Financial Accounting spring 2024-Q1.pptx

Financial Accounting

1. INTRODUCTION TO FINANCIAL ACCOUNTING

2. Last lecture check Discover the second accounting book: the Ledger Understand the posting process Prepare the Trial Balance Problem # 2 Lecture Objectives

3. Last Lecture Check

4. The Ledger The ledger is the second accounting record book that is a list of a company’s individual accounts list in order of account category. While the journal lists all types of transactions chronologically, the ledgers separate this same information out by account and keep a running balance of each of these accounts . Each account has its own ledger page. The account name appears on the top. The ledger form has six columns: Date, D etails, Debit, Credit, Debit, Credit.

5. The Ledger Account Name Date Details Debit Credit Debit Credit IMPORTANT ! Information entered in the ledger is always copied from what is already in the journal.

6. Posting The process of copying from the journal to the ledger is called P osting . It is done one line at a time from the journal. Here are step-by-step instructions for doing so.

7. Date Accounts Debit Credit 1/1 Cash 100,000 Common Stock 100,000 1/5 Cash 50,000 HSBC loan 50,000 1/10 Equipment 25,000 Cash 25,000 1/15 Rent expense 2,400 Cash 2,400 1/18 Cash 8,000 Service revenue 8,000 1/20 Supplies 2,000 Accounts payable 2,000 1/23 Utilities expense 3,500 Cash 3,500 1/29 Accounts receivable 14,000 Service revenue 14,000

8. Posting Process Step # 1 Take note of the account name in the first line of the journal. Find that ledger account Cash Date Details Debit Credit Debit Credit

9. Posting Process Step # 2 Copy the date from the journal to the first blank row in that ledger. Cash Date Details Debit Credit Debit Credit 1/1

10. Posting Process Step # 3 Enter the details of the transaction such as a reference to the journal or an indication of the account containing the other side of the double entry. Cash Date Details Debit Credit Debit Credit 1/1 To Common Stock

11. Posting Process Step # 4 Copy the amount on the first line of the journal and the column it is in to the same column in the ledger on the same line where you entered the date. Cash Date Details Debit Credit Debit Credit 1/1 To Common Stock 100 000

12. Posting Process Step # 5 Update the account’s running balance. If there is no previous balance and the entry is a Debit, enter the same amount in the Debit balance column. Cash Date Details Debit Credit Debit Credit 1/1 To Common Stock 100,000 100,000

13. Posting Process Step # 6 Go back to the journal and enter an “x” or checkmark in the PR (posting reference) column to indicate that you have posted that line item.

14. Date Accounts Debit Credit 1/1 Cash X 100,000 Common Stock 100,000 1/5 Cash 50,000 HSBC loan 50,000 1/10 Equipment 25,000 Cash 25,000 1/15 Rent expense 2,400 Cash 2,400 1/18 Cash 8,000 Service revenue 8,000 1/20 Supplies 2,000 Accounts payable 2,000 1/23 Utilities expense 3,500 Cash 3,500 1/29 Accounts receivable 14,000 Service revenue 14,000

15. Posting Process Step # 7 Repeat the process for the next line in the journal. Common Stock Date Details Debit Credit Debit Credit 1/1 By Cash 100,000 100,000

16. Date Accounts Debit Credit 1/1 Cash X 100,000 Common Stock X 100,000 1/5 Cash 50,000 HSBC loan 50,000 1/10 Equipment 25,000 Cash 25,000 1/15 Rent expense 2,400 Cash 2,400 1/18 Cash 8,000 Service revenue 8,000 1/20 Supplies 2,000 Accounts payable 2,000 1/23 Utilities expense 3,500 Cash 3,500 1/29 Accounts receivable 14,000 Service revenue 14,000

17. Posting Process Repeat the steps for entry # 2 and u pdate the account’s running balance when it’s necessary . Cash Date Details Debit Credit Debit Credit 1/1 To Common Stock 100,000 100,000 1/5 To HSBC Loan 50,000 150,000

18. Date Accounts Debit Credit 1/1 Cash X 100,000 Common Stock X 100,000 1/5 Cash X 50,000 HSBC Loan 50,000 1/10 Equipment 25,000 Cash 25,000 1/15 Rent expense 2,400 Cash 2,400 1/18 Cash 8,000 Service revenue 8,000 1/20 Supplies 2,000 Accounts payable 2,000 1/23 Utilities expense 3,500 Cash 3,500 1/29 Accounts receivable 14,000 Service revenue 14,000

19. Posting Process Repeat the process for the next line in the journal. HSBC Loan Date Details Debit Credit Debit Credit 1/5 By Cash 50,000 50,000

20. Date Accounts Debit Credit 1/1 Cash X 100,000 Common Stock X 100,000 1/5 Cash X 50,000 HSBC Loan X 50,000 1/10 Equipment 25,000 Cash 25,000 1/15 Rent expense 2,400 Cash 2,400 1/18 Cash 8,000 Service revenue 8,000 1/20 Supplies 2,000 Accounts payable 2,000 1/23 Utilities expense 3,500 Cash 3,500 1/29 Accounts receivable 14,000 Service revenue 14,000

21. Posting Process Repeat the steps for entry # 3 Equipment Date Details Debit Credit Debit Credit 1/10 To Cash 25 ,000 25 ,000

22. Date Accounts Debit Credit 1/1 Cash X 100,000 Common Stock X 100,000 1/5 Cash X 50,000 HSBC Loan X 50,000 1/10 Equipment X 25,000 Cash 25,000 1/15 Rent expense 2,400 Cash 2,400 1/18 Cash 8,000 Service revenue 8,000 1/20 Supplies 2,000 Accounts payable 2,000 1/23 Utilities expense 3,500 Cash 3,500 1/29 Accounts receivable 14,000 Service revenue 14,000

23. Posting Process Repeat the steps and u pdate the account’s running balance. Cash Date Details Debit Credit Debit Credit 1/1 To Common Stock 100,000 100,000 1/5 To HSBC Loan 50,000 150,000 1/10 By Equipment 25,000 125,000

24. Date Accounts Debit Credit 1/1 Cash X 100,000 Common Stock X 100,000 1/5 Cash X 50,000 HSBC Loan X 50,000 1/10 Equipment X 25,000 Cash X 25,000 1/15 Rent expense 2,400 Cash 2,400 1/18 Cash 8,000 Service revenue 8,000 1/20 Supplies 2,000 Accounts payable 2,000 1/23 Utilities expense 3,500 Cash 3,500 1/29 Accounts receivable 14,000 Service revenue 14,000

25. Reminder Every time an account appears on a line in the journal, its amount is copied to the proper column in that account’s ledger. A running total is maintained for each account and is updated every time an amount is posted . The first entry in each ledger, either Debit or Credit, dictates whether the running balance will appear in the Debit or the Credit balance column.

26. Reminder If the first entry is a Debit, the running balance accumulates in the Debit balance column. A debit is the “positive” for this type of account; any subsequent debit entries are added and credit entries are subtracted from the running balance. Conversely , if the first entry is a Credit, the running balance accumulates in the Credit balance column . A credit is the “positive” for this type of account; any subsequent credit entries are added and debit entries are subtracted from the running balance.

27. The Trial Balance We need to check that the total of all the Debit balances in the ledgers MUST Always EQUAL the total of all the Credit balances in the ledgers. If this is not the case, there is a recording or posting error A trial balance is a list of all a business’s accounts and its current ledger balances (copied over from the ledger accounts). A trial balance may be generated at any time to test whether total debits equals total credits . It is simply a worksheet to check for accuracy before preparing financial statements . If both of the Total columns do not equal, there is an error that must be found and corrected.

28. Problem #2 Chimidar Company had the following transactions during January: 1.  Jan 1 , issued $500,000 in stock to owners in exchange for a building of $200,000, equipment of $150,000 and cash of $150,000 to start the business . 2. Jan 5 , Paid $ 1 0,000 for advertising. 3 .   Jan 8 ,   purchased raw materials (12,000 kg for $2.5 per kg) ), 60% paid immediately and 40% in ten days. 4 . Jan 10, p urchased 3 Cars at $ 1 6,000 each for cash . 5 . Jan 13, sold 320 unites of its product Netra3 for $ 75 each. 70% of the amount has been collected immediately and 30% will be collected in 15 days . 6 . Jan 18, p aid the amount due to creditors 7. Jan 22,  borrowed $30,000 from the CIB bank by signing a long term Loan agreement. 8. Jan 25, paid salaries for $14,000. 9.  Jan 28, collecting the amount due from debtors 10. Jan 29, paid gas invoice ($15,000 ) 11. Jan 31, billed customers for $ 21,500 of chemical products sold Requirement Analyze and record this transactions in your journal Post all entries to the Ledger Prepare the trial balance