Professional Documents
Culture Documents
Chapter 2
Account
Basic summary device Detailed record of increases and decreases in specific assets, liabilities, or owners equity during a period
Ledger
Book or printout holding all the accounts
Accounting Equation
Accounts are grouped in 3 broad categories:
Assets
Liabilities
Equity
Chart of Accounts
List of all accounts used by a company along with the account numbers
Objective 2
Apply the rules of debit and credit
T-Account
Simple tool for analyzing and determining the balance in a given account
Debit
Credit
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Credit
Liabilities
Debit
Credit
Equity
Debit
Credit
11
Credit
+
Debit
Credit
Expenses Credit
12
Revenues Debit
Expenses
Credit Debit
Credit
13
Debit + +
Credit + + + -
Normal Balances
Assets
Debit Credit
Liabilities
Debit Credit
Equity
Debit Credit
Normal Balance
Normal Balance
Normal Balance
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Normal Balances
Owners Equity
Owners Capital
Debit
Owners Withdrawals
Debit Credit
Revenues
Debit Credit
_ Expenses
Debit Credit
Credit
Normal Balance
Normal Balance
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Objective 3
Record transactions in the journal
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Journal
Chronological record of the transactions Consists of at least one debit and one credit
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Journalizing Transactions
Identify each account affected and its type Determine whether each account is increased or decreased. Use the rules of debit and credit Record transaction in journal, including a brief explanation
Debit side of entry is entered first Total debits should always equal total credits
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General Journal
Style conventions that must be followed: Year is entered at the top of each page The month is only entered for the first entry on a page unless the month changes in the middle of the page. The month may be abbreviated Enter numerical date for each transaction, even if there are many entries on same date
Copyright 2007 Prentice-Hall. All rights reserved 20
General Journal
Debits are ALWAYS entered first in an entry. Use the EXACT account title and do not abbreviate Credits are INDENTED and listed second Do not use dollar signs SKIP A LINE between each entry Never split an entry between two pages
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Exercise 2-5 2Analysis of June 1 transaction: Cash is increasing Cash is an asset account Increase an asset with a debit
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
Jun 1 Cash
25,000
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Exercise 2-5 2Analysis of June 1 transaction: M. Brown, Capital is increasing Capital is an owners equity account Increase owners equity with a credit
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
25,000 25,000
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Exercise 2-5 2Analysis of June 2 transaction: Medical Supplies is increasing Medical Supplies is an asset account Increase an asset with a debit
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
10,000
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Exercise 2-5 2Analysis of June 2 transaction: Accounts Payable is increasing Accounts Payable is a liability account Increase a liability with a credit
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
10,000 10,000
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Exercise 2-5 2Analysis of June 2 transaction: Rent Expense is increasing Rent Expense is an expense account Increase an expense with a debit
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
4,000
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Exercise 2-5 2Analysis of June 2 transaction: Cash is decreasing Cash is an asset account Decrease an asset with a credit
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
4,000 4,000
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Exercise 2-5 2Analysis of June 3 transaction: Accounts Receivable is increasing Accounts Receivable is an asset account Increase an asset with a debit
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
12,000
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Exercise 2-5 2Analysis of June 3 transaction: Service Revenue is increasing Service Revenue is a revenue account Increase a revenue with a credit
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
12,000 12,000
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Objective 4
Post from the journal to the ledger
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Posting
Periodically, journal entries are posted to ledger accounts to determine balances in each account Posting copying amounts from the journal to the ledger
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25,000
Accounts Receivable
M. Brown, Capital
Rent Expense
25,000
GENERAL JOURNAL
DATE DESCRIPTION
REF
DEBIT
CREDIT
25,000 25,000
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25,000
10,000
GENERAL JOURNAL
DATE
DESCRIPTION
REF
DEBIT
CREDIT
Accounts Receivable
M. Brown, Capital
10,000
Rent Expense
10,000
10,000
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25,000 4,000
10,000
Accounts Receivable
M. Brown, Capital
Rent Expense
25,000
GENERAL JOURNAL
DATE DESCRIPTION
REF
4,000
DEBIT CREDIT
4,000 4,000
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25,000 4,000
10,000
12,000
Accounts Receivable
M. Brown, Capital
Rent Expense
12,000
DATE DESCRIPTION
25,000
GENERAL JOURNAL
REF
4,000
DEBIT CREDIT
12,000 12,000
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10,000
25,000 4,000
Bal 21,000
10,000
Bal 10,000
12,000
Bal 12,000
Accounts Receivable
M. Brown, Capital
Rent Expense
12,000
Bal 12,000
25,000
Bal 25,000
4,000
Bal 4,000
Medical Supplies
10,000
Bal 10,000
Copyright 2007 Prentice-Hall. All rights reserved 36
Transaction Analyzed
Objective 5
Prepare and use a trial balance
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Trial Balance
List of all accounts with their balances
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Exercise 2-9 (part 3) 2Mike Brown, M.D. Trial Balance June 30, 2008 Cash 21,000 Accounts Receivable 12,000 Medical Supplies 10,000 Accounts Payable M. Brown, Capital Service Revenue Rent Expense 4,000 Totals 47,000
Copyright 2007 Prentice-Hall. All rights reserved
Cash increases. It is an asset. Increase assets with debits. Capital increases. GENERAL JOURNAL Owners equity is REF DESCRIPTION DEBIT increased with a credit.
CREDIT
60,000
60,000
DATE
Cash, of these is Both an asset, increasing. assets. accounts are Increase assets with debits. Building is increasing. Revenue accounts are Increase assets with GENERAL JOURNAL increased Cashcredits debits. with is REF DESCRIPTION DEBIT decreasing. Decrease CREDIT assets with credits.
Exercise 2-5 2-
50,000
50,000
Purchased building
3,000 3,000
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Accounts Payable, which is decreasing, is a liability. Decrease liabilities by debiting GENERAL JOURNAL Decrease the them. DESCRIPTION asset, REF Cash, DEBITa with credit.
CREDIT
100
100
2,100 2,100
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Both of these accounts are assets. Cash is increasing debit. Accounts Receivable is GENERAL JOURNAL decreasing - credit
REF
DEBIT
CREDIT
1,200 1,200
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Both Exercise 2-18these 2- of involve transactions recognizing expenses. GENERAL JOURNAL expenses Since decrease owners REF DESCRIPTION DEBIT equity, and owners Salary Expense 1,200 equity is decreased with a debit, debit Cash expenses. Cash is decreasing credit Paid salaries
DATE
CREDIT
Aug 31
1,200
500 500
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Cash 60,000 Aug 4 50,000 3,000 Aug 9 100 1,200 Aug 31 1,200 Aug 31 500
Exercise 2-19 2-
R. Woodward, Capital Aug 1 60,000 Take the difference Service Revenue between total debits Aug 6 and total credits to3,000 Aug 17 2,100 determine the balance Bal. 5,100 in each account. If debits are greater than Rent Expense credits, the account Aug 31 a debit balance has 500 and vice versa Salary Expense Aug 31 1,200
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Bal. 12,400
Exercise 2-19 2Woodward Technology Solutions Trial Balance August 31, 2008 Cash Accounts Receivable Supplies Building Accounts Payable R. Hawk, Capital Service Revenue Salary Expense Rent Expense Totals 12,400 900 200 50,000 100 60,000 5,100 1,200 500 65,200
Copyright 2007 Prentice-Hall. All rights reserved
65,200
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End of Chapter 2
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