Professional Documents
Culture Documents
Learning Objectives
Describe how accounts, debits, and credits are used to
1 record business transactions.
2-1
Luca Pacioli:
Italian mathematician
He is referred to as "The Father of Accounting and
Bookkeeping“
first person to publish a work on the double-entry system of
book-keeping
Summa de arithmetica, geometria, proportioni et
proportionalita (Summary of arithmetic, geometry,
proportions and proportionality)
2-2
The Account
Double-entry system
Each transaction must affect two or more accounts to
keep the basic accounting equation in balance.
Recording done by debiting at least one account and
crediting at least one other account.
DEBITS must equal CREDITS.
2-3 LO 1
LEARNING Describe how accounts, debits, and credits
1
OBJECTIVE are used to record business transactions.
An account can
be illustrated in a
T-account form.
2-4 LO 1
Debits and Credits
Balance $15,000
2-5 LO 1
Debits and Credits
Balance $1,000
2-6 LO 1
Debits and Credits
2-7 LO 1
Debits and Credits
2-8 LO 1
Debits and Credits
2-9 LO 1
Debits/Credits Rules
Normal Normal
Balance Balance
Debit Credit
2-10 LO 1
Debits/Credits Rules
Debit
Credit
2-11 LO 1
Debits/Credits Rules
Question
Debits:
2-12 LO 1
Debits/Credits Rules
Question
Accounts that normally have debit balances are:
2-13 LO 1
Summary of Debit/Credit Rules
Expanded
Equation
Debit/Credit
Effects
2-14 LO 1
DO IT! 1 Normal Account Balances
Kate Browne has just rented space in a shopping mall. In this space,
she will open a hair salon to be called “Hair It Is.” A friend has advised
Kate to set up a double-entry set of accounting records in which to
record all of her business transactions. Identify the balance sheet
accounts that Kate will likely need to record the transactions needed
to open her business. Indicate whether the normal balance of each
account is a debit or a credit.
2-15 LO 1
LEARNING Indicate how a journal is used in the
2
OBJECTIVE recording process.
The Journal
Book of original entry.
Transactions recorded in chronological order.
Contributions to the recording process:
1. Discloses the complete effects of a transaction.
2-17 LO 2
Steps in the Recording Process
GENERAL JOURNAL
Equipment 7,000
Cash 7,000
2-18 LO 2
Steps in the Recording Process
GENERAL JOURNAL
2-19 LO 2
2-20 LO 2
DO IT! 2 Recording Business Activities
2-21 LO 2
DO IT! 2 Recording Business Activities
The Ledger
General Ledger contains all the asset, liability, and owner’s
equity accounts.
Illustration 2-15
2-23 LO 3
2-24 LO 3
The Ledger
2-25 LO 3
Ledger
POSTING
Transferring
journal entries
to the ledger
accounts.
Illustration 2-17
Posting a journal
entry
2-26 LO 3
Posting
Question
Posting:
a. normally occurs before journalizing.
b. transfers ledger transaction data to the journal.
c. is an optional step in the recording process.
d. transfers journal entries to ledger accounts.
2-27 LO 3
Chart of Accounts
Illustration 2-18
2-28 LO 3
The Recording Process Illustrated
Illustration 2-19
2-29 LO 3
Illustration 2-20
2-30 Purchase of office equipment LO 3
Illustration 2-21
Receipt of cash
for future service
2-31 LO 3
Illustration 2-22
2-32 Payment of monthly rent LO 3
Illustration 2-23
Payment for
insurance
2-33 LO 3
Illustration 2-24
2-34 Purchase of supplies on credit LO 3
The Recording Process Illustrated
Illustration 2-25
Hiring of employees
2-35 LO 3
Illustration 2-26
2-36 Withdrawal of cash by owner LO 3
Illustration 2-27
2-37 Payment of salaries LO 3
Illustration 2-28
2-38 Receipt of cash for services performed LO 3
Summary Journalizing and Posting
Illustration 2-29
2-39 LO 3
2-40 Illustration 2-29 LO 3
Illustration 2-30
2-41
LO 3
DO IT! 3 Posting
2-42 LO 3
LEARNING
OBJECTIVE
4 Prepare a trial balance.
2-44 LO 4
Dollar Signs and Underlining
Dollar Signs
Do not appear in journals or ledgers.
Typically used only in the trial balance and the financial
statements.
Shown only for the first item in the column and for the total
of that column.
Underlining
A single line is placed under the column of figures to be
added or subtracted.
Totals are double-underlined.
2-45 LO 4
Trial Balance
Question
A trial balance will not balance if:
a. a correct journal entry is posted twice.
b. the purchase of supplies on account is debited to Supplies
and credited to Cash.
c. a $100 cash drawing by the owner is debited to Owner’s
Drawing for $1,000 and credited to Cash for $100.
d. a $450 payment on account is debited to Accounts
Payable for $45 and credited to Cash for $45.
2-46 LO 4
2-47 LO 4
DO IT! 4 Trial Balance
2-48 LO 4
DO IT! 4 Trial Balance
2-49
LO 4
Auditor Opinion Reports
Unqualified opinion-clean report
Qualified opinion-qualified report
Disclaimer of opinion-disclaimer report
Adverse opinion-adverse audit report
2-50
A Look at IFRS
Key Points
Similarities
Transaction analysis is the same under IFRS and GAAP.
Both the IASB and the FASB go beyond the basic definitions
provided in the textbook for the key elements of financial
statements, that is assets, liabilities, equity, revenue, and
expenses. The implications of the expanded definitions are
discussed in more advanced accounting courses.
2-51 LO 5
A Look at IFRS
Key Points
Similarities
As shown in the textbook, dollar signs are typically used only in
the trial balance and the financial statements. The same practice
is followed under IFRS, using the currency of the country where
the reporting company is headquartered.
A trial balance under IFRS follows the same format as shown in
the textbook.
2-52 LO 5
A Look at IFRS
Key Points
Differences
IFRS relies less on historical cost and more on fair value than do
FASB standards.
Internal controls are a system of checks and balances designed
to prevent and detect fraud and errors. While most public U.S.
companies have these systems in place, many non-U.S.
companies have never completely documented the controls nor
had an independent auditors attest to their effectiveness.
2-53 LO 5
A Look at IFRS
2-54 LO 5
A Look at IFRS
2-55 LO 5
A Look at IFRS
2-56 LO 5
A Look at IFRS
2-57 LO 5
Copyright
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2-58