Recording

TOPIC
Transactions

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Recording???
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 Learning
Learning Objectives
Objectives
 Describe source  Analyze the impact of
documents and their transactions on
purpose accounts and financial
 Describe an account statements
and its use in recording  Record transactions in a
transactions journal and post entries
 Describe a ledger and to a ledger
chart of accounts  Prepare and explain the
 Define debits and use of a trial balance
credits and explain their  Prepare financial
role in double-entry statements from
accounting business transactions
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
 Analyzing
Analyzing and
and Recording
Recording Process
Process
Exchanges of economic consideration between
two parties.

External Transactions Internal Transactions

occur between the occur within the
organization and an organization.
outside party.
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
 Analyzing
Analyzing and
and Recording
Recording Process
Process

Analyze each transaction and Record relevant transactions

event from source documents and events in a journal

Prepare and analyze Post journal information

the trial balance to ledger accounts
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
 Source
Source Documents
Documents
Bills from
Checks Suppliers Purchase
Orders
Employee
Earnings
Record Bank
Statement

Sales
Tickets

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
 The
The Account
Account and
and Its
Its Analysis
Analysis

An
An account
account is is aa
record
record of of The
The general
general
increases
increases and and ledger
ledger isis aa record
record
decreases
decreases in in aa containing
containing all
all
specific
specific asset,
asset, accounts
accounts usedused byby
liability,
liability, equity,
equity, the
the company.
company.
revenue,
revenue, or or
expense
expense item.
item.

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
 The
The Account
Account and
and Its
Its Analysis
Analysis

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

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
 Asset
Asset Accounts
Accounts

Cash
Accounts
Land
Receivable

Notes
Buildings
Asset
Asset Receivabl
Accounts
Accounts e

Prepaid
Equipment
Accounts
Supplies

Inventory
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 Liability
Liability Accounts
Accounts

Accounts
Accounts Notes
Notes
Payable
Payable Payable
Payable

Liability
Liability
Accounts
Accounts

Accrued
Accrued Unearned
Unearned
Liabilities
Liabilities Revenues
Revenues

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 Equity
Equity Accounts
Accounts

Owner’s
Owner’s Owner’s
Owner’s
Capital
Capital Withdrawals
Withdrawals

Equity
Equity
Accounts
Accounts

Revenues
Revenues Expenses
Expenses

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
 The
The Account
Account and
and Its
Its Analysis
Analysis

Assets = Liabilities
Liabilities + Equity
Equity

+ – + –
Owner’s
Owner’s Owner’s
Owner’s Revenues
Revenues Expenses
Expenses
Capital
Capital Withdrawals
Withdrawals

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
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
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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 = Liabilities
Liabilities + Equity
Equity

ASSETS LIABILITIES EQUITIES

Debit Credit Debit Credit Debit Credit

+ - - + - +

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 Exh.
3.8

Double-Entry
Double-Entry Accounting
Accounting
Equity
Owner’s
Owner’s _ Owner’s
Owner’s _
Capital
Capital Withdrawals
Withdrawals + Revenues
Revenues Expenses
Expenses

Capital Withdrawals Revenues Expenses

Debit Credit Debit Credit Debit Credit Debit Credit

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

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
 Journalizing
Journalizing and
and Posting
Posting Transactions
Transactions
Assets
Assets = Liabilities
Liabilities + Equity
Equity

Step 1: Analyze
Step 2: Apply double-
transactions and source

(Left
entry accounting
documents.

A C C O UNT NA M E :

D a te D e sc rip tio n PR
AC C O UN T No .

D e b it C re d it B a la nc e
De
Step 4: Post entry to ledger 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

Dollar
 Dollar amount
amount of
of
Transaction
 Transaction explanation
explanation 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. 3

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 Posting
Posting Journal
Journal Entries
Entries

Enter the ledger reference. 6

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 Posting
Posting Journal
Journal Entries
Entries

Enter the journal reference. 4

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
Analyzing
Analyzing Transactions
Transactions –– An
An Illustration
Illustration

Analysis:

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
Analyzing
Analyzing Transactions
Transactions –– An
An Illustration
Illustration

Analysis:

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
Analyzing
Analyzing Transactions
Transactions –– An
An Illustration
Illustration

Analysis:

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
Analyzing
Analyzing Transactions
Transactions –– An
An Illustration
Illustration

Analysis:

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
Analyzing
Analyzing Transactions
Transactions –– An
An Illustration
Illustration

Analysis:

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
 Chart
Chart of
of Account
Account
 List of all account & includes an identification number
assigned to each account.

 Ex: Account
101-199 Asset
201-299 Liability
301-399 Equity
401-499 Revenue
501-599 Expense

2nd & 3rd digits relate to the accounts’ subcategories

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
 After processing its remaining transactions for December,
FastForward’s Trial Balance is prepared.

FAST FORWARD
TRIAL BALANCE
31 DECEMBER 2006
Debits Credits The trial balance lists
Cash $ 3,950
Accounts receivable -
all account balances
Supplies 9,720 in the general ledger.
Prepaid Insurance 2,400 If the books are in
Equipment 26,000
Accounts payable $ 6,200 balance, the total
Unearned consulting revenue 3,000 debits will equal the
C. Taylor, Capital 30,000
C. Taylor, Withdrawals 600
total credits.
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 McGraw-Hill Companies, Inc., 2
 Using
Using aa Trial
Trial Balance
Balance to
to Prepare
Prepare
Financial
Financial Statements
Statements
Point in Point in
Time Period of Time Time

Income Statement
Statement of Owner’s Equity
Income Statement of
Cash Flows
Beginning Ending
Balance Balance
Sheet 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
0
Profit for the period 0

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
 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 0

FASTFORWARD
Income Statement
For the Month Ended 31 December 2006
Revenues:
Consulting revenue $5,800
Rental revenue 300
Total revenues $6,100
Expenses:
Rent expense 1,000
Salaries expense 1,400
Utilities expense 230
Total expenses $2,630
Profit for the period $3,470

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
 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

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
Liabilities:
Current Liabilities
Account Payable
Unearned Consulting Revenue
Total Current Liabilities

Equities and Liabilities

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2
 End of Topic 4

Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana © The McGraw-Hill Companies, Inc., 2