Inc.

Copyright  2009 John Wiley & Sons,

PROCESS
ACCOUNTING
ILLUSTRATION 1-1
Identification Recording Communicatio
(select (record, n (prepare
economic classify, and reports; analyze
events/ and interpret)
transactions) summarize
)
Weygandt/Principles 9e
(For Instructor Use Only)

Internal Users External Users

Management Investors/creditors Other users

Managers, Present & potential Taxing authorities
supervisors, and Investors Regulatory
company Creditors agencies
officers Customers
Labor unions
1
ILLUSTRATION 1-2
THE ACCOUNTING EQUATION

ASSETS = LIABILITIES + OWNER’S EQUITY

Assets are = Liabilities are + Owner’s

resources that creditor claims equity is the
possess on the assets owner’s residual
future and claim on total
economic represent the debts assets.
benefits and obligations of
the entity.

Creditor claims
TOTAL on assets
Owner’s claims on
ASSETS assets

Copyright  2009 John Wiley & Sons, Inc. Weygandt/Principles 9e (For Instructor Use Only) 2
ILLUSTRATION 1-3
RECORDING BUSINESS
TRANSACTIONS

A.Mr.Review of Selected Transactions

Sam Doty opened his law practice during the month of September and
provided you with the following data.
1. Invested $8,000 in his business.
2. Purchased $500 of supplies on account.
3. Purchased $4,000 of equipment on account.
4. Received $3,000 for services provided.
5. Paid salaries of $800.
6. Paid office rent for September of $200.
7. Paid $1,000 owed to creditor.
8. Withdrew $1,500 from the business.
Instructions: Prepare the tabular summary for the transactions above.

Answer
Summary of Transactions
: Month of September,
2010
Assets = Liabilities + Owner's Equity

Tran Su Equi Accoun S. Doty, –S. +Revenue –

s- Cash + p- + p- = ts + Doty, s Expens
actio plie ment Payable Capital Drawin es
n s gs

(1) + +
$8,000 $8,000
(2) +500 +$500
(3) + +4,000
$4,000
(4) +3,000 +3,000
(5) –800 –800
(6) –200 –200
(7) –1,000 –1,000
(8) –1,500 –1,500
$7,500 + $500 + $4,000 = $3,500 + $8,000
Copyright  2009 John Wiley & Sons, Inc. Weygandt/Principles 9e (For Instructor Use Only)
– +$3,000 –$1,0003
$1,500
ILLUSTRATION 1-3
(Continued)
B. Financial Statement Relationship to Transactions and Balances
1. Prepare the Income Statement and Owner's Equity Statement from
the Owner's Equity Columns of the Summary of Transactions
for the month of September.

Owner's Equity
1. + $8,000 (INVESTMENT)
4. + 3,000 (SERVICE REVENUE)
5. 800 (SALARY EXPENSE)
– 200 (RENT EXPENSE)
6. 1,500 (DRAWINGS)
– $8,500
Answer:
8.
– Sam Doty
Attorney at Law
Income
Statement
For the Month Ended
September 30, 2010
Service Revenue $3,000
R
Expenses
ev
Salary $ 800
en
expense
Rent expense
ue
Total 200
s expenses
Net income 1,000
$2,000
Sam Doty
Attorney at
Law
Owner's Equity Statement
For the1Month Ended $
S. Doty, Capital, September –
September 30, 2010
Add: Investment by owner 0–
Net income 8,000

Less: Drawings 2,000

S. Doty, Capital, 10,000
September 30
Copyright  2009 John Wiley & Sons, Inc. Weygandt/Principles 9e (For Instructor Use Only) 4
1,500
ILLUSTRATION 1-3
(Continued)
2. Prepare the Balance Sheet from the Month-end Balances of the
Summary of Transactions

Assets = Liabilities + Owner's Equity

Cash + Supplies + Equipment = Accounts Payable + S. Doty, Capital

$7,500 + $500 + $4,000 = $3,500 + $8,500

Answer:
Sam Doty
Attorney at Law
Balance Sheet
September 30, 2010
Assets
C $
a 7,500
s 500
h 4,000
$12,000
Liabilities and Owner's Equity
Liabilities
S
Accounts payable $ 3,500
u
Owner's Equity p
S. Doty,p
Capital Totall 8,500
liabilities and
i
owner's equity
e $12,00
s 0

E
Copyright  2009 John Wiley & Sons, Inc. Weygandt/Principles 9e (For Instructor Use Only) 5
q
ILLUSTRATION 1-3
(Continued)
3. Prepare the Statement of Cash Flows from the Cash Column of the
Summary of Transactions for the month of September.

Sam Doty
Attorney at
Law
Statement of Cash Flows
For the Month Ended September 30, 2010
Cash flows from operating activities
Cash receipts from customers $ 3,000
Cash payments for expenses (1,000)
Net cash provided by operating activities $ 2,000
Cash flows from investing activities
Payment for equipment
Cash flows from financing activities (1,000)
Investment $ 8,000
Drawings (1,500) 6,500
Net increase in cash
Cash at the beginning of the period 7,50
Cash at the end of the period 0
0
$
7,500

Copyright  2009 John Wiley & Sons, Inc. Weygandt/Principles 9e (For Instructor Use Only) 6
ILLUSTRATION 1-4
ANALYZING TRANSACTIONS
Identify the various transactions
indicated by the information
1. CASH
provided: ACCOUNTS RECEIVABLE
increased decreased
CASH
2. RENT EXPENSE decreased
increased ACCOUNTS PAYABLE
increased
3. SUPPLIES CASH
increased decreased
REVENUE
4. EQUIPMENT increased
increased CASH
decreased
5. ACCOUNTS RECEIVABLE
increased
Continue exercise by asking students for a transaction which
increases the following:
6. DRAWINGS
increased
Cash, Accounts Receivable, Supplies, Equipment, Accounts
Payable, Owner's Capital.
Continue exercise by asking students for a transaction which
decreases the following:
Cash, Accounts Receivable, Supplies, and Accounts
Payable.

Answer:
1. Collection of an accounts receivable.
2. Payment of the current month's rent.
3. Purchase of supplies on account.
4. Purchase of equipment for cash.
5. Rendering of services for a customer on account.
6. The withdrawal of cash by the owner for personal use.

Copyright  2009 John Wiley & Sons, Inc. Weygandt/Principles 9e (For Instructor Use Only) 7