Analyzing & Recording

Business Transactions
CHAPTER 2
The Balance Sheet
The balance sheet equation:
Assets = Liabilities + Owners equityets =
or
+ Owner
s Equity
= Liabilities + Owners Equity

Owners Equity = Assets - Liabilities

Balance Sheet Transactions
Just as the balance sheet equation
must always balance, the balance
sheet must also always balance.
A balance sheet could be prepared
after every transaction, but this
practice would be awkward and
unnecessary.

Transaction Analysis
Transactions are recorded in
accounts, which are summary
records of the changes in particular
assets, liabilities, or owners equity.
The account balance is the total of
all entries to the account.


Source documents
Identify and describe transactions
and events entering the accounting
process.

Account
Is a record of increases and
decreases in a specific asset,
liability, equity, revenue or expense
Ledger
Is a record containing all accounts used
by a company
Assets
Cash
Accounts
receivable
What customers
owe us
Note receivable
Prepaid Accounts
Supplies
Equipment
Liabilities
Accounts payable
Money owed to
suppliers
Notes payable
Unearned revenue
Deposits from
customers
Equity
Common Stock
Shareholders
investment in the
business
Dividends
Distributions of
income to
shareholders
Retained Earnings

Chart of Accounts
List of an accounts a company uses
and includes an idea.
101-199 Assets
201-299 Liabilities
301-399 Equity
401-499 Revenues
501-599 Expenses
T- Accounts
Debit
Credit
Left side
Right side
Accounting Equation
Assets =
DR CR


Liabilities
DR CR

+
Equity
DR
CR


Double entry accounting: each transactions affect,
And recorded in, at least two accounts

Debits = Credits
Journal
Journal
Gives a complete
record of each
transaction in one
place
Journalizing
Process of
recording
transactions
Posting
Process of
transferring journal
entry info to the
ledger
Journal
Date Account PR Debit Credit
Journal Entries
Go to excel worksheet
Transactions
Shareholder invests in the business
$30,000 in cash
Co pays $2,500 cash for supplies
Co pays $26,000 cash for equipment
Co purchases $7,100 of supplies on
account ( on credit)
Co provides consulting services and
collects $4,200 cash
Transactions
Co pays for $1,000 cash for rent
Co pays $700 cash for salaries
Co provides consulting services of
$1,600 and bills the customer
Co receives $1,600 cash from the
client billed
Co pays $900 on account
Co pays dividends $1,000
Transactions
Co receives $3,000 cash in advance
Co pays $2,400 cash for insurance
for one year

Posting to the ledger
Record the transactions into ledger
by account name
Prepare a TRIAL BALANCE
List of accounts and balances