Fundamentals of the account chp.03 (2).ppt

Account

1. McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
The Accounting Cycle:
Capturing Economic Events
Chapter 3

2. 3-2
The Ledger
The entire group of
accounts is kept
together in an
accounting record
called a ledger.
Cash
Accounts
Payable
Capital
Stock
Accountsare
individual records
showing increases
and decreases.

3. 3-3
The Use of Accounts
Increases are
recorded on one
side of the T
account, and
decreasesare
recorded on the
other side.
Left
or
Debit
Side
Right
or
Credit
Side
Title of Account

4. 3-4Cash
5/18,0005/22,500
5/25 75 5/82,000
5/29750 5/28150
5/31 50
5/314,125
Bal.
Receipts are
on the debit
side.
Payments are
on the credit
side.
The balance is the
difference between the
debit and credit entries
in the account.
Debit and Credit Entries

5. 3-5
A=L+OE
ASSETS
Debit
for
Increase
Credit
for
Decrease
EQUITIES
Debit
for
Decrease
Credit
for
Increase
LIABILITIES
Debit
for
Decrease
Credit
for
Increase
Debits and credits affect accounts as follows:
Debit and Credit Entries

6. 3-6
In an actual accounting system,
transactions are initially recorded in the
journal.GENERAL JOURNAL
Date Account Titles and Explanation Debit Credit
2009
May1Cash 8,000
Capital Stock 8,000
Owners invest cash in the business.
The Journal

7. 3-7
Posting Journal Entries to the
Ledger Accounts
Postingsimply
means updating the
ledger accounts for
the effects of the
transactions
recorded in the
journal.

8. 3-8GENERAL JOURNAL
Date Account Titles and Explanation Debit Credit
2009
May1Cash 8,000
Capital Stock 8,000
Owners invest cash in the business. General Ledger
Cash
Date Debit CreditBalance
2009
May1 8,000 8,000
Posting Journal Entries to the
Ledger Accounts

9. 3-9GENERAL JOURNAL
Date Account Titles and Explanation Debit Credit
2009
May1Cash 8,000
Capital Stock 8,000
Owners invest cash in the business. General Ledger
Capital Stock
Date Debit CreditBalance
2009
May1 8,000 8,000
Posting Journal Entries to the
Ledger Accounts

10. 3-10General Ledger
Cash
Date Debit CreditBalance
2009
May1 8,000 8,000
2 2,500 5,500
T accountsare simplified versions of
the ledger account that only show the
debit and credit columns.
Ledger Accounts After Posting

11. 3-11
Net income is not an asset it’s an increase
in owners’ equity from profits of the
business.
A=L+OE
Increase Decrease
As income is earned,
either an asset is
increased or a liability is
decreased.
Increase
Net income
always results in
the increase of
Owners’ Equity
What is Net Income?

12. 3-12
Revenue and Expenses
The price for
goods sold
and services
rendered during a
given accounting
period.
Increases
owners’ equity.
The costs of
goods and
services used up
in the process of
earning revenue.
Decreases
owner’s equity.

13. 3-13
Debit and Credit Rules for
Revenue and Expenses
EQUITIES
Debit
for
Decrease
Credit
for
Increase
Expenses
decrease
owners’
equity.
Revenues
increase
owners’
equity.
EXPENSES
Credit
for
Decrease
Debit
for
Increase
REVENUES
Debit
for
Decrease
Credit
for
Increase

14. 3-14
EQUITIES
Debit
for
Decrease
Credit
for
Increase
Payments to
owners
decrease
owners’
equity.
Owners’
investments
increase
owners’
equity.
DIVIDENDS
Credit
for
Decrease
Debit
for
Increase
Dividends
CAPITAL STOCK
Debit
for
Decrease
Credit
for
Increase

15. 3-15
End of Chapter 3