The System of Accounting: © Copyrright Hillman 1997

The System of Accounting
Copyrright Doug Hillman 1997
The Entity Concept
Any organizational unit
The Entity Concept
Any organizational unit for which we want

The Entity Concept
Any organizational unit for which we want financial information

Assets
Anything of value held by an organization Assets have
Assets
Anything of value held by an organization Assets have Potential usefulness
Assets
Anything of value held by an organization Assets have Potential usefulness Future usefulness
Assets
Anything of value held by an organization Assets have Potential usefulness Future usefulness Economic Value
Equities
Claims against the total assets of an organization Liabilities Claims of nonowners Owner's Equity Claims of owners
Revenues
Inflows of assets that result from performing services or selling goods Revenues are realized when the service is performed or
10
Revenues
Inflows of assets that result from performing services or selling goods Revenues are realized when the service is performed or the goods are delivered
11
Expenses
Outflows of assets or incurrence of liabilities while earning revenues A business incurrs expenses to earn revenues
12
The Accounting Equation

Things of Value = Claims Assets = Equities Assets = Liabilities + Owner's Equity
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The Account
Account Title
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The Account
Account Title
Left side
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The Account
Account Title
Left side Right side
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The Account
Account Title
Left side the debit side Right side
17
The Account
Account Title
Left side the debit side Right side the credit side
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Summary of the Debit/Credit Rules
Assets
19
Assets Appear on the left (debit) side of the equation
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Assets Appear on the left (debit) side of the equation Therefore we: Increase them with debits Decrease them with credits
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Summary of Debit/Credit Rules
Liabilities
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Liabilities Appear on the right (credit) side of the equation
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Liabilities Appear on the right (credit) side of the equation Therefore we: Increase them with credits Decrease them with debits
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Owners' Equity
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Owners' Equity Appear on the right (credit) side of the equation
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Owners' Equity Appear on the right (credit) side of the equation Therefore: Increase them with credits Decrease them with debits
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Changes in owners' equity Issuances of common stock
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Changes in owners' equity Issuances of common stock Causes increase in owners' equity
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Changes in owners' equity Issuances of common stock Causes increase in owners' equity Recorded by regular owners' equity rules Increased with credits Decreased with debits
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Changes in owners' equity Dividends
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Changes in owners' equity Dividends Cause decreases in owners' equity
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Changes in owners' equity Dividends Cause decreases in owners' equity Recorded opposite as regular owners' equity Increased with debits Decreased with credits
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Changes in owners' equity Revenues
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Changes in owners' equity Revenues Cause increases in owners' equity
35

Changes in owners' equity Revenues Cause increases in owners' equity Recorded by regular owners' equity rules Increased with credits Decreased with debits
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Changes in owners' equity Expenses
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Changes in owners' equity Expenses Cause decreases in owners' equity
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Changes in owners' equity Expenses Cause decreases in owners' equity Recorded opposite as regular owners' equity Increase with debits Decreased with credits
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Records in the Accounting System

Journal Book of original entry Chronological record of events Ledger Book of final entry Categorical record of events
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Journal Entries
What information do we need to record? Date
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Journal Entries
What information do we need to record? Date Debit account
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Journal Entries
What information do we need to record? Date Debit account Debit amount
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Journal Entries
What information do we need to record? Date Debit account Debit amount Credit account
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Journal Entries
What information do we need to record? Date Debit account Debit amount Credit account Credit amount
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Journal Entries
What information do we need to record? Date Debit account Debit amount Credit account Credit amount Supplementary information
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Journal Entry
Dec. 1
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Journal Entry
Dec. 1 Cash
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Journal Entry
Dec. 1 Cash 25,000
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Journal Entry
Dec. 1 Cash 25,000 Common Stock
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Journal Entry
Dec. 1 Cash 25,000 Common Stock 25,000
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Journal Entry
Dec. 1 Cash 25,000 Common Stock 25,000 Issuance of common stock
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Posting
Process of transferring
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Posting
Process of transferring the amounts in the journal
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Posting
Process of transferring the amounts in the journal to the ledger
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Posting Process
Locate the ledger account for the debit account Enter the date, journal page number, and debit amount in the ledger Enter the ledger account number in the journal entry
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Posting Process
Locate the ledger account for the credit account Enter the date, journal page number, and credit amount in the ledger Enter the ledger account number in the journal
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Trial Balance
A test of the accuracy of journalizing and posting process Preparation
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Trial Balance
A test of the accuracy of journalizing and posting process Preparation List each ledger account and place the ending account balance in the proper column
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Trial Balance
A test of the accuracy of journalizing and posting process Preparation List each ledger account and place the ending account balance in the proper column Total the debit and credit columns
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Trial Balance
A test of the accuracy of journalizing and posting process Preparation List each ledger account and place the ending account balance in the proper column Total the debit and credit columns Compare the totals
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Financial Statements
Prepared from the information contained in the trial balance Four primary statements
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Prepared from the information contained in the trial balance Four primary statements Income Statement
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Prepared from the information contained in the trial balance Four primary statements Income Statement Statement of Owner's Equity
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Prepared from the information contained in the trial balance Four primary statements Income Statement Statement of Owner's Equity Balance Sheet
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Prepared from the information contained in the trial balance Four primary statements Income Statement Statement of Owner's Equity Balance Sheet Statement of Cash Flows
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Title
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Income statement
Title Company name
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Income statement
Title Company name Statement name
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Income statement
Title Company name Statement name For the period ending date or date
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Income statement
Title - For the period ending date List revenues and subtotal List expenses and subtotal Subtract expenses from revenues
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Statement of Owners' Equity

Title
For the period ending date
List the beginning balance in common stock Add issuances of common stock Subtotal ending common stock
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Statement of Owner's Equity

List beginning balance in retained earnings Add net income Deduct dividends Subtotal ending retained earnings Total common stock and retained earnings
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Balance Sheet
Title Date Assets
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Balance Sheet
Title Date Assets First list and subtotal current assets
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Balance Sheet
Title Date Assets First list and subtotal current assets Then list and subtotal property, plant, and equipment
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Balance Sheet
Title Date Assets First list and subtotal current assets Then list and subtotal property, plant, and equipment Determine total assets
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Balance Sheet
Liabilities
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Balance Sheet
Liabilities First list and subtotal current liabilities
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Balance Sheet
Liabilities First list and subtotal current liabilities Then list and subtotal long-term liabilities
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Balance Sheet
Liabilities First list and subtotal current liabilities Then list and subtotal long-term liabilities Total all liabilities
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Balance Sheet
Owners Equity
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Balance Sheet
Owners Equity Enter ending common stock and retained earnings from Statement of Owners Equity
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Balance Sheet
Owners Equity Enter ending common stock and retained earnings from Statement of Owners Equity Total liabilities and owners' equity
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Statement of Cash Flows

Title For the period ending Three sections
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Title For the period ending Three sections Cash Flows from Operating Activities
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Title For the period ending Three sections Cash Flows from Operating Activities Cash Flows from Investing Activities
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Title For the period ending Three sections Cash Flows from Operating Activities Cash Flows from Investing Activities Cash Flows from Financing Activities
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The System of Accounting

Copyrright Doug Hillman 1997

The Entity Concept

Any organizational unit

Copyrright Doug Hillman 1997

The Entity Concept

Any organizational unit for which we want

The Entity Concept

Any organizational unit for which we want financial information

Copyrright Doug Hillman 1997

Copyrright Doug Hillman 1997

Copyrright Doug Hillman 1997

Copyrright Doug Hillman 1997

Copyrright Doug Hillman 1997

Copyrright Doug Hillman 1997

Copyrright Doug Hillman 1997

Copyrright Doug Hillman 1997

The Accounting Equation

Copyrright Doug Hillman 1997

Copyrright Doug Hillman 1997

Copyrright Doug Hillman 1997

Copyrright Doug Hillman 1997

Copyrright Doug Hillman 1997

Copyrright Doug Hillman 1997

Summary of the Debit/Credit Rules

Copyrright Doug Hillman 1997

Summary of the Debit/Credit Rules

Assets Appear on the left (debit) side of the equation

Copyrright Doug Hillman 1997

Summary of the Debit/Credit Rules

Copyrright Doug Hillman 1997

Summary of Debit/Credit Rules

Copyrright Doug Hillman 1997

Summary of Debit/Credit Rules

Liabilities Appear on the right (credit) side of the equation

Copyrright Doug Hillman 1997

Summary of Debit/Credit Rules

Copyrright Doug Hillman 1997

Summary of Debit/Credit Rules

Copyrright Doug Hillman 1997

Summary of Debit/Credit Rules

Owners' Equity Appear on the right (credit) side of the equation

Copyrright Doug Hillman 1997

Summary of Debit/Credit Rules

Copyrright Doug Hillman 1997

Summary of Debit/Credit Rules

Copyrright Doug Hillman 1997

Summary of Debit/Credit Rules

Copyrright Doug Hillman 1997

Summary of Debit/Credit Rules

Copyrright Doug Hillman 1997

Summary of Debit/Credit Rules

Copyrright Doug Hillman 1997

Summary of Debit/Credit Rules

Copyrright Doug Hillman 1997

Summary of Debit/Credit Rules

Copyrright Doug Hillman 1997

Summary of Debit/Credit Rules

Copyrright Doug Hillman 1997

Summary of Debit/Credit Rules

Copyrright Doug Hillman 1997

Summary of Debit/Credit Rules