Topic 4 - Recording Transaction

TOPIC

4

Recording Transactions 100 Shares

Recording??? $1 par value

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Learning Learning Objectives Objectives  Describe source documents and their purpose  Describe an account and its use in recording transactions  Describe a ledger and chart of accounts  Define debits and credits and explain their role in double-entry accounting

 Analyze the impact of transactions on accounts and financial statements  Record transactions in a journal and post entries to a ledger  Prepare and explain the use of a trial balance  Prepare financial statements from business transactions

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Analyzing Analyzing and and Recording Recording Process Process Exchanges of economic consideration between two parties.

External Transactions occur between the organization and an outside party. Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

Internal Transactions occur within the organization.

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Analyzing Analyzing and and Recording Recording Process Process

Analyze each transaction and event from source documents

Prepare and analyze the trial balance Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

Record relevant transactions and events in a journal

Post journal information to ledger accounts

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Source Source Documents Documents Checks

Bills from Suppliers

Employee Earnings Record

Purchase Orders

Bank Statement Sales Tickets

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The The Account Account and and Its Its Analysis Analysis An An account account is is aa record record of of increases increases and and decreases decreases in in aa specific specific asset, asset, liability, liability, equity, equity, revenue, revenue, or or expense expense item. item. Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

The The general general ledger ledger is is aa record record containing containing all all accounts accounts used used by by the the company. company.

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The The Account Account and and Its Its Analysis Analysis

Assets Liabilities Equity Liabilities Equity = + Accounts Accounts Accounts Accounts Accounts

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Asset Asset Accounts Accounts Cash Land

Buildings

Asset Asset Accounts Accounts

Equipment Supplies

Accounts Receivable Notes Receivabl e Prepaid Accounts

Inventory Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

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Liability Liability Accounts Accounts Accounts Accounts Payable Payable

Notes Notes Payable Payable

Liability Liability Accounts Accounts Accrued Accrued Liabilities Liabilities Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

Unearned Unearned Revenues Revenues

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Equity Equity Accounts Accounts Owner’s Owner’s Capital Capital

Owner’s Owner’s Withdrawals Withdrawals

Equity Equity Accounts Accounts Revenues Revenues Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

Expenses Expenses

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The The Account Account and and Its Its Analysis Analysis Assets

+ Owner’s Owner’s Capital Capital

=

Liabilities Liabilities

– Owner’s Owner’s Withdrawals Withdrawals

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+ +

Revenues Revenues

Equity Equity

– Expenses Expenses

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Ledger Ledger and and Chart Chart of of Accounts Accounts  Ledger – collection of all accounts  Chart of accounts – list of all accounts a company uses and includes an identification number assigned to each account  Eg: Charts of Account  Account Number Account Name 101 Cash 106 Accounts Receivable 201 Accounts Payable 220 Notes payable 301 Capital, Aminah 406 Service Revenue 637 Salary Expense 640 Rent Expense Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

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

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Double-Entry Double-Entry Accounting Accounting Assets Assets ASSETS

Debit

+

Credit

-

=

Liabilities Liabilities LIABILITIES

Debit

-

Credit

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

+

+

Equity Equity EQUITIES

Debit

-

Credit

+

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Exh. 3.8

Double-Entry Double-Entry Accounting Accounting

Equity Owner’s Owner’s Capital Capital

_

Owner’s Owner’s Withdrawals Withdrawals

+

Revenues Revenues

_

Expenses Expenses

Capital

Withdrawals

Revenues

Expenses

Debit Credit

Debit Credit

Debit Credit

Debit Credit

-

+

+

-

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

-

+

+

-

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Double-Entry Double-Entry Accounting Accounting An account balance is the difference between the increases and decreases in an account.

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Journalizing Journalizing and and Posting Posting Transactions Transactions Assets Assets

Step 1: Analyze transactions and source documents.

A C C O UNT NA M E : D a te

D e sc rip tio n

D e b it

C re d it

Liabilities Liabilities

+

Equity Equity

Step 2: Apply doubleentry accounting

AC C O UN T No . PR

=

B a la nc e

Step 4: Post entry to ledger Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

(Left De

Step 3: Record journal entry

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Journalizing Journalizing Transactions Transactions  Transaction Transaction Date Date

 Titles Titles of of Affected Affected Accounts Accounts

 Transaction Transaction explanation explanation Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

 Dollar Dollar amount amount of of debits debits and and credits credits

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

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Posting Posting Journal Journal Entries Entries

1

Identify the account.

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Posting Posting Journal Journal Entries Entries

2

Enter the date.

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Posting Posting Journal Journal Entries Entries

Enter the amount and description.

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3

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Posting Posting Journal Journal Entries Entries

Enter the ledger reference.

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6

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Posting Posting Journal Journal Entries Entries

Enter the journal reference.

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4

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Analyzing Analyzing Transactions Transactions –– An An Illustration Illustration Analysis:

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Analyzing Analyzing Transactions Transactions –– An An Illustration Illustration Analysis:

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

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Analyzing Analyzing Transactions Transactions –– An An Illustration Illustration Analysis:

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

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Analyzing Analyzing Transactions Transactions –– An An Illustration Illustration Analysis:

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

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Analyzing Analyzing Transactions Transactions –– An An Illustration Illustration Analysis:

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Chart Chart of of Account Account  List of all account & includes an identification number assigned to each account.  Ex: 101-199 201-299 301-399 401-499 501-599

Account Asset Liability Equity Revenue Expense

2nd & 3rd digits relate to the accounts’ subcategories Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

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After processing its remaining transactions for December, FastForward’s Trial Balance is prepared. FAST FORWARD TRIAL BALANCE 31 DECEMBER 2006 Debits $ 3,950 9,720 2,400 26,000

Credits

Cash Accounts receivable Supplies Prepaid Insurance Equipment Accounts payable $ 6,200 Unearned consulting revenue 3,000 C. Taylor, Capital 30,000 C. Taylor, Withdrawals 600 Consulting revenue 5,800 Rental revenue 300 Salaries expense 1,400 Rent expense 1,000 Utilities expense 230 Total $ 45,300 $ 45,300 Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana

The trial balance lists all account balances in the general ledger. If the books are in balance, the total debits will equal the total credits.

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Using Using aa Trial Trial Balance Balance to to Prepare Prepare Financial Financial Statements Statements Point in Time

Period of Time

Point in Time

Income Statement Statement of Owner’s Equity

Beginning Balance Sheet

Income Statement of Cash Flows

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Ending Balance Sheet

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Income Income Statement Statement INCOME STATEMENT FOR THE MONTH ENDED 31 DECEMBER 2006 Revenues Consulting revenue Rental revenue Total revenues 0 Expenses Rent expense Salaries expense Utilities expense Profit for the period

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0 0

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Statement Statement of of Owner’s Owner’s Equity Equity FASTFORWARD STATEMENT OF OWNER'S EQUITY FOR THE MONTH ENDED 31 DECEMBER 2006 C. Taylor, Capital, 1 December 2006 $ Investment by owner Profit for the period

-

0 Withdrawals by owner C. Taylor, Capital, 31 December 2006

FASTFORWARD Income Statement For the Month Ended 31 December 2006 Revenues: Consulting revenue $5,800 Rental revenue 300 Total revenues Expenses: Rent expense 1,000 Salaries expense 1,400 Utilities expense 230 Total expenses Profit for the period

0

$6,100

$2,630 $3,470

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FASTFORWARD BALANCE SHEET 31 DECEMBER 2006 Non-current assets Equipment Total non-current assets Current assets Cash Supplies Prepaid insurance

Total assets Financed EQUITY AND by: LIABILITIES Equity C. Taylor, Capital

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Liabilities: Current Liabilities Account Payable Unearned Consulting Revenue Total Current Liabilities Equities and Liabilities

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End of Topic 4

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