Lecture 3

ANALYSING AND RECORDING

TRANSACTIONS
 AGENDA

1. Analysing and Recording Process

2. Double Entry Accounting

3. Journalising and Posting Transactions

4. Prepare a Trial Balance

5. Prepare Financial Statements

 1. Analysing and Recording Process

Analyze each transaction and Record relevant transactions

event from source documents and events in a journal

Prepare and analyze Post journal information

the trial balance to ledger accounts
 1. Analysing and Recording Process
Bills from
Checks Suppliers Purchase
Orders
Employee
Earnings
Records Bank
Statements

Sales
Tickets
Source documents
 1. Analysing and Recording Process

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.
 1. Analysing and Recording Process

Assets = Liabilities + Equity

+ – + –
Owner’s Owner's
Revenues Expenses
Capital Withdrawals
 1. Analysing and Recording Process

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.
Account Number Account Name Accounting Number Accounting Name
101 Cash 302 C. Taylor, Withdrawals
106 Accounts receivable 403 Revenues
126 Supplies 406 Rental revenue
128 Prepaid insurance 622 Salaries expense
167 Equipment 637 Insurance expense
201 Accounting payable 640 Rent expense
236 Unearned revenue 652 Supplies expense
301 C. Taylor, Capital 690 Utilities expense
 2. Double-Entry Accounting

T-account: Visualizing the effect of recording a debit or credit

amount and the resulting balances of general ledger accounts

=> understand the effects of one or more transactions.

 2. Double-Entry Accounting

Double-entry Book-keeping
▪ The standard method for recording transactions

▪ Every financial transaction will involve at least two different accounts

▪ Transactions are recorded in terms of debits and credits. Since a debit

in one account offsets a credit in another, the sum of all debits must
equal the sum of all credits

▪ Easier to prepare accurate financial statements and detect errors

 2. Double-Entry Accounting

Assets = Liabilities + Equity

ASSETS LIABILITIES EQUITIES

Debit Credit Debit Credit Debit Credit

+ - - + - +
 2. Double-Entry Accounting

Equity
Owner’s _ Owner's _
Capital Withdrawals + Revenues Expenses

Owner’s Owner's Revenues Expenses

Capital Withdrawals

Debit Credit Debit Credit Debit Credit Debit Credit

- + + - - + + -
 2. Double-Entry Accounting

An account balance is the difference between the increases

and decreases in an account.

Cash
Investment by owner 30,000 Purchase of supplies 2,500
Consulting services revenues earned 4,200 Purchase of equipment 26,000
Collection of accounts receivable 1,900 Payment of rent 1,000
Payment of salary 700
Payment of account payable 900
Withdrawal by owner 200
Total increases 36,100 Total decreases 31,300
Balance 4,800
 3. Journalising & Posting Transactions

Assets = Liabilities + Equity

T- Account
(Left side) (Right side)
Debit Credit

Step 1: Analyze
Step 2: Apply double-entry
transactions and source
accounting
documents.

GENERAL JOURNAL Page 123

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

Step 4: Post entry to ledger Step 3: Record journal entry

 3. Journalising & Posting Transactions

(1) Transaction Date (2) Titles of Affected Accounts

Journalising Transaction
GENERAL JOURNAL Page 1
Date Description PR Debit Credit
2021
Dec. 1 Cash 30,000
Smith, Capital 30,000
Investment by owner

(4) Transaction
Dec. 2 Supplies explanation (3) Amount of debits
2,500and credits
Cash 2,500
 3. Journalising & Posting Transactions

T-accounts are useful illustrations, but balance column

ledger accounts are used in practice.
CASH ACCOUNT No. 101

Date Description PR Debit Credit Balance

2021
Dec. 1 Initial investment 30,000 30,000
Dec. 2 Purchased supplies 2,500 27,500
Dec. 3 Purchased equipment 26,000 1,500
Dec. 10 Collection from customer 4,200 5,700
 3. Journalising & Posting Transactions
Posting Transaction
GENERAL JOURNAL Page 1
Date Description PR Debit Credit
2021
Dec. 1 Cash 30,000
Smith, Capital 30,000
Investment by owner

Dec. 2 Supplies 2,500

1 Identify theCash
debit account in ledger 2,500
Purchased store supplies
CASH for cash ACCOUNT No. 101

Date Description PR Debit Credit Balance

2021

Dec. 3 Purchased equipment G1 20,000.00 ########

 3. Journalising & Posting Transactions
Posting Transaction
GENERAL JOURNAL Page 1
Date Description PR Debit Credit
2021
Dec. 1 Cash 30,000
Smith, Capital 30,000
Investment by owner

Dec.
2 2 Supplies
Enter the date 2,500
Cash 2,500
Purchased store supplies
CASH for cash ACCOUNT No. 101

Date Description PR Debit Credit Balance

2021
Dec. 1

Dec. 3 Purchased equipment G1 20,000.00 ########

 3. Journalising & Posting Transactions
Posting Transaction
GENERAL JOURNAL Page 1
Date Description PR Debit Credit
2021
Dec. 1 Cash 30,000
Smith, Capital 30,000
Investment by owner

Dec.2 Supplies 2,500

3 Enter the amount and description
Cash 2,500
Purchased store supplies
CASH for cash ACCOUNT No. 101

Date Description PR Debit Credit Balance

2021
Dec. 1 Investment by owner 30,000

Dec. 3 Purchased equipment G1 20,000 (20,000)

 3. Journalising & Posting Transactions
Posting Transaction

GENERAL JOURNAL Page 1

Date Description PR Debit Credit
2021
Dec. 1 Cash 30,000
Smith, Capital 30,000
Investment by owner

Dec. 2 Supplies 2,500

4 Enter the journal reference
Cash 2,500
Purchased store supplies
CASH ACCOUNT No. 101
for cash

Date Description PR Debit Credit Balance

2021
Dec. 1 Investment by owner G1 30,000

Dec. 3 Purchased equipment G1 20,000 (20,000)

 3. Journalising & Posting Transactions
Posting Transaction
GENERAL JOURNAL Page 1
Date Description PR Debit Credit
2021
Dec. 1 Cash 30,000
Smith, Capital 30,000
Investment by owner

Dec.2 Supplies 2,500

5 Compute the balance
Cash 2,500
Purchased store supplies
CASH for cash ACCOUNT No. 101

Date Description PR Debit Credit Balance

2021
Dec. 1 Investment by owner G1 30,000 30,000

Dec. 3 Purchased equipment G1 20,000 (20,000)

 3. Journalising & Posting Transactions
Posting Transaction
GENERAL JOURNAL Page 1
Date Description PR Debit Credit
2021
Dec. 1 Cash 101 30,000
Smith, Capital 30,000
Investment by owner

Dec.
6 2 Supplies 2,500
Enter the ledger reference
Cash 2,500
Purchased store supplies
CASH for cash ACCOUNT No. 101

Date Description PR Debit Credit Balance

2021
Dec. 1 Investment by owner G1 30,000 30,000

Dec. 3 Purchased equipment G1 20,000 (20,000)

 3. Journalising & Posting Transactions

Transaction: Owner invested £30,000 in ABC on Dec. 1.

Analysis:
Assets = Liabilities + Equity
Cash Capital
30,000 30,000

Double entry:
(1) Cash 101 30,000
Smith, Capital 301 30,000
Posting:
Cash 101 Smith, Capital 301 301
(1) 30,000 (1) 30,000
 3. Journalising & Posting Transactions

Transaction: ABC purchases supplies by paying £2,500 cash.

Analysis:
Assets = Liabilities + Equity
Cash Supplies Capital
(2,500) 2,500

Double entry:
(2) Supplies 126 2,500
Cash 101 2,500

Posting:
Supplies 126 Cash 101
(2) 2,500 (1) 30,000 (2) 2,500
 3. Journalising & Posting Transactions

Transaction: ABC purchases equipment by paying £26,000 cash.

Analysis:
Assets = Liabilities + Equity
Cash Equipment Capital
(26,000) 26,000

Double entry:
(3) Equipment 167 26,000
Cash 101 26,000

Posting:
Equipment 167 Cash 101
(3) 26,000 (1) 30,000 (2) 2,500
(3) 26,000
 3. Journalising & Posting Transactions

Transaction: ABC purchases £7,100 of supplies on credit.

Analysis:
Assets = Liabilities + Equity
Supplies Accounts Payable Capital
7,100 7,100

Double entry:
(4) Supplies 126 7,100
Accounts payable 201 7,100

Posting:
Supplies 126 Accounts Payable 201
(2) 2,500 (4) 7,100
(4) 7,100
 3. Journalising & Posting Transactions

Transaction: FastForward provides consulting services and immediately

collects £4,200 cash.
Analysis:
Assets = Liabilities + Equity
Cash Revenue
4,200 4,200

Double entry:
(5) Cash 101 4,200
Consulting Revenue 403 4,200

Posting:
Cash 403 Consulting Revenue 101
(1) 30,000 (2) 2,500 (5) 4,200
(5) 4,200 (3) 26,000
 4. Prepare a Trial Balance
ABC After processing its remaining
Trial Balance transactions for December, ABC’s Trial
December 31, 2021
Balance is prepared
Debits Credits
Cash £ 4,350
Accounts receivable - The trial balance lists all
Supplies 9,720 account balances in the
Prepaid Insurance 2,400
Equipment 26,000 general ledger. If the books
Accounts payable £ 6,200 are in balance, the total debits
Unearned consulting revenue 3,000
Smith, Capital 30,000 will equal the total credits
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
 4. Prepare a Trial Balance

Preparing a trial balance involves three steps:

1. List each account title and its amount (from ledger) in the trial
balance. If an account has a zero balance, list it with a zero in the
normal balance column (or omit it entirely).

2. Compute the total of debit balances and the total of credit

balances.

3. Verify (prove) total debit balances equal total credit balances.

 4. Prepare a Trial Balance
If the trial balance does not balance, the error(s)
must be found and corrected.

Make sure the trial balance Re-compute each account

columns are correctly added. balance in the ledger.

Make sure account balances Verify that each journal

are correctly entered from the entry is posted correctly.
ledger.

See if debit or credit Verify that each original

accounts are mistakenly journal entry has equal
placed on the trial balance. debits and credits.
 5. Prepare Financial Statements
Period of Time
Point in Time Point in Time

Statement of Cash Flows

Income Statement
Beginning Ending
Balance Balance
Sheet Sheet
 4. Prepare Financial Statements
ABC
Income Statement
For the Month Ended December 31, 2021
Revenues:
Consulting revenue £5,800
Rental revenue 300
Total revenues £6,100
Expenses:
Rent expense 1,000
Salaries expense 1,400
Utilities expense 230
Total expenses 2,630
Net income £3,470
 5. Prepare Financial Statements
ABC
Balance Sheet
Statement of Owner's Equity December 31, 2021
For the Month Ended December 31, 2021
Assets
Smith, Capital 01/12/21 £ -
Cash £ 4,350
Net income for December 3,470
Supplies 9,720
Plus: Investments by Owner 30,000
Prepaid insurance 2,400
33,470
Equipment 26,000
Less: Owner Withdrawals 200
Total assets £ 42,470
Smith, Capital, 31/12/21 £ 33,270 Liabilities
Accounts payable £ 6,200
Unearned revenue 3,000
Connections Total liabilities
Equity
9,200

Smith, Capital £ 33,270

Total equity 33,270
Total liabilities and equity £ 42,470
 Link to Assignment 2

P3 – Prepare a trial balance and financial statements

Trial Income Balance

Balance Statement Sheet