Professional Documents
Culture Documents
3 CYCLE:
Capturing Economic Events
Maintains evidence of
company’s business activities.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2002
The Ledger
Accounts are
Cash individual records
showing increases
Accounts
and decreases.
Payable
The entire group of
Capital accounts is kept
Stock together in an
accounting record
called a ledger.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2002
The Use of 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.
A = L + OE
ASSETS LIABILITIES EQUITIES
Debit Credit Debit Credit Debit Credit
for for for for for for
Increase Decrease Decrease Increase Decrease Increase
A L
E OE
D R
(AED) (LOR)
A = L + OE
=
Debit Credit
balances balances
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., 2002
May 11: JJ’s purchased some repair parts for
$300 on account.
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., 2002
Posting Journal Entries to the Ledger
Accounts
Posting
involves
copying
information
from the
journal to the
ledger
accounts.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2002
Posting Journal Entries to the Ledger
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., 2002
Posting Journal Entries to the Ledger
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., 2002
Posting Journal Entries to the Ledger
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.
A = L + OE
Increase Decrease Increase
A = L + OE
Capital Retained
Stock Earnings
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., 2002
The Realization Principle: When
To Record Revenue
Realization Principle
Revenue should be
recognized at the
time goods are sold
and services are
rendered.
Matching Principle
Expenses should be
recorded in the
period in which they
are used up.
EXPENSES REVENUES
Debit Credit Debit Credit
for for for for
Increase Decrease Decrease Increase
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 $50 with a
with a credit.
debit.
Will Dividends
Will Cash increase
increase or
or decrease?
decrease?
Cash Dividends
5/1 8,000 5/2 2,500 5/31 200
5/29 750 5/8 2,000
5/31 50
5/31 200
Make end-of-
Journalize year
Post entries to Prepare trial
transactions. adjustments.
the ledger balance.
accounts.
Apply the matching principle to determine how much salary expense Harley
Consulting should report in its May income statement.
a. Determine the amount of total liabilities reported in Apple Computer ’s balance sheet
at the beginning of the year. ($ 18.6 Bn)
b. Determine the amount of total owners’ equity reported in Apple Computer ’s balance
sheet at the end of the year. ( $27.9 Bn)
c. Retained earnings was reported in Apple Computer ’s year-end balance sheet at $19.5
billion. If retained earnings was $13.8 billion at the beginning of the year, determine net
income for the year if no dividends were declared. ( $5.7 Bn)