Analyzing and Recording Transactions: Fundamental Accounting Principles

Fundamental
20th
Accounting Principles
Wild, Shaw, Chiappetta
CHAPTER 2
Analyzing and Recording
Transactions
Lecturer: Truong Thi Thu Thuy

Analyzing and Recording
Transactions
Analyzing and Analyzing and

Recording Process Processing Transactions Trial Balance
• Source documents • General ledger • Trial balance

• The account and its • Double-entry accounting preparation
analysis • Journalizing and posting • Search for and
• Types of accounts • An illustration correction of errors
• Trial balance use
ANALYZING AND
RECORDING PROCESS
Analyze each transaction and event Record relevant transactions and

from source documents events in a journal
Prepare and analyze the Post journal information to ledger

trial balance accounts
ANALYZING AND RECORDING
PROCESS
 The Account and Its Analysis
Accounts General ledger

Records of increases and A record containing all the
decreases in a specific asset, accounts a company uses
liability, equity, revenue, or
expense item
ANALYZING AND
RECORDING PROCESS
 The Account and Its Analysis
 Accounts are arranged into three basic categories based
on the accounting equation.
Assets
Assets Liability
Liability Equity
Equity
Asset
Accounts
Accounts
Accounts = Liability
Accounts
Accounts
Accounts + Equity
Accounts
Accounts
Accounts
ANALYZING AND
RECORDING PROCESS
ASSET ACCOUNTS
Cash
Accounts
Land
Receivable
Buildings
Asset Notes
Receivable
Accounts
Prepaid
Equipment
Accounts
Supplies
ANALYZING AND
RECORDING PROCESS
LIABILITY ACCOUNTS
Accounts Notes
Payable Payable
Liability
Accounts
Accrued Unearned
Liabilities Revenue
ANALYZING AND
RECORDING PROCESS
EQUITY ACCOUNTS
Owner’s Owner’s
Capital Withdrawals
Equity
Accounts
Revenues Expenses
ANALYZING AND PROCESSING
TRANSACTIONS
The general ledger is a record
containing all the accounts a company uses.
The chart of accounts is a list of all the accounts in the ledger

with their identification numbers.
TRANSACTIONS
DEBITS AND CREDITS
A T-account represents a ledger account and is a tool used to understand
the effects of one or more transactions.
TRANSACTIONS
DOUBLE-ENTRY ACCOUNTING
Assets = Liabilities + Equity
ASSETS LIABILITIES EQUITIES
Debit Credit Debit Credit Debit Credit

+ - - + - +
Normal Normal Normal
balance balance balance
TRANSACTIONS
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

- + + - - + + -
TRANSACTIONS
An account balance is the difference between the increases
and decreases in an account.
Notice the T-Account.
TRANSACTIONS
JOURNALIZING & POSTING TRANSACTIONS
Assets = Liabilities + Equity
Step 1: Analyze
Step 2: Apply double-
transactions and source
entry accounting
documents.
Step 4: Post entry to ledger Step 3: Record journal entry

TRANSACTIONS
JOURNALIZING TRANSACTIONS
1. Transaction 2. Titles of Affected
Date Accounts
4. Transaction 3. Dollar amount of debits

explanation and credits
TRANSACTIONS
BALANCE COLUMN ACCOUNT
T-accounts are useful illustrations, but balance column ledger accounts
are used in practice.
TRANSACTIONS
POSTING JOURNAL ENTRIES
1 Identify the debit account in ledger.

TRANSACTIONS
2 Enter the date.

TRANSACTIONS
3 Enter the amount and description.

TRANSACTIONS
4 Enter the journal reference.

TRANSACTIONS
5 Compute the balance.

TRANSACTIONS
6 Enter the ledger reference.

TRANSACTIONS
ANALYZING TRANSACTIONS
Analysis:
Double entry:
Posting:
101 301
TRANSACTIONS
Analysis:
Double entry:
Posting:
126 101
TRANSACTIONS
Analysis:
Double entry:
Posting:
167 101
TRANSACTIONS
Analysis:
Double entry:
Posting:
126 201
TRANSACTIONS
Analysis:
Double entry:
Posting:
403 101
After processing its remaining transactions for
December, FastForward’s Trial Balance is prepared.
FastForward
Trial Balance The trial balance
December 31, 2009
lists all account
Debits Credits
Cash $ 4,350
balances in the
Accounts receivable - general ledger. If
Supplies 9,720
Prepaid Insurance 2,400
the books are in
Equipment 26,000 balance, the total
Accounts payable $ 6,200
Unearned consulting revenue 3,000
debits will equal the
C. Taylor, Capital 30,000 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
TRIAL BALANCE
PREPARING A TRIAL BALANCE
Preparing a trail 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.
TRIAL BALANCE
SEARCHING FOR AND CORRECTING ERRORS
If the trial balance does not balance, the
error(s) must be found and corrected.
Make sure the trial Re-compute each

balance columns are account balance in the
correctly added. ledger.
Make sure account Verify that each journal

balances are correctly entry is posted correctly.
entered from the 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.
USING A TRIAL BALANCE TO PREPARE
FINANCIAL STATEMENTS
Point in Point in
Time Period of Time Time
Statement of Cash Flows
Statement of Owner’s Equity

Income Statement
Beginning Ending
Balance Balance
Sheet Sheet
INCOME STATEMENT
STATEMENT OF OWNER'S EQUITY
FASTFORWARD
Statement of Owner's Equity
For the Month Ended December 31, 2009
C. Taylor, Capital 12/1/09 $ -
Connections
Net income for December 3,470
Plus: Investments by Owner 30,000
33,470
Less: Owner Withdrawals 200
. C. Taylor, Capital, 12/31/09 $ 33,270
BALANCE SHEET
Connections
PRESENTATION ISSUES
1. Dollar signs are not used in journals and ledgers.

2. Dollar signs appear in financial statements and other
reports such as trial balances. The usual practice is to
put dollar signs beside only the first and last numbers in
a column.
DECISION ANALYSIS
Debt to Assets Ratio
Total Debt
Total Assets
Evaluates the level of debt risk.
A higher ratio indicates that there is

a greater probability that a company
will not be able to pay it’s debt in the
future.

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Fundamental

Lecturer: Truong Thi Thu Thuy

Analyzing and Analyzing and

• Source documents • General ledger • Trial balance

Analyze each transaction and event Record relevant transactions and

Prepare and analyze the Post journal information to ledger

Accounts General ledger

 Accounts are arranged into three basic categories based

on the accounting equation.

The chart of accounts is a list of all the accounts in the ledger

Assets = Liabilities + Equity

ASSETS LIABILITIES EQUITIES

Debit Credit Debit Credit Debit Credit

Owner’s Owner's Revenues Expenses

Debit Credit Debit Credit Debit Credit Debit Credit

Assets = Liabilities + Equity

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

4. Transaction 3. Dollar amount of debits

1 Identify the debit account in ledger.

2 Enter the date.

3 Enter the amount and description.

4 Enter the journal reference.

5 Compute the balance.

6 Enter the ledger reference.

Make sure the trial Re-compute each

Make sure account Verify that each journal

See if debit or credit Verify that each original

Statement of Owner’s Equity

1. Dollar signs are not used in journals and ledgers.

Evaluates the level of debt risk.

A higher ratio indicates that there is

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