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1. Analyzing and Recording Business
Transactions

MeGraw-HilVIrwin © The McGraw-Hill Companies, Inc., 2005

2. =

= =
| AADAYZING ana XKCCONGING ILLOCess )

Exchanges of economic consideration between
two parties.

External Transactions Internal Transactions

MeGraw-HilVIrwin © The McGraw-Hill Companies, Inc., 2005

3. Analyze each transaction and Record relevant transactions

event form source documents and events in a journal

Prepare and analyze Post journal information
the trial balance to ledger accounts

MeGraw-HilVIrwin © The McGraw-Hill Companies, Inc., 2005

4. © The McGraw-Hill Companies, Inc., 2

Sas

SF
=
E

Q a
Source,Doc

5. ountanaJis Analysis, )

An account is a
record of
increases and The general
decreases in a ledger is a record
specific asset, containing all
liability, equity, accu used by
revenue, or e company.
expense item.

© The McGraw-Hill Companies, Inc., 2005

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6. Assets Liability
Accounts Accounts Accounts

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7. Asset Notes
Accounts Receivable

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8. Payable

Liability
Accounts

Accrued
Liabilities

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9. Owner’s
Withdrawals

Revenues

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10. Assets | = Liabilities | + | Equity

© The McGraw-Hill Companies, Inc., 2005

11. Ledgerana_©

The ledger is a collection of all accounts for an
information system. A company’s size and
diversity of operations affect the number

of accounts needed.

Account Number Account Name
Cash
Accounts receivable
Supplies
Prepaid insurance
Equipment
Accounting payable
Unearned revenue

307 Common stock

MeGraw-HilVIrwin

Accounting Number

Accounting Name
Dividends
Revenues

Rental revenue
Salaries expense
Insurance expense
Rent expense
Supplies expense
Utilities expense

© The McGraw-Hill Companies, Inc.,

2005

12. A T-account represents a ledger account and is
a tool used to understand the effects of one or
more transactions.

T

(Left side) (Right side)
Debit Credit

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13. pDoublezEntry Accounting. }

Assets | = Liabilities | + | Equity |
tl} Fit $4
nel a

Bau Credit elas e

© The McGraw-Hill Companies, Inc., 2

14. Owner’s Owner’s =
Capital — | Withdrawals + | Revenues | —| Expenses

Wt tlt alt tlt

Debit Credit Debit Credit Debit Credit Pat Credit
+ Se +

MeGraw-HilVIrwin © The McGraw-Hill Companies, Inc., 2005

15. An account balance is the difference between
the increases and decreases in an account.

Cash
Investment by owner 30,000 | Purchase of supplies 2,500
Consulting services revenues earned 4,200 |Purchase of equipment 26,000
Collection of accounts receivable 1,900 | Payment of rent 1,000
Payment of salary 700
Payment of note payable 900
Withdrawal by owner 600
Total increases Total decreases 31,700
Balance

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16. Step 1: Analyze

transactions and source
documents.

Step 4: Post entry to ledger

MeGraw-HilVIrwin

tt side)
Credit

Step 2: Apply double-
entry accounting

p 3: Record journal entry
© The McGraw-Hill Companies, Inc, 2005

17. Jourpalzi

OTransaction
Date

GENER NAL Page 1
Date scripti PR Credit
2004
Dec. | 1 [Cash
Common stock

[_ [Investment by shareholders |
1 LE |

(De ande | Inc., 2005

18. column NAY ACCOUI

T-accounts are useful illustrations, but balance
column ledger accounts are used in practice.

CASH ACCOUNT No. 101

Date Description Debit Credit | Balance
2004
Dec. 1 Initial investment 30,000 30,000
Dec. 2 Purchased supplies à 27,500
Dec.3 |Purchased equipment { 1,500
Dec. 10 {Collection from customer Ä 3,400

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19. GENERAL JOURNAL

Description

PR

Identify the account.

ACCOUNT No.

101

Description

Credit

Balance

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© The McGraw-Hill Companies, Inc., 2005

20. LNG JOU AI TEN CS

GENERAL JOURNAL

Description

PR

Enter the date.

CASH

ACCOUNT No.

ate

Description

Credit

2004

Dec. 1

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© The McGraw-Hill Companies, Inc., 2005

21. Osung Jounal Enigies

GENERAL JOURNAL

Description

PR

Enter the amount and description.

CASH

AC£OUNT No.

101

Date

Description

Debit

Credit

Balance

2004

Dec. 1

Investment by shareholders

30,000

MeGraw-HilVIrwin

© The McGraw-Hill Companies, Inc., 2005

22. sting. Journal Entries

GENERAL JOURNAL
Description PR

Enter the journal reference.
CASH ACCOUNT No. 101

Date Description Debit Credit Balance
2004
Dec. 1 {Investment by shareholders 30,000

MeGraw-HilVIrwin © The McGraw-Hill Companies, Inc., 2005

23. Ing. Journal Entries

GENERAL JOURNAL
Description PR

Compute the balance.
CASH ACCOUNT No. 101

Date Description Debit Credit Balance
2004
Dec. 1 {Investment by shareholders 30,000 a 30,000

MeGraw-HilVIrwin © The McGraw-Hill Companies, Inc., 2005

24. DS
CS
Sy

GENERAL JOURNAL

Description

PR

Enter the ledger reference. O

CASH

ACCOUNT No. 101

Date

Description

Debit Credit Balance

2004

Dec. 1

Investment by shareholders

30,000 30,000

MeGraw-HilVIrwin

© The McGraw-Hill Companies, Inc., 2005

25. ho AnalyZing Ifans

Shareholders invested $30,000 in FastForward on
Dec. 1.

Analysis:

= Liabilities + _ Equity
Capital
30,000

Double entry:
(1) | Cash 101 30,000
Common stock 301

30,000 |
Posting:

(1) 30,00

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26. FastForward purchases supplies by paying $2,500
cash.

Analysis:

Assets = Liabilities
Cash Supplies
(2,500) 2,500

Double entry:

(2) | Supplies 126 2,500
Cash 101

2,500 |
Posting:

(2) 2,500 (2) 2,500

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27. FastForward purchases equipment by paying $26,000
Transaction: |cash.

Analysis:

Assets
Cash Equipment
(26,000) 26,000

= Liabilities

Double entry:

(3) | Equipment
Cash

| 167 | 26,000 |

101 26,000 |

Posting:

(3) 26,000

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30,000 (2) 2,500
(3) 26,000

© The McGraw-Hill Companies, Inc., 2005

28. FastForward purchases $7,100 of supplies on credit.

Analysis:

= Liabilities
‘Supplies Accounts Payable
7,100 7,100

Double entry:
(4) | Supplies 126 7,100
Accounts payable 201

7,100
Posting:

(2) 26,000 | (4) 7,100
(4) 7,100

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29. Analyzing. ans

FastForward provides consulting services and
mediately collects $4,200 cash.

Analysis:

= Liabilities

Double entry:
101 4,200
Consulting Revenue 403

(5) | Cash
4,200

Posting:

401

4,200 (1) | (2) 2,500

(5) 4,200 (3) 26,000

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30. After processing its remaining transactions for December,
FastForward's Trial Balance is prepared.

FastForward
Trial Balance
December 31, 2004

Debits Credits
Cash $ 3,950
Accounts receivable -
Supplies 9,720
Prepaid Insurance 2,400
Equipment 26,000
Accounts payable
Unearned consulting revenue
Common stock
Dividends
Consulting revenue
Rental revenue
Salaries expense
Rent expense
Utilities expense

Total $ 45,300 $ 45,300

© The McGraw-Hill Companies, Inc., 2005

31. Searching Jon ande,
rer TRES Fer

LTTE

If the trial balance does not balance, the
error(s) must be found and corrected.

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32. Period of Time

eee eee eeeeee eee eee eee mp

a Income Statement

Statement of Retained Earnings

Income Statement of
Cash Flows

Beginning
Balance Balance

Ending

Sheet Sheet

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33. Income Statement

FASTFORWARD
Income Statement
For the Month Ended December 31, 2004
Revenues:
Consulting revenue $ 5,800

Rental revenue 300
Total revenues

Expenses:

Rent expense 1,000

Salaries expense 1,400

Utilities expense 230

Total expenses 2,630
Netincome $ 3,470

McGraw-HilVIrwin © The McGraw-Hill Companies, Inc., 2005

34. EanngS

FASTFORWARD
Statement of Retained Earnings
For the Month Ended December 31, 2004
Balance, 1/1/04
Net income for December

Less: Dividends
Balance, 12/31/04

FASTFORWARD
Income Statement
For the Month Ended December 31, 2004

Revenues:
Consulting revenue $ 5400
Rental revenue 300
Total revenues

Expenses:
Rent expense 1000
Salaries expense 1400
Utlities expense 230
Total expenses

Net income

McGraw-HilVIrwin © The McGraw-Hill Companies, Inc., 2005

35. FASTFORWARD
Statement of Retained Earnings
For the Month Ended December 31, 2004
Balance, 1/1/04
Net income for December

Less: Dividends
Balance, 12/31/04

FASTFORWARD
Balance Sheet
December 31, 2004

sh

pplies

paid insurance
luipment

McGraw-HilVIrwin

Accounts
Unearned revehye
Total liabilities
Equity
Common stock
Retained earnings
Total equity
Total liabilities and equity

$ 3,950
9,720
2,400

26,000

$ 42,070

$ 6,200
3,000
9,200

30,000
2,870

32,870
$ 42,070

36. O Describes the relationship between the
amounts of the company’s liabilities and
assets.

. _ Total Liabilities
Bens halle! © Total Assets

O Helps to assess the risk that a company will
fail to pay its debts.

37. MeGraw-HilVIrwin © The McGraw-Hill Companies, Inc., 2005