Topic 2

Analyzing and Recording

Transactions
McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
 Analyzing 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
 Source Documents
Bills from
Checks Suppliers Purchase
Orders
Employee
Earnings
Records Bank
Statements

Sales
Tickets
 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.
The Account and its Analysis

Owner, Capital
Owner, Withdrawals
Asset Accounts

Cash
Accounts
Land
Receivable

Buildings
Asset Inventories
Accounts
Prepaid
Equipment
Accounts
Supplies
Liability Accounts

Accounts Bank
Payable overdraft

Liability
Accounts

Expenses
Loans
payable
Equity Accounts

Owner’s Owner’s
Capital Withdrawals

Equity
Accounts

Revenues Expenses
 The Account and its Analysis

Assets = Liabilities + Equity

+ – + –
Owner’s Owner's
Revenues Expenses
Capital Withdrawals
 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.

Account Number Account Name Account Number Account 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 Accounts payable 640 Rent expense
236 Unearned revenue 652 Supplies expense
301 C. Taylor, Capital 690 Utilities expense
 Double-Entry Accounting

Assets = Liabilities + Equity

ASSETS LIABILITIES EQUITIES

Debit Credit Debit Credit Debit Credit

+ - - + - +
Normal Normal Normal
 Double-Entry Accounting

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

Owner’s Owner's Revenues Expenses

Capital Withdrawals

Debit Credit Debit Credit Debit Credit Debit

- + + - - + +
Credit -
 JOURNALIZING &
POSTING TRANSACTIONS

Assets = Liabilities + Equity

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

Step 1: Analyze Step 2: Apply double-

transactions and source entry accounting
documents.

ACCOUNT NAME: ACCOUNT No.

Date Description PR Debit Credit Balance GENERAL JOURNAL Page 123

Post.
Date Description Ref. Debit Credit

Step 4: Post entry to ledger

Step 3: Record journal entry
 Double-Entry Accounting
- illustration

Dec 1: Owner invested $30,000 cash to start a new

business, Fast Forward.

Dec 2: Fast Forward purchased supplies worth $2,500 in cash.

Dec 5: Fast Forward purchased equipment worth $26,000 on credit.

Dec 7: Fast Forward provided consulting services for $4,000 in

cash.
 Double-Entry Accounting
- illustration

Dec 8: Fast Forward provided consulting services to ABC

Company worth $8,000 on credit.

Dec 10: Fast Forward paid $10,000 to creditor.

Dec 12: Fast Forward received $5,000 from ABC Company.

Dec 14: Fast Forward paid rent of $6,000 in cash.

 Journalizing Transactions
Transaction Titles of Affected
Date Accounts

Date Description Debit Credit

2011
Dec. 1 Cash 30,000
C. Taylor, Capital 30,000
Investment by owner

Dec. 2 Supplies 2,500

Cash 2,500
Purchased supplies for cash

Transaction Dollar amount of debits

explanation and credits
 Posting Journal Entries
2011
Dec. 1 Cash 30,000
C. Taylor, Capital 30,000
Investment by owner

1 Identify the debit account in ledger.

CASH ACCOUNT No. 101

Date Description PR Debit Credit Balance

2011

Dec. 3 Purchased equipment G1 20,000.00 (20,000.00)

 Posting Journal Entries
2011
Dec. 1 Cash 30,000
C. Taylor, Capital 30,000
Investment by owner

2 Enter the date.

CASH ACCOUNT No. 101

Date Description PR Debit Credit Balance

2011
Dec. 1
 Posting Journal Entries
2011
Dec. 1 Cash 30,000
C. Taylor, Capital 30,000
Investment by owner

3 Enter the amount and description.

CASH ACCOUNT No. 101

Date Description PR Debit Credit Balance

2011
Dec. 1 Investment by owner 30,000

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

 Posting Journal Entries
2011
Dec. 1 Cash 30,000
C. Taylor, Capital 30,000
Investment by owner

4 Enter the journal reference.

CASH ACCOUNT No. 101

Date Description PR Debit Credit Balance

2011
Dec. 1 Investment by owner G1 30,000

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

 Posting Journal Entries
2011
Dec. 1 Cash 30,000
C. Taylor, Capital 30,000
Investment by owner

5 Compute the balance.

CASH ACCOUNT No. 101

Date Description PR Debit Credit Balance

2011
Dec. 1 Investment by owner G1 30,000 30,000
 Posting Journal Entries
2011
Dec. 1 Cash 101 30,000
C. Taylor, Capital 30,000
Investment by owner

6 Enter the ledger reference.

CASH ACCOUNT No. 101

Date Description PR Debit Credit Balance

2011
Dec. 1 Investment by owner G1 30,000 30,000

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

 After processing its remaining transactions for
December, FastForward’s Trial Balance is prepared.

FastForward
The trial balance lists
Trial Balance
December 31, 2011 all account balances in
Debits Credits
the general ledger. If
Cash $ 4,350 the books are in
Accounts receivable - balance, the total debits
Supplies 9,720 will equal the total
Prepaid Insurance 2,400
Equipment 26,000
credits.
Accounts payable $ 6,200
Unearned consulting revenue 3,000
C. Taylor, Capital 30,000
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
Using a Trial Balance to Prepare
Financial Statements
Income Statement
FASTFORWARD
Income Statement
For the Month Ended December 31, 2011
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
 STATEMENT OF CHANGES IN EQUITY
FASTFORWARD
Statement of Changes in Equity
For the Month Ended December 31, 2011
C. Taylor, Capital 12/1/11 $ -
Net income for December 3,470
Connections Plus: Investments by Owner 30,000
33,470
Less: Owner Withdrawals 200
C. Taylor, Capital, 12/31/11 $ 33,270

FASTFORWARD
Income Statement
For the Month Ended December 31, 2011
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
 Statement of Financial Position
FASTFORWARD
Statement of Changes in Equity
For the Month Ended December 31, 2011
FASTFORWARD
C. Taylor, Capital 12/1/11 $ -
Statement of Financial Position
December 31, 2011
Net income for December 3,470
Assets
Plus: Investments by Owner 30,000
Cash $ 4,350
33,470
Supplies 9,720
Less: Owner Withdrawals 200
Prepaid insurance 2,400
C. Taylor, Capital, 12/31/11 $ 33,270
Equipment 26,000
Total assets $ 42,470
Liabilities
Accounts payable $ 6,200
Unearned revenue 3,000
Connections Total liabilities 9,200
Equity

C. Taylor, Capital $ 33,270

Total equity 33,270
Total liabilities and equity $ 42,470
END OF CHAPTER 2