Financial Accounting

The Basis for Business Decisions

Lecture 5 – BBA2K23 By: Hassan Ali -

Lecturer Sindh University Campus, Thatta
Financial Accounting

Chapter 3.1
The Accounting Cycle:
Capturing Economic Events
Capturing Economic Events

Learning Objectives
 Accounting Cycle and Its Role in Accounting
Records
 Double Entry Accounting Entries in T - Accounts
 Posting Double Entry Accounting Entries to
General Journal
 Posting Journal Entries to the Ledger Accounts
Capturing Economic Events

Accounting Cycle

The sequence of
accounting procedures
used to record, classify,
and summarize
accounting information
in financial reports at
regular intervals is termed
the Accounting Cycle.
Capturing Economic Events

Accounting Cycle

The Accounting Cycle

begins with the initial
recording of business
transactions and
concludes with the
preparation of a
complete set of formal
financial statements.
Capturing Economic Events

Accounting Cycle
The Accounting Cycle generally
consists of Eight specific steps.
Capturing Economic Events

Accounting Cycle
The Accounting Cycle generally
consists of Eight specific steps.
In this chapter, We illustrate four Steps as:

1. Identify Transactions
2. Recording Journal Entries/Transactions
3. Posting journal entries in Ledger Accounts
4. Preparing unadjusted trial balance
Capturing Economic Events

The Role of Accounting Records

The Ledger Accounts
Accounts are individual
Cash records showing
increases and decreases.
Account Payable The entire group of
accounts is kept together
in an accounting record
Share Capital
called a ledger.
Capturing Economic Events

The Role of Accounting Records

The Use of T - Accounts
 T-accounts are commonly used to prepare adjusting entries.
 The matching principle in accrual accounting states that all expenses
must match with revenues generated during the period.

 Accountants often use T-Account to

represent a general ledger account. It is
quick way to analyze transactions before
entering information in the journal.
Capturing Economic Events

The Role of Accounting Records

The Use of T - Accounts

► Increases are recorded Title of Account

on one side of the T
account, and Decreases Left or Right or
Debit Credit
are recorded on the
Side Side
other side.
Capturing Economic Events

The Role of Accounting Records

Debit and Credit Entries
Debits and Credits affect accounts as follows:

A = L + E
ASSETS LIABILITIES EQUITIES
Debit Credit Debit Credit Debit Credit
for for for for for for
Increase Decrease Decrease Increase Decrease Increase
Capturing Economic Events

Double Entry Accounting

The Equality of Debits and Credits

A = L + E
Debit Balances Credit Balances
In the double-entry accounting system, each transaction
is recorded by equal amounts of debits and credits.
Capturing Economic Events

Double Entry Accounting

The Equality of Debits and Credits

Let’s record selected

transactions for JJ’s
Lawn Care Service in
the accounts.
Capturing Economic Events

Double Entry Accounting Entries

1. 1 May: Jill Jones and her family invested
$8,000 in JJ’s Lawn Care Service and received
800 shares of stock.

Will Cash increase Will Capital increase

or decrease? or decrease?
Capturing Economic Events

Double Entry Accounting Entries

1. 1 May: Jill Jones and her family invested
$8,000 in JJ’s Lawn Care Service and received
800 shares of stock.

Cash will increase Capital will increase

by $8,000 with Debit by $8,000 with Credit?

Cash Share Capital

1/5 8,000 1/5 8,000
Capturing Economic Events

Double Entry Accounting Entries

2. 2 May: JJ’s purchased a riding lawn mower for
$2,500 cash.

Will Cash increase Will Tools & Equipment

or decrease? increases or decrease?
Capturing Economic Events

Double Entry Accounting Entries

2. 2 May: JJ’s purchased a riding lawn mower for
$2,500 cash.

Tools & Equipment

Cash will decrease by
increases by $2,500
$2,500 with a credit.
debit.
Cash Tools & Equipment
1/5 8,000 2/5 2,500 2/5 2,500
Capturing Economic Events

Double Entry Accounting Entries

3. 8 May: JJ’s purchased a $15,000 truck. JJ’s paid
$2,000 in cash and incurred liability for the
remaining $13,000.

Will Truck increase Will Cash or A/c Payable

or decrease? increases or decrease?
Capturing Economic Events

Double Entry Accounting Entries

3. 8 May: JJ’s purchased a $15,000 truck. JJ’s paid
$2,000 in cash and incurred liability for the
remaining $13,000.

Truck will increase by Cash decrease by $2,000 Cr,

$15,000 with a debit. A/C Payable increase $13,000 Cr
Cash
Truck 1/5 8,000 2/5 2,500
8/5 15,000 8/5 2,000
A/c Payable
8/5 13,000
Capturing Economic Events

Double Entry Accounting Entries

4. 11 May: JJ’s purchased some repair parts for $300
on account.

Will Tools & Equipment Will A/C Payable

increases or decrease? increases or decrease?
Capturing Economic Events

Double Entry Accounting Entries

4. 11 May: JJ’s purchased some repair parts for $300
on account.

Tools & Equipment will A/C Payable will also

increase by $300 with increase by $300 with
Debit Credit

Tools & Equipment A/C Payable

2/5 2,500 8/5 13,000
11/5 300 11/5 300
Capturing Economic Events

Double Entry Accounting Entries

5. On May 18, JJ’s sold half of the repair parts to ABC
Lawns for 150, JJ’s will receive the cash within 30
days.

Will Tools & Equipment Will A/C Receivables

increases or decrease? increases or decrease?
Capturing Economic Events

Double Entry Accounting Entries

5. On May 18, JJ’s sold half of the repair parts to ABC
Lawns for 150, JJ’s will receive the cash within 30
days.

Tools & Equipment will A/C Receivables will

decrease by $150 with increases by $150 with
Credit Debit?

Tools & Equipment A/C Receivables

2/5 2,500 18/5 150 18/5 150
11/5 300
Capturing Economic Events

Double Entry Accounting Entries

6. On May 25, ABC Lawns pays JJ’s $75 as a partial
settlement of its accounts receivable.

Will Cash increases or Will A/C Receivables

decreases? increases or decrease?
Capturing Economic Events

Double Entry Accounting Entries

6. On May 25, ABC Lawns pays JJ’s $75 as a partial
settlement of its accounts receivable.

A/C Receivables will

Cash will increase by
decrease by $75 with
$75 with Debit
Credit?

Cash A/C Receivables

1/5 8,000 2/5 2,500 18/5 150 25/5 75
25/5 75 8/5 2,000
Capturing Economic Events

Double Entry Accounting Entries

7. On May 28, JJ lawn mover paid half of $300 as a
partial settlement of its accounts payable.

Will Cash increases or Will A/C Payable

decreases? increases or decrease?
Capturing Economic Events

Double Entry Accounting Entries

7. On May 28, JJ lawn mover paid half of $300 as a
partial settlement of its accounts payable.

Cash will decrease by A/C Payable will decrease

$150 with credit by $150 with Debit?

Cash A/C Payable

1/5 8,000 2/5 2,500 28/5 150 8/5 13,000
25/5 75 8/5 2,000 11/5 300
28/5 150
Capturing Economic Events

Double Entry Accounting Entries

8. On May 29, JJ’s recorded lawn care services
provided during May of $750. All clients paid in
cash.

Will Cash increases or Will Retained Earning

decreases? increases or decrease?
Capturing Economic Events

Double Entry Accounting Entries

8. On May 29, JJ’s recorded lawn care services
provided during May of $750. All clients paid in
cash.

Cash will increase by Retained Earning increase

$750 with Debit by $750 with credit?

Cash Retained Earning

1/5 8,000 2/5 2,500 29/5 750
25/5 75 8/5 2,000
29/5 750 28/5 150
Capturing Economic Events

Double Entry Accounting Entries

9. On May 31, JJ’s purchased gasoline for the lawn
mower and the truck for $50 cash.

Will Cash increases or Will Retained Earning

decreases? increases or decrease?
Capturing Economic Events

Double Entry Accounting Entries

9. On May 31, JJ’s purchased gasoline for the lawn
mower and the truck for $50 cash.

Cash will decrease by $50 Retained Earning decrease

with Credit by $50 with Debit
Cash Retained Earning
1/5 8,000 2/5 2,500 31/5 50 29/5 750
25/5 75 8/5 2,000
29/5 750 28/5 150
31/5 50
Capturing Economic Events
Posting Double Entry Accounting Entries to
General Journal

Posting simply means

updating the General
Journal with the effects of
the Double Entry
Accounting transactions.
Capturing Economic Events
Posting Double Entry Accounting Entries to
General Journal
In an actual accounting system, Double Entry
transactions are first recorded in the General journal.

General Journal
Date Account Titles and Explanations Debit Credit
1- May Cash 8,000
Capital (Equity) 8,000
Owners invest cash in the business
Capturing Economic Events
Posting Double Entry Accounting Entries to
General Journal
General Journal
Date Account Titles and Explanations Debit Credit
1- May Cash 8,000
Capital (Equity) 8,000
Owners invest cash in the business

General Ledger
Cash
Date Debit Credit Balance
1- May 8,000 -- 8,000
Capturing Economic Events

End of Lecture 5