dec 5 The company used cash to purchase equipment
for $26,000.
$26,000 $26,000
Equipment Cash
17

Purchase Equipment (Journal & Post Journal)
Dec 5 Dr. Equipment 26,000
Cr. Cash 26,000
Purchase equipment with cash.
Cash Equipment
26,000
26,000
… 26,000
18

Record Revenue: Transaction #5 & #8
Date Transaction
Dec 10 Company earned $5,800 due to consulting services
provided to customer. Collected $4,200 in cash related
to services provided. Company rents facilities to a
customer for $300 and the customer is billed $300.
$6,100
$1,900 $4,200 Revenue R/E
A/R Cash
19

Record Revenue (Journal & Post Journal)
Dec 10 Dr. A/R 1,900
Dr. Cash 4,200
Cr. Consulting Revenue 5,800
Cr. Rent Revenue 300
Provided consulting service received partial cash payment and
rented facilities (billed customer).
Accounts Consulting
Cash Receivable Revenue Rent Revenue
1,900 5,800 300
4,200
… 1,900 5,800 300

20

Receipt Cash on Account: Transaction #9
Date Transaction
Dec. 20 Company receives $1,900 from customer
previously billed for services (Transaction #8.)
$1,900 $1,900
A/R Cash
21

Receipt Cash on Account (Journal & Post Journal)
Dec 20 Dr.Cash 1,900
Cr. A/R 1,900
Received cash for payment of services previously billed.
Accounts Consulting
Cash Receivable Revenue Rent Revenue
1,900 5,800 300
$ 1,900
1,900 NO CHANGE REVENUE
… 0 5,800 5,800
22

Operating Expense: Transaction #6, #7, #15 & #16
Date Transaction
Dec 26 The company pays $1,000 cash for rent expense
(used in December), $305 for utilities expense,
and $1,400 for salaries expense.
$2,705
$2,705
Expense R/E
Cash
23

Operating Expenses (Journal & Post Journal)
Dec 26 Dr. Salaries Expense 1,400
Dr. Rent Expense 1,000
Dr. Utilities Expenses 305
Cr. Cash 2,705
Incurred and paid operating expenses.
Cash Rent Expense Salaries Expense Utilities Expense

1,000 700 305
700
2,705
… 1,000 1,400 305

24

Payment of Accounts Payable: Transaction #10
Date Transaction
Dec 26 Company pays $900 cash toward payable of
Transaction #4.
$900 $900
Cash Accounts Payable
25

Accounts Payable (Journal & Post Journal)
Dec 26 Dr. Accounts Payable 900
Cr. Cash 900
Paid $900 cash toward payable from transaction #4.
Cash Accounts Payable
900 7,100
900
… 6,200
26

Payment of Cash Dividend: Transaction #11
Date Transaction
Dec 26 Company pays $200 cash dividend to investors.
$200 $200
Cash Dividend R/E
27

Payment of Cash Dividend (Journal & Post Journal)
Dec 26 Dr. Dividend 200
Cr. Cash 200
Company declares and pays $200 dividend.
Dividend
Cash (Contra-Equity)
200
200
….. 200
28

Unearned Revenue: Transaction #12
Date Transaction
Dec 26 Company received $3,000 from customer in
advance of performing services (future services).
$3,000 $3,000
Cash Unearned
Revenue
29

Unearned Revenue (Journal & Post Journal)
Dec 26 Dr. Cash 3,000
Cr. Unearned Revenue 3,000
Received cash in advance of performing services.
Cash Unearned Revenue We will cover

3,000 “Unearned
Revenue
Adjustment”
in Lesson 3.
3,000
… 3,000
30

Purchase Insurance: Transaction #13
Date Transaction
Dec 1 The company purchased a 24-month insurance
policy for $2,400. Coverage begins December.
$2,400 $2,400
Prepaid Cash
Insurance
Expense
31

Purchase Insurance (Journal & Post Journal)
Dec 1 Dr. Prepaid Insurance Expense 2,400
Cr. Cash 2,400
Purchase 24-month insurance policy with cash.
Prepaid Insurance We will cover

Cash Expense “Use”
2,400 2,400 Insurance in
Lesson 3.
… 2,400
32

Summarizing Transactions in a Ledger
33

Company Name
Unadjusted Trial Balance
As of 12/31/20
Account Debit Credit
Cash $ 4,275
Accounts receivable -
Supplies 9,720
Prepaid insurance expense 2,400
Equipment 26,000
Accounts payable $ 6,200
Unearned revenue 3,000
Common stock 30,000
Dividends 200
Consulting revenue 5,800
Rental revenue 300
Salaries expense 1,400
Rent expense 1,000
Utilities expense 305
Totals $ 45,300 $ 45,300

34

Trial Balance
A trial balance is a “double check” report
The trial balance must “balance” before you can proceed
The sum of total debit dollars (all debit balances) must equal the
sum of total credit dollars (all credit balances)
In the accounting cycle, we make a total of three trial balances
1. Unadjusted TB – after “regular” journal entries are posted
2. Adjusted TB – after “adjusting” journal entries are posted
(Prepare Financials from the Adjusted Trial Balance.)
3. Post-Closing TB – after “closing” journal entries are posted
35

Company Name
Adjusted Trial Balance
As of 12/31/20
Cash $ 4,275
Accounts receivable -
Assuming no Supplies 9,720
Prepaid insurance expense 2,400
adjustments were Equipment 26,000
needed…Lesson 3 Accounts payable $ 6,200
we will learn about Unearned revenue 3,000
Common stock 30,000
the adjustments Dividends 200
need to record. Consulting revenue 5,800
Rental revenue 300
Rent expense 1,000
Totals $ 45,300 $ 45,300

36

Company
Income Statement
For the Month of December 2020
Revenues:
Consulting revenue $ 5,800
Rental revenue 300
Total revenues $ 6,100
Expenses:
Rent expense 1,000
Total expenses 2,705
Net income $ 3,395
37

Company
Statement of Stockholders' Equity
Contributed Capital:
Beginning CC $ -
+ Issue Common Stock 30,000
- Cancel Common Stock -
= Ending CC $ 30,000
Retained Earnings:
Beginning R/E $ -
+ Net Income 3,395
- Dividends 200
= Ending R/E $ 3,195
Total Stockholders' Equity $ 33,195 38

Company
Balance Sheet
As of 12/31/20
Current Assets Current Liabilities
Cash $4,275 Accounts payable $6,200
Accounts receivable 0 Unearned consulting revenue 3,000
Supplies 9,720 Total Current Liabilities 9,200
Prepaid insurance expense 2,400 Long-Term Liabilities
Total Current Assets 16,395 Note payable 0
Long-Terrm Assets Total Long-Term Liabilities 0
Equipment 26,000 Total Liabilities 9,200
Total Long-Term Assets 26,000 Shareholders' Equity
Common stock 30,000
Retained earnings 3,195
Total Shareholders' Equity 33,195
Total Assets $42,395 Total Liabilities and Equity $42,395
39

Company
Statement of Cash Flows
Cash Flows from operating activities:
Cash received from customers $ 9,100 (4,200 + 1,900 + 3,000)
Cash paid for supplies (3,520) (2,500 + 120 + 900)
Cash paid for wages and operating expenses (5,105) (1,000 + 305 + 1,400 + 2,400)
Net cash provided by operating activities (CFFO) $ 475
Cash Flows from investing activities:
Cash paid for purchase of equipment $ (26,000)
Net cash used in investing activities (CFFI) $ (26,000)

Cash Flows from financing activities:
Cash received from issuing stock $ 30,000
Cash paid for dividends (200)
Net cash provided by financing activities (CFFF) $ 29,800
Net Change in Cash $ 4,275 (Note: CFFO + CFFI + CFFF)
+ Beginning Cash 0 (Business just began December 1)
= Ending Cash $ 4,275 Refer to Balance Sheet
40

Lesson 2
Financing – Issue Stock: Transaction #1 Company issues $30,000 of stock to investors.
Assets = Liabilities + Stockholders’ Equity Journal Entry: (Then Post to T-Account)
Purchase Supplies: Transaction #2, #4 & #14: The company paid $2,500 cash and $120 cash to purchase supplies
and also bought $7,100 supplies on credit.
Purchase Equipment: Transaction #3 The company used cash to purchase equipment for $26,000.
Record Revenue: Transaction #5 & #8 Company earned $5,800 due to consulting services provided to customer.
Collected $4,200 in cash. Company rents facilities for $300 and customer is billed $300.
Receipt Cash on Account: Transaction #9 Company receives $1,900 from customer previously billed for services.
Schalyn Sohn Copyright © 2021 All rights reserved.

Created for classroom use only. Do not distribute or post to external websites without permission. 1
Lesson 2
Operating Expense: Transaction #6, #7, #15, & #16 The company pays $1,000 cash for rent expense (used in
December), $305 for utilities expense, and $1,400 for salaries expense.
Payment of Accounts Payable: Transaction #10: Company pays $900 cash toward payable.
Payment of Cash Dividend: Transaction #11: Company pays $200 cash dividend to investors.
Unearned Revenue: Transaction #12: Company received $3,000 from customer in advance of performing
services (future services).
Purchase Insurance: Transaction #13: The company purchased a 24-month insurance policy for $2,400. Coverage
begins December.

Lesson 2
General Ledger
Assets = Liabilities + Equity
Cash Accounts Payable Common Stock
Unearned Revenue Dividends
Consulting Revenue
Accounts Receivable Rental Revenue
Supplies Salaries Expense
Prepaid Insurance Expense Rent Expense
Equipment Utilities Expense

Company Name Lesson 2
Unadjusted Trial Balance
As of 12/31/20 Company
Income Statement
Cash $ 4,275
Accounts receivable - Revenues:
Supplies 9,720 Consulting revenue $ 5,800
Prepaid insurance expense 2,400 Rental revenue 300
Equipment 26,000 Total revenues $ 6,100
Accounts payable $ 6,200 Expenses:
Unearned revenue 3,000 Salaries expense 1,400
Common stock 30,000 Rent expense 1,000
Dividends 200 Utilities expense 305
Consulting revenue 5,800 Total expenses 2,705
Rental revenue 300 Net income $ 3,395
Rent expense 1,000
Totals $ 45,300 $ 45,300

Company
Company
Balance Sheet
Statement of Stockholders' Equity As of 12/31/20
Current Assets Current Liabilities
Cash $4,275 Accounts payable $6,200
Contributed Capital:
Accounts receivable 0 Unearned consulting revenue 3,000
Beginning CC $ - Supplies 9,720 Total Current Liabilities 9,200
+ Issue Common Stock 30,000 Prepaid insurance expense 2,400 Long-Term Liabilities
- Cancel Common Stock - Total Current Assets 16,395 Note payable 0
= Ending CC $ 30,000 Long-Terrm Assets Total Long-Term Liabilities 0
Equipment 26,000 Total Liabilities 9,200
Retained Earnings: Total Long-Term Assets 26,000 Shareholders' Equity
Beginning R/E $ - Common stock 30,000
+ Net Income 3,395 Retained earnings 3,195
Total Shareholders' Equity 33,195
- Dividends 200
Total Assets $42,395 Total Liabilities and Equity $42,395
= Ending R/E $ 3,195
Company
Total Stockholders' Equity $ 33,195 Statement of Cash Flows
Cash Flows from operating activities:
Cash received from customers $ 9,100 (4,200 + 1,900 + 3,000)
Cash paid for supplies (3,520) (2,500 + 120 + 900)
Cash paid for wages and operating expenses (5,105) (1,000 + 305 + 1,400 + 2,400)
Net cash provided by operating activities (CFFO) $ 475
Cash Flows from investing activities:
Cash paid for purchase of equipment $ (26,000)
Net cash used in investing activities (CFFI) $ (26,000)

Cash Flows from financing activities:
Cash received from issuing stock $ 30,000
Cash paid for dividends (200)
Net cash provided by financing activities (CFFF) $ 29,800
Net Change in Cash $ 4,275 (Note: CFFO + CFFI + CFFF)
+ Beginning Cash 0 (Business just began December 1)
= Ending Cash $ 4,275 Refer to Balance Sheet

Lesson 2
General Ledger
Assets = Liabilities + Equity
Cash Accounts Payable Common Stock
Unearned Revenue Dividends
Consulting Revenue
Accounts Receivable Rental Revenue
Supplies Salaries Expense
Prepaid Insurance Expense Rent Expense
Equipment Utilities Expense


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ACCTG 211

Lesson 2: The Language of

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

LEFT side RIGHT side

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

Assets = Liabilities + Shareholders' Equity

Total $ Debits = Total $ Credits

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

Date Account Titles and Explanations PR Debit Credit

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

Cash Common Stock

© 2021 Schalyn Sohn

Assets = Liabilities + Stockholders’ Equity

$9,720 $2,620 $7,100

© 2021 Schalyn Sohn

Cash Supplies Accounts Payable

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

… 1,900 5,800 300

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

Cash Rent Expense Salaries Expense Utilities Expense

… 1,000 1,400 305

© 2021 Schalyn Sohn

Assets = Liabilities + Stockholders’ Equity

© 2021 Schalyn Sohn

Cash Accounts Payable

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

Cash Unearned Revenue We will cover

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

Prepaid Insurance We will cover

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

Account Debit Credit

Totals $ 45,300 $ 45,300

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

Account Debit Credit

Totals $ 45,300 $ 45,300

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

Total Stockholders' Equity $ 33,195 38

© 2021 Schalyn Sohn

© 2021 Schalyn Sohn

Net cash used in investing activities (CFFI) $ (26,000)

© 2021 Schalyn Sohn

Financing – Issue Stock: Transaction #1 Company issues $30,000 of stock to investors.