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DMH 3-1
The Account
Account
Record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.
Debit = Left Credit = Right
Account Name
Debit / Dr. Credit / Cr.
DMH 3-2
DMH 3-3
Transaction #1
Transaction #3
$10,000
8,000
$3,000
Transaction #2
Balance
$15,000
DMH 3-4
Transaction #1
$10,000
$3,000
8,000
Transaction #2
Transaction #3
Balance
$1,000
DMH 3-5
The equation must be in balance after every transaction. For every Debit there must be a Credit.
DMH 3-6
Review Question
Accounts that normally have debit balances are:
a. assets, expenses, and revenues. b. assets, expenses, and owners capital. c. assets, liabilities, and owners drawings. d. assets, owners drawings, and expenses.
DMH 3-7
Discussion Question
Q. Maria Alvarez, a beginning accounting student,
believes debit balances are favorable and credit balances are unfavorable. Is Maria correct? Discuss.
DMH 3-8
The Journal
Book of original entry.
DMH 3-9
Journalizing
Journalizing - Entering transaction data in the journal.
(Facts) Presented below is information related to Hanshew Real Estate Agency. Oct. 1 Pete Hanshew begins business as a real estate agent with a cash investment of $15,000. 3 Purchases office furniture for $1,900, on account.
6 Sells a house and lot for B. Kidman; bills B. Kidman $3,200 for realty services provided. 27 Pays $700 on balance related to transaction of Oct. 3. 30 Pays the administrative assistant $2,500 salary for Oct. Instructions - Journalize the transactions for E2-4.
DMH 3-10
Journalizing
(Facts) Journalize the transactions related to Hanshew Real Estate Agency.
Oct. 1
Pete Hanshew begins business as a real estate agent with a cash investment of $15,000.
General Journal
Date
Oct. 1
Account Title
Cash Hanshew, capital
(Owners investment)
Ref.
Debit
15,000
Credit
15,000
DMH 3-11
Journalizing
(Facts) Journalize the transactions related to Hanshew Real Estate Agency.
Oct. 3
General Journal
Date
Oct. 3
Account Title
Office furniture Accounts payable
(Purchase on account)
Ref.
Debit
1,900
Credit
1,900
DMH 3-12
Journalizing
(Facts) Journalize the transactions related to Hanshew Real Estate Agency.
Oct. 6
Sells a house and lot for B. Kidman; bills B. Kidman $3,200 for realty services provided.
General Journal
Date
Oct. 6
Account Title
Accounts receivable Service revenue
(Services provided)
Ref.
Debit
3,200
Credit
3,200
DMH 3-13
Journalizing
(Facts) Journalize the transactions related to Hanshew Real Estate Agency.
Oct. 27
General Journal
Date
Oct. 27
Account Title
Accounts payable Cash
(Payment on account)
Ref.
Debit
700
Credit
700
DMH 3-14
Journalizing
(Facts) Journalize the transactions related to Hanshew Real Estate Agency.
Oct. 30
Date
Oct. 30
Account Title
Salaries expense Cash
(Payment for salaries)
Ref.
Debit
2,500
Credit
2,500
DMH 3-15
Journalizing
Simple Entry Two accounts, one debit and one credit. Compound Entry Three or more accounts.
Example On June 15, H. Burns, purchased equipment for $15,000 by paying cash of $10,000 and the balance on account (to be paid within 30 days).
General Journal
Date
Jun. 15
Account Title
Equipment Cash Accounts payable
(Purchase equipment)
Ref.
Debit
15,000
Credit
10,000 5,000
DMH 3-16
The Ledger
A General Ledger contains the entire group of accounts maintained by a company. The General Ledger includes all the asset, liability, owners equity, revenue and expense accounts.
DMH 3-17
Chart of Accounts
Accounts and account numbers arranged in sequence in which they are presented in the financial statements.
Hanshew Real Estate Agency
Chart of Accounts Assets
101 112 126 140 150 158 Cash Accounts receivable Advertising supplies Office furniture Equipment Accumulated depreciation 300 306 350
Owner's Equity
Hanshew, Capital Hanshew, Drawing Income summary
Revenues
400 Service revenue
Liabilities
200 201 209 212 230
DMH 3-18
Expenses
631 711 722 726 729 905 Advertising supplies expense Depreciation expense Insurance expense Salaries expense Rent expense Interest expense
Accounts payable Notes payable Unearned revenue Salaries payable Interest payable
No. 101
Debit
15,000 700 2,500
Explanation
Ref.
Credit
Balance
15,000 14,300 11,800
DMH 3-19
Posting
Posting the process of transferring amounts from the journal to the ledger accounts.
General Journal
Date Oct. 1 Account Title Cash Hanshew, Capital (Owner's investment in business) Ref. Debit 15,000 15,000
J1
Credit
101
Oct. 1
J1
15,000
15,000
DMH 3-20
J1
Posting
101 300
Oct. 1
J1
15,000
15,000
Oct. 1
J1
15,000
15,000
DMH 3-21
J1
Posting
140 200
Oct. 3
J1
1,900
1,900
Oct. 3
J1
1,900
1,900
DMH 3-22
J1
Posting
112 400
Oct. 6
J1
3,200
3,200
Oct. 6
J1
3,200
3,200
DMH 3-23
J1
Posting
200 101
Oct. 1 Oct.27
J1 J1
15,000
700
15,000 14,300
Oct. 3 Oct.27
DMH 3-24
J1 J1
1,900 700
1,900 1,200
J1
Posting
726 101
J1 J1 J1
15,000
700 2,500
Oct.30
J1
2,500
2,500
DMH 3-25
Posting
Review Question
Posting:
a. normally occurs before journalizing. b. transfers ledger transaction data to the journal. c. is an optional step in the recording process. d. transfers journal entries to ledger accounts.
DMH 3-26
Follow these steps: 1. Determine what type of account is involved. 2. Determine what items increased or decreased and by how much. 3. Translate the increases and decreases into debits and credits.
DMH 3-27
E2-5
Hanshew Real Estate Agency
Trial Balance October 31, 2010 Debit $ 11,800 3,200 1,900 $ Credit
Cash Accounts receivable Office furniture Accounts payable Hanshew, Capital Service revenue Salaries expense
2,500 $ 19,400
$ 19,400
DMH 3-28
transaction.
DMH 3-29
Review Question
A trial balance will not balance if:
a. a correct journal entry is posted twice. b. the purchase of supplies on account is debited to Supplies
DMH 3-30
Recording Process
Discussion Question
Q. Jim Benes is confused about how accounting information flows through the accounting system. He believes the flow of information is as follows.
a. Debits and credits posted to the ledger.
Is Jim correct? If not, indicate to Jim the proper flow of the information.
DMH 3-31