SOUNDTRACK

COMMERCIAL Chapter 2

RELATIONS 1
ACCOUNTING EQUATION
Accounts are grouped in 3 broad categories:

Assets
Assets = Liabilities
Liabilities + Equity
Equity

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LIABILITIES
Creditors’ claims to assets (debt)
Accounts Payable
Notes Payable
Accrued Liabilities

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CHART OF ACCOUNTS
List of all accounts used by a company along with the account
numbers

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T-ACCOUNT
Simple tool for analyzing and determining the balance in a given account

Account Name

(Left Side) (Right Side)

Debit Credit

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 REMEMBER:
The first and the
JUST ASK ALICE!
The middle three
are increased with
last are increased credits
with a debit

Debit Credit
+ A = Assets -
- L = Liabilities +
- I = Income* +
- C = Capital +
+ E = Expenses -

* Really, this is revenues, but “r” just doesn’t fit in!

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 NORMAL BALANCES
Assets = Liabilities + Equity
Debit Credit Debit Credit Debit Credit
+ - - + - +

Normal Normal Normal

Balance Balance Balance

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JOURNALIZING
TRANSACTIONS
Identify each account affected and its type
Determine whether each account is increased or decreased. Use the
rules of debit and credit
Record transaction in journal, including a brief explanation
 Debit side of entry is entered first
 Total debits should always equal total credits

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 GENERAL
Transaction JOURNAL
Transaction
Date
Date Accounts
Accounts Affected
Affected

Journal Page 1
Date Description Debit Credit
Jul 1 Cash 45,000
Lange, Capital 45,000
Investment from owner

Explanation
Explanation of
of Dollar
Dollar amount
amount ofof
transaction
transaction debits
debits and
and credits
credits 10
GENERAL JOURNAL
Debits are ALWAYS entered first in an entry. Use the EXACT
account title and do not abbreviate
Credits are INDENTED and listed second
Do not use dollar signs
SKIP A LINE between each entry
Never split an entry between two pages

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 EXERCISE 2-5
Analysis of June 1 transaction:
M. Brown, Capital is increasing
Capital is an owner’s equity account
Increase owner’s equity with a credit
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT

Jun 1 Cash 25,000

M. Brown, Capital 25,000
Owner invested in business
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POSTING
Periodically, journal entries are posted to ledger accounts to
determine balances in each account
Posting – copying amounts from the journal to the ledger

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 EXERCISE
Cash
2-9
Accounts Payable Service Revenue
25,000

Accounts Receivable M. Brown, Capital Rent Expense

25,000
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT

Jun 1 Supplies
Medical Cash 25,000
M. Brown, Capital 25,000
Owner invested in business
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 EXERCISE
Cash
2-9
Accounts Payable Service Revenue
25,000 10,000

GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Accounts Receivable M. Brown, Capital Rent Expense
Jun 2 Medical Supplies 10,000
25,000
Accounts Payable 10,000
Purchased medical supplies
Medical Supplies
10,000

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FLOW OF ACCOUNTING DATA
Transaction Occurs

Source Documents Prepared

Transaction Analyzed

Transaction Journalized & Posted

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LOCATING TRIAL
BALANCE ERRORS
Divide the difference by two
 Is there a debit/credit balance for this amount posted in the wrong column?

Divide the difference by 9. If evenly divisible, the error may be a

slide or transposition error

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 Accounts Payable
EXERCISE 2-19 Aug 9 100
Aug 2 200

Bal. 100
Ex: Account receivable
Do we need to balance if both R. Woodward, Capital
side equal Aug 1 60,000

Accounts Receivable
Service Revenue
Aug 17 2,100 Aug 23 2,100
Aug 6 3,000
Aug 17 2,100
Bal. 5,100

Supplies Rent Expense

Aug 2 200 Aug 31 500

Building Salary Expense

Aug 4 50, 000
Aug 31 1,200
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