Professional Documents
Culture Documents
3-1
The
The Role
Role of
of Accounting
Accounting Records
Records
Establishes
Establishesaccountability
accountabilityfor
for
assets
assetsand
andtransactions.
transactions.
Keeps
Keepstrack
trackof
of routine
routine
business
businessactivities.
activities.
Obtains
Obtainsdetailed
detailedinformation
information
about
about aaparticular
particular transaction.
transaction.
Evaluates
Evaluatesefficiency
efficiencyand
and
performance
performancewithin
withincompany.
company.
Maintains
Maintainsevidence
evidence of
of
company’s
company’sbusiness
businessactivities.
activities.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Slide
3-3
The
The Ledger
Ledger
Accounts
Accounts are
are
Cash individual
individual records
records
showing
showing increases
increases
Accounts
and
and decreases.
decreases.
Payable
The
The entire
entire group
group of
of
Capital accounts
accounts is is kept
kept
Stock together
together in in an
an
accounting
accounting record
record
called
called aa ledger.
ledger.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Slide
3-4
The
The Use
Use of
of Accounts
Accounts
Increases are
Title of
recorded on one Account
side of the T- Left Right
account, and or or
Debit Credit
decreases are Side Side
recorded on the
other side.
Let’s
Let’s see
see how
how
debits
debits and
and credits
credits
are
are recorded
recorded inin the
the
Cash
Cash account
account for
for
JJ’s
JJ’s Lawn
Lawn Care
Care
Service.
Service.
Debit
Debit and
and Credit
Credit Entries
Entries
Cash
Cash
Receipts
5/1
5/1 8,000
8,000 5/2
5/2 2,500
2,500 Payments
are on 5/25
5/25 75
75 5/8
5/8 2,000
2,000 are on the
the debit 5/29 750
side.
5/29 750 5/28
5/28 150
150 credit
side.
5/31
5/31 50
50
5/31
5/31 4,125
4,125 The
Thebalance
balance is
isthe
the
Bal.
Bal. difference
differencebetween
between
the
thedebit
debitand
andcredit
credit
entries
entriesin
inthe
the
account.
account.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Slide
3-7
Debit
Debit and
and Credit
Credit Rules
Rules
Debits
Debits and
and credits
credits affect
affect accounts
accounts as
as
follows:
follows:
A = L + OE
ASSETS LIABILITIES EQUITIES
Debit Credit Debit Credit Debit Credit
for for for for for for
Increase Decrease Decrease Increase Decrease Increase
Double
Double Entry
Entry AccountingThe
AccountingThe
Equality
Equality of
of Debits
Debits and
and Credits
Credits
A = L + OE
=
Debit Credit
balances balances
In
In the
the double-entry
double-entry accounting
accounting system,
system,
every
every transaction
transaction is
is recorded
recorded by
by equal
equal
dollar
dollar amounts
amounts of
of debits
debits and
and credits.
credits.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Slide
3-9
Let’s record
selected
transactions for
JJ’s Lawn Care
Service in the
accounts.
Capital Stock
Cash increases
increases $8,000
$8,000 with a debit.
with a credit.
Cash decreases
$2,000 with a credit.
Truck increases
Notes Payable
$15,000 with a debit.
increases $13,000
with a credit.
Cash
5/1 8,000 5/2 2,500
Truck
5/8 2,000
5/8 15,000
Notes Payable
5/8 13,000
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Slide
3-16 May
May 11:
11: JJ’s
JJ’s purchased
purchased some
some repair
repair parts
parts for
for
$300
$300 on
on account.
account.
The
The Journal
Journal
In
In an
an actual
actual accounting
accounting system,
system, transactions
transactions
are
are initially
initially recorded
recorded in
in the
the journal.
journal.
GENERAL JOURNAL
P
Date Account Titles and Explanation R Debit Credit
2003
May 1 Cash 8,000
Capital Stock 8,000
Owners invest cash in the business.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Slide
3-21
Posting
Posting Journal
Journal Entries
Entries to
to the
the Ledger
Ledger
Accounts
Accounts
Posting
involves
copying
information
from the
journal to the
ledger
accounts.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Slide
3-22
Posting
Posting Journal
Journal Entries
Entries to
to the
the Ledger
Ledger
Accounts
Accounts
GENERAL JOURNAL
P
Date Account Titles and Explanation R Debit Credit
2003
May 1 Cash 8,000
Capital Stock 8,000
General
Owners invest cash Ledger
in the business.
Cash
Date Debit Credit Balance
2003
May 1 8,000 8,000
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Slide
3-23
Posting
Posting Journal
Journal Entries
Entries to
to the
the Ledger
Ledger
Accounts
Accounts
GENERAL JOURNAL
P
Date Account Titles and Explanation R Debit Credit
2003
May 1 Cash 8,000
Capital Stock 8,000
General
Owners invest cash Ledger
in the business.
Capital Stock
Date Debit Credit Balance
2003
May 1 8,000 8,000
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Slide
3-24
Posting
Posting Journal
Journal Entries
Entries to
to the
the Ledger
Ledger
Accounts
Accounts
GENERAL JOURNAL
P
Date Account Titles and Explanation R Debit Credit
2003
May 2 Tools & Equipment 2,500
Cash 2,500
Purchased lawn mower.
Let’s
Let’s see
see what
what the
the cash
cash account
account looks
looks like
like after
after
posting
posting the
the cash
cash portion
portion of
of this
this transaction
transaction for
for
JJ’s
JJ’s Lawn
Lawn Care
Care Service.
Service.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Slide
3-25
Ledger
Ledger Accounts
Accounts After
After Posting
Posting
General Ledger
Cash
Date Debit Credit Balance
2003
May 1 8,000 8,000
2 2,500 5,500
This
This ledger
ledger format
format is
is referred
referred to
to as
as aa
running
running balance
balance (as
(as opposed
opposed to to simple
simple
TT accounts).
accounts).
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Slide
3-26
What
What is
is Net
Net Income?
Income?
Net
Net income
income is
is not
not an asset it’s
an asset it’s an
an increase
increase in
in
owners’
owners’ equity
equity from
from profits
profits of
of the
the business.
business.
A = L + OE
Increase Decrease Increase
Retained
Retained Earnings
Earnings
A = L + OE
Capital Retained
Stock Earnings
Revenue
Revenue and
and Expenses
Expenses
The price for
goods sold
and services Increases
rendered during a owner’s equity.
given accounting
period.
The costs of
goods and Decreases
services used up owner’s equity.
in the process of
earning revenue.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Slide
The
The Realization
Realization Principle:
Principle: When
3-29
When
To
To Record
Record Revenue
Revenue
Realization Principle
Revenue should be
recognized at the
time goods are sold
and services are
rendered.
The
The Matching
Matching Principle:
Principle: When
When To
3-30
To
Record
Record Expenses
Expenses
Matching Principle
Expenses should be
recorded in the
period in which they
are used up.
Debits
Debits and
and Credits
Credits for
for Revenue
Revenue and
3-31
and
Expense
Expense
Expenses EQUITIES Revenues
decrease Debit Credit increase
owner’s for for owner’s
equity. Decrease Increase equity.
EXPENSES REVENUES
Debit Credit Debit Credit
for for for for
Increase Decrease Decrease Increase
Investments
Investments by
by and
and Payments
Payments to
to
Owners
Owners
Payments to Owners’
EQUITIES
owners investments
decrease Debit Credit increase
for for
owners’ Decrease Increase owners’
equity. equity.
Let’s
Let’s analyze
analyze the
the
revenue,
revenue, and
and
expense
expense
transactions
transactions forfor
JJ’s
JJ’s Lawn
Lawn Care
Care
Service
Service for
for the
the
month
month ofof May.
May.
We
We will
will also
also
analyze
analyze aa dividend
dividend
transaction.
transaction.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
Slide
3-34 May
May 29:
29: JJ’s
JJ’s provided
provided lawn
lawn care
care services
services for
for aa
client
client and
and received
received $750
$750 in
in cash.
cash.
Sales Revenue
Cash increases
increases $750 with
$750 with a debit.
a credit.
Will Gasoline
Will Cash increase
Expense increase or
or decrease?
decrease?
Gasoline Expense
Cash decreases $50
increases $50 with a
with a credit.
debit.
Will Dividends
Will Cash increase
increase or
or decrease?
decrease?
Cash Dividends
5/1 8,000 5/2 2,500 5/31 200
5/29 750 5/8 2,000
5/31 50
5/31 200
Now,
Now, let’s
let’s look
look at
at
the
the Trial
Trial Balance
Balance
for
for JJ’s
JJ’s Lawn
Lawn CareCare
Service
Service for
for the
the
month
month ofof May.
May.
Make end-of-
Journalize year
Post entries to Prepare trial
transactions. adjustments.
the ledger balance.
accounts.
End
End of
of Chapter
Chapter 33