Anda di halaman 1dari 24

PowerPoint to accompany

Accounting
5e
Horngren, Harrison, Bamber, Best, Fraser, Willett

Recording Business Transactions Chapter 2

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Learning Objectives
1. Use accounting terms 2. Apply the rules of debit and credit

3. Record transactions in the journal 4. Post from the journal to the ledger
5. Prepare and use a trial balance 6. Set up a chart of accounts for a business 7. Analyse transactions without a journal
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Objective 1

Use accounting terms.

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Accounting Terms
Account Journal T-account Ledger Assets Double-entry accounting Liabilities Trial balance
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Owners equity

Accounting Terms
Cash Individual asset accounts All individual accounts combined make up the ledger. Ledger Individual liability accounts Paula Lee, Capital

Accounts Payable

Individual owners equity accounts


Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Classification of Accounts
What are some asset accounts? Cash Accounts Receivable Bills Receivable Prepaid Expenses Inventory Land Building Equipment
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Classification of Accounts
What are some liability accounts? Bills Payable Accounts Payable Accrued Liabilities (for expenses incurred but not paid) Long-term (Non-Current) Liabilities (mortgages and debentures)
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Classification of Accounts
What are some owners equity accounts? Capital (or owners interest in the business) Drawings Revenues Expenses

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Jans Petrol Station Example


Assume that the business sold $5,000 worth of petrol on a given day and performed $3,000 of repair services. How much revenue did the business earn that day? $8,000 Revenues increase Jans equity in the business.
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Jans Petrol Station Example


The business had to pay mechanics and suppliers $3,750 for the work performed that day. Expenses decrease Jans equity in the business. How much was the net increase in Jans equity that day? $4,250
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Double-Entry Accounting
Double entry bookkeeping means to record the dual effects of each business transaction. Assets = Liabilities + Owners Equity Assets are on the left (debit) side. Liabilities and Equity are on the right (credit) side.
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

The T-Account

(Ledger Account)
Account Title
Debit Credit

LEFT SIDE

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

The T-Account
Account Title Debit Credit

RIGHT SIDE

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Objective 2

Apply the rules of debit and credit.

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

The Rules of Debit and Credit

Owners Equity Assets

Liabilities

+
Debit Credit +

Debit +

Credit

Debit

Credit +

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

The Double-Entry System


Each transaction is recorded with at least: One debit AND One credit

Total debits must equal total credits.


Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Jans Petrol Station Example


On June 30, Jan invested $500,000 in cash and the business obtained a $300,000 loan (bill payable) to open a petrol station. How much was the initial increase in cash? $800,000 Which accounts were affected?
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Jans Petrol Station Example


Cash (asset) Bills Payable (liability) Jan, Capital (owners equity)
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Jans Petrol Station Example


Cash
500,000 Bal. 500,000

Bills Payable
300,000 Bal. 300,000

Jan, Capital
800,000 Bal. 800,000
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Jans Petrol Station Example


Jans Petrol Station Balance Sheet June 30, 2007
Assets Cash $800,000 Liabilities Bills payable $300,000 Owners Equity Jan, capital 500,000 Total liabilities and owners equity

Total assets $800,000

$800,000

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Objective 3

Record transactions in the journal.

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Journals
What is a journal? It is a list in chronological order of all the transactions for a business. Identify transaction from source documents. Specify accounts affected. Apply debit / credit rules. Record transaction (with description).
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

1.
2. 3. 4.

Journals
What does a journal entry include? date of the transaction title of the account debited title of the account credited amount of the debit and credit (description of the transaction) dollar signs are omitted
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Recording Transactions
On April 2, Paula Lee invested $30,000 in Paula Lee eTravel. What is the journal entry? April 2 Cash 30,000 Paula Lee, Capital 30,000
Received initial investment from owner
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Objective 4

Post from the journal to the ledger.

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Ledger
What is a ledger? It is a collection of all accounts utilised by an entity during an accounting period. Loose leaf pages Bound books Computer printout Cards
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Posting
What is posting? It is the transfer of information from the journal to the appropriate accounts in the ledger. The first transaction was Cash 30,000 Capital 30,000
See other journal entries p52-53 of the text
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Asset Accounts After Posting


Cash
(1) 30,000 (2) 20,000 (4) 300 (6) 2,000 Bal. 7,700

Land
(2) 20,000 Bal. 20,000

Office Supplies
(3) 500 Bal. 500
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Liabilities and Owners Equity Accounts After Posting


Accounts Payable
(4) 300 (3) 500 Bal. 200

Paula Lee, Capital


(1) 30,000
Bal. 30,000

Paula Lee, Drawings


(6) 2,000 Bal. 2,000
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Details of Journals and Ledgers


Journal Page 1

Date Accounts and Explanation Debit Credit April 2 Cash 30,000 Paula Lee, Capital 30,000
Received initial investment from owner

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Details of Journals and Ledgers


Account: Cash Date April 2 Ref. jrl Account: 101 Balance Debit Credit Debit Credit 30,000 30,000

Posting

Insert the number of the journal page.


Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Details of Journals and Ledgers


Journal
Date

Page 1

Account and Explanation Post Ref. Debit Credit April 2 Cash 101 30,000 Paula Lee, Capital 301 30,000 Initial investment from owner

Insert the ledger account in the journal.


Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

The Four-Column Account Format

Account: Cash
Date
April 2

Account No. 101


Balance

Item Ref.
jr1

Debit
30,000

Credit

Debit
30,000

Credit

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Objective 5

Prepare and use a trial balance.

DEBITS

CREDITS

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Trial Balance
What is a trial balance? It is an internal document. It is a listing of all the accounts with their related balances. Before computers, it provided a check on accuracy by showing whether total debits equal total credits. Computerised accounting programs usually prohibit out-of-balance entries.
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Paula Lee eTravel Trial balance


Account Cash Office Supplies Land Accounts Payable P Lee Capital P Lee Drawings Total Debit 7,700 500 20,000 Credit

200 30,000
2,000 $30,200 $30,200

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Locating Trial Balance Errors


Are the additions correct? Are all accounts listed? Are the balances listed correctly? Divide the difference by two - is there a debit / credit balance for this amount posted in the wrong column? Check journal postings. Review accounts for reasonableness.
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Objective 6

Set up a chart of accounts for a business.

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Chart of Accounts in the Ledger


This is a listing of all the accounts and related account numbers used by a business. Each account should have its own assigned number. The numbering system should allow flexibility for changing business needs.
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Paula Lee eTravel Chart of Accounts


Assets 101 Cash 111 Accounts Receivable 141 Office Supplies 151 Office Furniture 155 Computers 191 Land
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Paula Lee eTravel Chart of Accounts


Liabilities 201 Accounts Payable 231 Bills Payable Owners Equity 301 Capital 311 Drawings Revenues 401 Service Revenue
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Paula Lee eTravel Chart of Accounts


Expenses 501 Rent Expense 523 Electricity Expense 524 Natural Gas Expense 551 Salary Expense 580 Telephone Expense 581 Mobile Expense Helen 582 Mobile Expense Jane 581 Mobile Expense Amanda
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Normal Account Balances


Assets = Liabilities + Owners Equity Debits = Credits The side where we expect increases to be recorded is the normal balance side. So assets usually have a Dr balance.
But cash could be Dr or perhaps Cr, why?
Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

Expanding the Accounting Equation to Account for Revenue and Expenses


Assets = Liabilities + Owners Equity Capital contributions and Revenues increase Owners Equity. Drawings and Expenses decrease Owners Equity. So: Assets = Liabilities + Capital Drawings + Revenue Expenses
. Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Recording Revenue and Expense Transactions


Performed services for a client and collected $3,000 cash Cash 3,000 Service Revenue 3,000
Paid office rent $900 Rent Expense Cash

900

900

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2007 Pearson Education Australia

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia

End of Chapter 2

Horngren, Harrison, Bamber, Best, Fraser, Willett: Accounting 5e 2006 Pearson Education Australia