Recording business transactions

Definition of accounting, what is accounting cycle? And how to record business transactions, it consist on various series which started from journal entries, ledger, and trial balance. key terms of accounting. The Accounting Rules of debit and credit, Debit money, assets and liabilities, Bad Debits, Balance Sheet, Double-entry, bad debts, inventory, Expenses, depreciation , Accumulated Depreciation , types of ledger account, categories of general ledger account, Assets and Liabilities, Owners’ Equity, Revenue Expansion of the Basic Equation and Expense, and examples.

1. . Recording Business Transactions

2. . Ayesha Khalil

3. accounting involves recording, classifying, summarizing, and interpreting financial information. .

4. Accounting cycle

5. Accounting cycle The name given to the collective process of recording and processing the accounting events of a company. The series of steps begin when a transaction occurs and end with its inclusion in the financial statements. Collecting and analysing data from transactions and events. Putting transactions into the general journal. Posting entries to the general ledger. Preparing an unadjusted trial balance. Adjusting entries appropriately. Preparing an adjusted trial balance. Organizing the accounts into the financial statements. Closing the books .

6. , The accounting cycle, also commonly referred to as accounting process, is a series of procedures in the collection, processing, & communication of financial information.

7. KEY POINTS Source:- documents are important because they are the ultimate proof a business transaction has occurred. An account:- is a part of the accounting system used to classify and summarize the increases, decreases, and balances of each asset, liability, stockholders' equity item, dividend, revenue, and expense. The accounting requirement:- that each transaction be recorded by an entry that has equal debits and credits is called double-entry procedure. This double-entry:- procedure keeps the accounting equation in balance

8. Terms

9. . account A registry of pecuniary transactions; a written or printed statement of business dealings or debts and credits, and also of other things subjected to a reckoning or review Account a written or printed statement of business dealings or debts and credits, and also of other things accounting The development and use of a system for recording and analysing the financial transactions and financial status of a business or other organization . Accounts Receivable Amounts that customers owe the company for normal credit purchases . Accumulated Depreciation Accumulated depreciation is known as a contra account, because it separately shows a negative amount that is directly associated with another account.

10. , Asset Something or someone of any value; any portion of one's property or effects so considered Asset Items of ownership convertible into cash; total resources of a person or business, as cash, notes and accounts receivable; securities and accounts receivable, securities, inventories, goodwill, fixtures, machinery, or real estate (as opposed to liabilities ) assets Any property or object of value that one possesses, usually considered as applicable to the payment of one's debts Assets A resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide future benefit

11. Bad Debt A debt which cannot be recovered from the debtor, either because the debtor doesn't have the money to pay or because the debtor cannot be found and/or forced to pay bad debts A bad debt is an amount owed to a business or individual that is written off by the creditor as a loss (and classified as an expense) because the debt cannot be collected and all reasonable efforts to collect it have been exhausted. This usually occurs when the debtor has declared bankruptcy or the cost of pursuing further action in an attempt to collect the debt exceeds the debt itself.

12. Balance Sheet balance sheet A summary of a person's or organization's assets, liabilities. and equity as of a specific date. Balance Sheet A balance sheet is often described as a "snapshot of a company's financial condition." A standard company balance sheet has three parts: assets, liabilities, and ownership equity

13. . credit an entry in the right hand column of an account; credits increase liability, income, and equity accounts and decrease asset and expense accounts debit an entry in the left hand column of an account to record a debt; debits increase asset and expense accounts and decrease liability, income, and equity accounts Debit a written or printed statement of business dealings or debts and credits, and also of other things subjected to a reckoning or review Debt Money that one person or entity owes or is required to pay to another, generally as a result of a loan or other financial transaction

14. The measurement of the decline in value of assets. Not to be confused with impairment, which is the measurement of the unplanned, extraordinary decline in value of assets . Depreciation subtracts a specified amount from the original purchase price to account for the wear and tear on the asset . Depreciation

15. dividend dividend A pro rata payment of money by a company to its shareholders, usually made periodically (e.g., quarterly or annually)

16. Equity Ownership interest in a company, as determined by subtracting liabilities from assets. Equity ownership, especially in terms of net monetary value of some business.

17. ‘ Expense in accounting, an expense is money spent or costs incurred in an businesses efforts to generate revenue

18. . inventory A detailed list of all of the items on hand . Inventory includes goods ready for sale, as well as raw material and partially completed products that will be for sale when they are completed .

19. Types of Ledger Accounts

20. Categories of General Ledger Accounts The five types of accounts fall into one of two categories

21. Categories of General Ledger Accounts Real Accounts Nominal Accounts This category includes Assets, Liabilities, and Stockholders’ Equities (i.e., Balance Sheet accounts ) Accounts are permanent . Account balances are carried forward from one fiscal year to the next. Nominal accounts include revenues and expenses. Nominal accounts are temporary. Nominal account balances are closed out to zero at the end of the fiscal year

22. journal Journal a book or computer file in which monetary transactions are entered the first time they are processed journal entry A journal entry, in accounting, is a logging of transactions into accounting journal items. The journal entry can consist of several items, each of which is either a debit or a credit. The total of the debits must equal the total of the credits or the journal entry is said to be "unbalanced." Journal entries can record unique items or recurring items, such as depreciation or bond amortization.

23. ledger ledger A collection of accounting entries consisting of credits and debits . Ledger A book for keeping notes, especially one for keeping accounting records.(accounting) A collection of accounting entries consisting of credits and debits.

24. Liabilities liability An obligation, debt or responsibility owed to someone . liabilities An amount of money in a company that is owed to someone and has to be paid in the future, such as tax, debt, interest, and mortgage payments Liabilities Probable future sacrifices of economic benefits arising from present obligations to transfer assets or providing services as a result of past transactions or events.

25. TERMS debit an entry in the left hand column of an account to record a debt; debits increase asset and expense accounts and decrease liability, income, and equity accounts account A registry of pecuniary transactions; a written or printed statement of business dealings or debts and credits, and also of other things subjected to a reckoning or review credit an entry in the right hand column of an account; credits increase liability, income, and equity accounts and decrease asset and expense accounts

26. Recording Process .

27. Assets liabilities + = Analysing Transactions

28. Account Record of increases and decreases in a specific asset, liability, equity, revenue, or expense item. Debit = “Left” Credit = “Right” An Account can be illustrated in a T-Account form.

29. Debits & Credits Double-entry accounting 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 another. DEBITS must equal CREDITS .

30. Account Debit Credit Assets Increase Decrease Contra Assets Decrease Increase Liabilities Decrease Increase Equity Decrease Increase Contributed Capital Decrease Increase Revenue Decrease Increase Expenses Increase Decrease Distributions Increase Decrease Summary of debit & credit

31. What Are Debits & Credits? Tools used for recording transactions Debit (DR) Credit (CR) Debit refers to the LEFT and Credit to the RIGHT side of the T-Account LEFT RIGHT DEBIT SIDE CREDIT SIDE

32. Debits & Credits Summary , Normal Balance Credit

33. Debits & credits affect the Balance Sheet Assets=liabilities +shareholder equities

34. Shareholders’ Equity Capital Stock + Retained Earnings

35. Balance Sheet Income Statement = + - Asset Liability Equity Revenue Expense Debit Credit Debits and Credits Summary

36. Assets & liabilities Assets Debits should exceed credits. Liabilities Credits should exceed debits. The normal balance is on the increase side .

37. Normal Balances The normal balances for each of the FIVE types of accounts are as follows: Account Name Debit Balance Credit Balance Assets Expenses Liabilities Stockholders’ Equity Revenues

38. Owner’s investments & revenues increase owner’s equity (credit). Owner’s drawings & expenses decrease owner’s equity (debit ). Owners’ Equity

39. Relationship among the assets, liabilities & owner’s equity of a business: Expansion of the Basic Equation The equation must be in balance after every transaction. For every Debit there must be a Credit . Assets Liabilities = Owner’s Equity Basic Equation Expanded Basic Equation +

40. The purpose of earning revenues is to benefit the owner(s). The effect of debits and credits on revenue accounts is the same as their effect on Owner’s Capital. Expenses have the opposite effect: expenses decrease owner’s equity. Revenue & Expense

41. The Journal Book of original entry. Transactions recorded in chronological order. Contributions to the recording process: Discloses the complete effects of a transaction. Provides a chronological record of transactions. Helps to prevent or locate errors because the debit and credit amounts can be easily compared

42. General Journal Page

43. On January 1, 19X7, Caldwell Company borrows $10,000 from the bank. Prepare the appropriate general journal entry for the above transaction. Journal Entries Example 1

44. Two accounts are affected : Cash is increased by $10,000. Notes Payable is increased by $10,000. Journal Entries

45. On January 15, 19X7, Caldwell Company purchases a truck for $19,500 cash. Prepare the appropriate journal entry for the above transaction. so lution Example 2 Two accounts are affected: Trucks is increased by $19,500. Cash is decreased by $19,500.

46. Example 2

47. On January 20, 19X7, Caldwell Co. pays the $400 electric bill for January. Prepare the appropriate journal entry for the above transaction. Solution Example 3 Two accounts are affected: Utility Expense is increased by $400. Cash is decreased by $400.

48. Solution 3

49. On Oct. 3 Purchases office furniture for $1,900, on account. solution Example 4

50. Oct.27 Pays $700 on balance related to transaction of Oct. 3. Example 5

51. Oct. 30 Pays the administrative assistant $2,500 salary for Oct. Example 6

52. Simple Entry Two accounts, one debit and one credit . Compound Entry Three or more accounts. . Example – On June 15, H. Burns, purchased equipment for $15,000 by paying cash of $10,000 and the balance on account (to be paid within 30 days).

53. Posting

54. process of transferring amounts from the journal to the ledger accounts posting

55. Posting to the GL Example 1

56. Cont.

57. cont.

58. Cont.

59. . The Trial Balance

60. The Trial Balance A list of accounts and their balances at a given time. Purpose is to prove that debits equal credits.

61. , Dividends Account

62. . A general ledger contains the entire group of accounts maintained by a company. The general ledger includes all the asset, liability, owner’s equity, revenue and expense accounts.

63. The Dividends account is a contra account to Retained Earnings. Therefore, it is affected by debits and credits Dividends Account

64. Question???