Notes

Assets = Liabilities + Owners Equity Assets is not account, it is a category. Assets go up with debits, and assets go down with credits. Liabilities go up with credits, and go down with debits.

 Adel invested L.E 30,000 cash in a business. What accounts are affected and how does this affect the accounting equation? A = L + OE + 30,0000 (Cash) = + 30,000 (Owners capital) T account for cash and owners capital

 Adel withdrew L.E 10,000 of cash. What accounts are affected and how does this affect the accounting equation ? Assets = Liabilities + Owners Equity - 10,000 (cash) = - 10,000 (withdrawals) What are the balances remaining in the open accounts ?

 Debit simply means left Credit simply means right. Total amount of debit must equal total amount of credits debits = credits Accounts that increase with debits are: Dividends or drawings Expenses Assets

Accounts that increase with credits are Liability Equity Revenues

Debit
Assets =

Credit
Liabilities + Owners Equity + Capital + Revenue Drawing Expenses Debit

Credit

Normal Balance of Accounts

Normal balance is what makes the account increase. Debit simply means left Credit simply means right. Total amount of debit must equal total amount of credits

Journal
Chronological list of all economic events recorded in the accounting records Journal includes: Date Accounts Names Amount debited to each account Amount credited to each account Description of transaction

Journal Entries
Date 2012 Sept. 1 3 Account Names Cash Service Revenue Received L.E 100 from customers for service rendered Supplies Accounts Payable Purchased L.E 70 on account Accounts Payable Cash Paid for supplies purchased on account Debit 100 100 70 70 70 70 Credit

Ledger
Ledger groups all of the transactions affecting a particular account together. The ledger reports the account balances. The T-Account is a way to conveniently represent the ledger.

There are two broad categories of adjustments. The first is when payments are made or cash is received before the expense or revenue is recognized. This category includes prepaid or deferred expenses (including depreciation), and unearned or deferred revenues. The second major category of adjustments is when cash is paid or received after the expense or revenue is recognized. These are very common adjustments. This category includes accrued expenses and accrued revenues.

Ledger Entries
Cash
Date description Ref. Debit Credit Balance 0

1/9/2012
5/9/2012

Received cash from customer

Paid for supplies purchased

J1

100
70

100
30

Accounting Steps
1. Each transaction is analyzed to determine the accounts involved. 2. A Journal entry is entered into the general journal for each transaction. 3. Periodically, the journal entries are posted to the general ledger page (accounts).

merchandising
Periodic Perpetual

What
New accounts New terms New transactions New source documents New emphasis on point of view New format for income statement

New accounts
Inventory

Goods for resale Cost

New Accounts
Sales Revenue

Retail

 Sales Returns and Allowances Contra Revenue Account Cash Discount Sales Discounts is contra net sales = sales S R&A S Disc

Cost of Goods Sold

Expense Gross Profit = Net Sales Cost of Goods Sold

New Terms
FOB Shipping FOB Destination 2/10, n/30 means 2% amount of discount allowed 10 days (time period which payment is expected) Net (the whole thing) 30 days (time period within which Full payment is expected) 1/10,n/30 2/10,n/eom

New transactions
Purchased merchandise from Seller, Inc., FOB shipping point, 2/10,n/30, L.E 1,000. Inventory 1000 Accounts Payable 1000 What about the discount ? Ever been lost .. .. At disneyWorld? .. In a hospital? . In an office building? 4/10 14/10 4/11 We are here discount

New Transactions (buyers point of view)

Paid Maged Trucking Company for freight charges, L.E 100. inventory 100 Cash 100

New Transactions (buyers point of view)

Returned L.E 200 of defective goods, receiving credit. Accounts Payable 200 Inventory 200 This entry is the opposite of the original one

New Transactions (buyers point of view)

Paid the balance due within the discount period. Accounts Payable 800 Cash 784 Inventory 16 But I thought debits and credits had to equal !?! They dont . They do . They will.

New Transactions (buyers point of view)

Cost of goods bought = 1000 + 100 200 16 = L.E 884

New Transactions (sellers point of view)

Sold merchandise (costing L.E 60) to Buyer Co., FOB shipping point, 1/10,n/30, L.E 100. Accounts Receivable 100 Sales Revenue 100 Cost of Goods Sold 60 Inventory 60 What about the discount?

New Transactions (sellers point of view)

Issued a credit memo to Buyer for goods returned, L.E20 ( L.E12 cost). Sales Returns and Allow. 20 Accounts Receivable 20 Inventory 12 Cost of Goods Sold 12 Perpetual requires another entry.

New Transactions (sellers point of view)

Received the balance due within the discount period. Cash 79.20 Sales Discount 0.80 Accounts Receivable 80 But I thought debits and credits had to equal ! You say they dont . And I say they do. You say they will. You say when ? When we debit sales discount debit by 0.80