Hhtfa8e ch02 stud devry Accounting 212 FINANCIAL ACCOUNTING

Transaction Analysis
Chapter 2


Transactions
• Events that have a financial impact on the
business
• Events that have two sides
• Accounting records both sides of transactions


The Account

Assets Liabilities Stockholders’
Equity


Assets


Liabilities


Stockholders’ Equity


Analyze transactions


Exercise 2-16A
Assets Liabilities Type of
Accounts Accounts Notes Stockholders' Equity
Date Cash receivable Supplies Land = payable payable + Equity Transaction
6-Mar
9-Mar

12-Mar

15-Mar
15-31
- - - - - -

Exercise 2-16A
Assets Liabilities Type of
Accounts Accounts Notes Stockholders' Equity
Date Cash receivable Supplies Land = payable payable + Equity Transaction

15-31

31-Mar

31-Mar

31-Mar
- - - - - - -

$80,600 $80,600

Understand how accounting works


Double-Entry Accounting
• Business transactions include two parts
• Accounting based on a double-entry system


T-Account

Account Title
Left side Right side

Debit Credit


Rules of Debit and Credit
Stockholders’
Assets Liabilities Equity

Debit Credit Debit Credit Debit Credit


Additional Stockholders’ Equity
Accounts: Revenues & Expenses

Liabilities
Common stock
Assets +
Retained earnings
Stockholders’
Stockholders’ Dividends
Equity
Equity +
Revenues

Expenses


Rules of Debit and Credit
Stockholders’ Equity
Assets Liabilities Common stock Retained earnings
Debit Credit Debit Credit Debit Credit Debit Credit

Revenue
Debit Credit

Dividends Expenses

Debit Credit Debit Credit


Record transactions in the journal


The Journal
• Chronological record of transactions
• Three steps


Journal Entry

JOURNAL
Date Accounts and explanation Debit Credit
May 1 Cash 50,000
Common stock 50,000
Issued common stock


The Ledger

Individual
asset
accounts

Individual
equity
accounts

Individual
liability
accounts

21
Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.

Posting
JOURNAL
Date Accounts and explanation Debit Credit
May 1 Cash 50,000
Common stock 50,000
Issued common stock

Cash Common stock


Flow of Accounting Data


Use a trial balance


Trial Balance
• Lists all accounts with their balances
• Assets listed first, then liabilities and
stockholders’ equity
• Shows that debits equal credits
• Usually prepared at the end of the period


Analyzing Accounts
Cash
Beginning balance

Cash receipts ?

Ending balance


Analyzing Accounts
Accounts receivable
Beginning balance

Sales on account ?

Ending balance


Analyzing Accounts
Accounts payable
Beginning balance

? Purchases on account

Ending balance


Correcting Accounting Errors


Chart of Accounts
Balance Sheet Accounts

Assets Liabilities Stockholders’ Equity

101 Cash 201 Accts. payable 301 Common stock

111 Accts. receivable 231 Notes payable 311 Dividends

141 Office supplies 312 Retained earnings

151 Office furniture Income Statement Accounts

191 Land Revenues Expenses

401 Service revenue 501 Rent expense

502 Salary expense

503 Utilities expense


Normal Balances of Accounts
Assets
Liabilities
Stockholders’ Equity overall
Common stock
Retained earnings
Dividends
Revenues
Expenses


Analyze transactions using only T-Accounts


Using T-Accounts
• Decisions often are made without a complete
accounting system
• T-Accounts allow managers to analyze
transactions quickly


Short Exercise 2-13
Cash Computer Equipment
$140,000 $100,000

Accounts Payable Common Stock
$100,000 $140,000

Debits = ? Credits = ?


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