Chapter 3:financial and accounting

Post journal entries to accounts in the ledger... Journal Entry Example • You purchase $250 worth of inventory for cash on January 30... • Eases posting of journal entries and summarizi

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Food for thought

• You are running a grocery store List 10

potential transactions.

• How do you transform the transaction data into a report of useful information?

Summarize the effects of transactions.

2 Preparing a trial balance.

Summarize the effects of transactions.

1 Posting journal entries

2 Preparing a trial balance.

Prepare reports.

1 Adjusting entries.

2 Preparing financial statements.

3 Closing the books.

Prepare reports.

1 Adjusting entries.

2 Preparing financial statements.

3 Closing the books.

Analyze transactions.

A = L + OE

#1: Analysis of Transactions with the Accounting Equation

Which transactions will be

included in financial statements?

• ABC bought a truck

• ABC sold a product

• The competitors cut prices

• ABC signed a contract to build a road next year

• ABC plans to develop new technology

How about this?

• A company buys a building In addition to paying

$20,000 cash, the company agrees to pay $10,000 per year for the next 10 years

• The company will also pay a $2,000 property tax bill associated with the building from last year

• As part of the purchase, the company gave the

former owners of the building 500 shares of stock.

• Finally, the building will require $23,000 worth of repairs and renovations before it can be used

• How much should be recorded as the cost of the building

#2: Record the effects of transactions in a journal

#3 Summarize:

A Post journal entries to accounts in the ledger

Double Entry Accounting

• Debits must ALWAYS equal credits!

– If for every transaction, debits equal credits, then the accounting equation will balance

Practice #1

Typical Chart of Accounts

B Prepare Trial balance

#4: Prepare reports Income statement

Prepare B/S

Prepare statement of cash flows

General Journal Entry Format:

Date Debit Entry xx

Credit Entry xx

Explanation.

Journal Entries

3 steps for success:

1 Identify which accounts are involved.

2 Determine if the account is increased or decreased.

3 Determine by how much the account

has changed.

Journal Entry Example

• You purchase $250 worth of inventory for cash on January 30.

– Remember the 3 step process

Compound Journal Entry

• Compound Journal Entry

– A journal entry that involves more than one

debit or more than one credit or both

• You make a mortgage payment of $175 Of this,

$150 reduces the mortgage while $25 is interest

The General Ledger

Date Explanation Ref Debits Credits Balance

2 Issued 100 shares of capital

stock at $10 per share GJ1 1,000 1,100

3 Purchased equipment GJ1 300 800

4 Sold inventory GJ1 60 860

5 Monthly payment on loan GJ1 230 630

6 Revenue GJ1 2,500 3,130

After all the journal entries are posted to the ledger, the account balance can be computed by summing

up all of the debits and credits

The Trial Balance

• Trial Balance

– A listing of all account balances

– Provides a means of ensuring debits equal

Example Trial Balance

The Example Company

How Have Computers Changed

the Accounting Cycle?

• Allows businesses to calculate vast

amounts of data quickly.

• Eases posting of journal entries and

summarizing the data into reports and

financial statements.

• Computers can’t think That is your job!

Practice #3 – 42/p 115

• Record journal entries

• Posting journal entries to accounts in the ledger

• Trial balance

• Prepare financial statements

1 Ray and Barbara decide to open a computer programming service

which he names Softbyte On September 1, 2011, they invest

$15,000 cash in exchange for common stock.

2 Softbyte purchases computer equipment for $7,000 cash.

3 Softbyte purchases for $1,600 paper and other supplies.

4 Softbyte receives $1,200 cash from customers for programming

services it has provided.

5 Softbyte receives a bill for $250 from the Daily News for advertising

but postpones payment until a later date.

6 Softbyte provides $3,500 of programming services for customers

The company receives cash of $1,500 from customers, and it bills the balance of $2,000 on account.

7 Softbyte pays the following Expenses in cash for September: store

rent $600, salaries of employees $900, and utilities $200.

8 Softbyte pays its $250 Daily News bill in cash.

9 Softbyte receives $600 in cash from customers who had been billed

for services [in Transaction (6)].

10 The corporation pays a dividend of $1,300 in cash.