2301 Chapt 02 Trans Analysis

Chapter 2: Transaction Analysis
Analyze transactions
Understand how accounting works
Record transactions in journal entries
Use a trial balance
Analyze transactions using "T-accounts"
Page 64
works
al entries
T-accounts"
Every transaction has two sides You give something You receive something
in accounting we record both sides of a tra
An account. is the record of all changes in a particular asset, liability, or equity account during a period
Assets Cash Accounts receivable Notes receivable Inventory Prepaid expenses Land Buildings Equipment, Furniture and Fixtures
Liabilities Accounts payable Notes payable Accrued liablities Unearned revenue
Stockholders equity Common stock Retained earning Revenues Expenses Dividends
Tranactions 1 Assets = 50,000

Cash
Liabilities
issue $50,000 of common stock to shareholder
Tranactions 2 Assets = Liabilities Cash (40,000) = Land 40,000 = pays $40,000 for land for a new location
Tranactions 3 Assets 3,700

supplies
= Liabilities + = 3,700
accounts payable
buys $3,700 supplies on acount
Tranactions 4 Assets
= Liabilities
7,000
Cash
earn $7,000 of service revenue and collects cash
Tranactions 5 Assets 3,000
= Liabilities = -
accounts receivable
performs $3,000 of service on account--- customer will pay later
Tranactions 6 Assets Cash (1,100) Cash (1,200) Cash (400)
= Liabilities = = =
Pays for rent, salaries and utilities
Tranactions 7 Assets = Liabilities + (1,900) = (1,900)
cash
accounts payable
pays $1,900 on account
Tranactions 8 Assets
= Liabilities
major shareholder pays $30,000 to remodel his home
Tranactions 9 Assets = Liabilities Cash 1,000 = Acct rec (1,000) = -
collects $1,000 for services performed on account
Tranactions 10 Assets = Cash 22,000
Liabilities -
land
(22,000)
Sells some of the land for $22,000
Tranactions 11 Assets = Cash (2,100)

Pay $2,100 for dividends
Liabilities -
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both sides of a transaction
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es in a particular y account during
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nd Fixtures
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Equity 50,000
Common Stock
holder
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Equity -
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Equity -
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Equity
7,000
Service revenue
cts cash
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Equity 3,000
Service revenue
customer will pay later
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Equity (1,100) (1,200) (400)
rent expense salary expense utilities expense
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Equity -
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Equity
del his home
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Equity -
n account
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Equity -
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Equity (2,100)
page 72
ASSETS
Cash 1 2 3 4 5 6 Acct Rec Supplies Land
50,000 (40,000) 3,700 7,000 3,000 (1,100) (1,200) (400) (1,900) 1,000 22,000 (2,100) 33,300
40,000
8 9 10 11
(1,000) (22,000) 2,000 3,700 57,000 18,000
Genie Car Wash, Inc. Income Statement Month ended April 30, 2009 Revenues Service revenue ($7,000 + $3,000) Expenses
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10,000
Salary expense Rent expense Utilities expense

Total expenses Net Income
$ 1,200 1,100 400 $ 2,700 7,300
Genie Car Wash, Inc. Statement of Retained Earnings Month ended April 30, 2009
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Retained earnings, April 1, 2009 Add: Net Income Less: Dividends Retained earnings, April 30, 2009
7,300 7,300 (2,100) 5,200
Genie Car Wash, Inc. Balance Sheet April 30, 2009
page 64
Assets Cash Acct Rec. Supplies' Land
$ 33,300 2,000 3,700 18,000
Liabilities Acc Pay. Stockholders Equity Common stock Retained Earnings Total Equity
Total Assets
$ 57,000
Total Liabilities & Equity
Liabilities Acct Pay
Equity
Com Stk Ret Earn
50,000 3,700 7,000 3,000 (1,100) (1,200) (400) (1,900)
1,800 1,800 57,000
50,000 55,200
(2,100) 5,200
1,800
olders Equity on stock ed Earnings
50,000 5,200 55,200
abilities & Equity
$ 57,000
Understand how accounting works
All business transactions include two parts You give something you receive something
Accounting is based on a "dual entry" system
Each transaction effects at least two accou
Accounts can be represented by
thel letter T. We call them T-accounts .
The account "cash" would appear as: Cash

left side right side
Debit
Credit
the left side of each account is the debit side the right side of each account is the credit side
Every business transaction involves a debit and a credit
the debit ---> what you received the credit ---> what you gave
Rules for increases and decreases in the accounts Assets increased by debits decreased by credits increased by credits decreased by debits
Liabilities & Equity
Assets + debits - credits
Liabilities + + credits - debits
Eq
works
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two parts
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ntry"
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t two accounts
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accounts .
Page 77
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es
Equity
Assets Dr debit (dr) side + Cr credit (cr) side -
Liabilities Dr Cr +
Shareholde Contributed Capital Dr -
Assets Dr Cr debit (dr) credit (cr) side side + -
Liabilities Dr Cr +
+ Dr -
Shareholde
Contributed Capital
Revenues Dr Cr
Expenses Dr
Shareholder's Equity ntributed Capital Retained Earning Cr Dr Cr + +
Shareholder's Equity
Retained Earning
ntributed Capital
Cr +
Dr -
Cr +
Expenses Cr
Dividends Dr Cr
3 1 2 3
Record transactions in journal entries
Specify each account affected by the and classify as to "account type" Determine whether each account is in or decreased by the transaction Record the transaction in the journal side and credit side with a brief expla
The Ledger a grouping of all accounts
entering a transaction in the journal does data into the ledger data must be copied to the ledger a process called . posting
Journal Entry
transaction 1
Date
Apr 2 Cash
Account and explanation

Common Stock
issued common stock
Journal Entry
transaction 2
Date
Land

Cash
purchase Land with cash
Journal Entry
transaction 3
Date

Supplies Acct Payable
purchase supplies on account
Journal Entry
transaction 4
Date
Cash

Service revenue
sold services for cash $7000
Journal Entry
transaction 5
Date

Account receivable
Service revenue
sold services $3000 on account
Journal Entry
transaction 6
Date

Rent expense Salary expense Utilities expense Cash
pay rent, salary, and utilities expense
Journal Entry
transaction 7
Date

Account payable Cash
paid cash on account
Journal Entry
transaction 8
Date
no entry
Journal Entry
transaction 9
Date
Cash

Accounts receivable
collect cash on account
Journal Entry
transaction 10
Date
Cash

Land
sold land
Journal Entry
transaction 11
Date

Dividends Cash
declared and paid cash dividends
al entries
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cted by the transaction nt type" ccount is increased action the journal -- debit brief explanation
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ournal does not get the
page 82 Debit
50,000 50,000
Credit
page 83 Debit
40,000 40,000
Credit
page 83 Debit
3,700 3,700
Credit
page 83 Debit
7,000 7,000
Credit
page 84 Debit
3,000
Credit
3,000
page 84 Debit
1,100 1,200 400 2,700
Credit
page 85 Debit
1,900 1,900
Credit
page 85 Debit Credit
page 85 Debit
1,000 1,000
Credit
page 86
Debit
22,000
Credit
22,000
page 86 Debit
2,100 2,100
Credit
ASSETS Cash
1 4 9 10
LIABILITIES Act Payable
50,000 7,000 1,000 22,000

80,000
2 6 7 11
40,000 2,700 1,900 2,100

46,700
1900 3
1,900
3700
3,700
1,800
33,300
Act Rec
5
3000
3,000
1000
1,000
2,000
Supplies
3
3700 3,700
Land
2
40000 10
40,000
22000
22,000
18,000
Genie Car Wash, Inc.
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Trial Balance April 30, 2010

Debit Credit
Assets Cash Accounts Receivable Supplies Land Liabilities Accounts Payable Stockholders Equity Common Stock Revenues Service revenue Expenses Rent expense Salary expense Utilities expense Dividends
33,300 2,000 3,700 18,000 1,800 50,000 10,000 1,100 1,200 400 2,100 61,800
61,800
STOCKHOLDERS' EQUITY Common Stock

1
Dividends
11
50,000 50,000
2,100 2,100
Revenues Service Revenues

4 5
Expenses Rent expense

6
7,000 3,000 10,000
1,100 1,100
Salaries expense
6
1,200 1,200
Utilities expense
6
400 400
Use a trial balance
a list of all the accounts with their balanc
a trial balance summarizes all the account balances for financial statements
a trial balance
shows whether the total of the debits equ the total of the credits
Chart of Accounts a list of all the accounts
The "normal balance" of an account
falls on the side of the account - debit or c increases or recorded
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their balances
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alances for the
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e debits equal
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- debit or credit - where
Analyze transactions using "T-accounts"
because sometimes decisions must be m without the benefit of a complete acco system
T - accounts are used to analyze trans
Cash Accounts rec
100 800
Sales Revenue
Acct Pay 1600 300 900 300 2500 2200
Cash 9000 Receipts 25000 Payments 14000 11000 25000
Supplies Cash Acct Payable
780
T-accounts"
page 92
s must be made mplete accounting
nalyze transactions
900
380 400

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2301 Chapt 02 Trans Analysis

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Chapter 2: Transaction Analysis

Understand how accounting works

Record transactions in journal entries

Use a trial balance

Analyze transactions using "T-accounts"

in accounting we record both sides of a tra

Liabilities Accounts payable Notes payable Accrued liablities Unearned revenue

Stockholders equity Common stock Retained earning Revenues Expenses Dividends

Tranactions 1 Assets = 50,000

issue $50,000 of common stock to shareholder

Tranactions 3 Assets 3,700

buys $3,700 supplies on acount

earn $7,000 of service revenue and collects cash

Tranactions 5 Assets 3,000

performs $3,000 of service on account--- customer will pay later

Tranactions 6 Assets Cash (1,100) Cash (1,200) Cash (400)

Pays for rent, salaries and utilities

Tranactions 7 Assets = Liabilities + (1,900) = (1,900)

pays $1,900 on account

major shareholder pays $30,000 to remodel his home

Tranactions 9 Assets = Liabilities Cash 1,000 = Acct rec (1,000) = -

collects $1,000 for services performed on account

Tranactions 10 Assets = Cash 22,000

Sells some of the land for $22,000

Tranactions 11 Assets = Cash (2,100)

both sides of a transaction

es in a particular y account during

customer will pay later

del his home

(1,000) (22,000) 2,000 3,700 57,000 18,000

Salary expense Rent expense Utilities expense

$ 1,200 1,100 400 $ 2,700 7,300

7,300 7,300 (2,100) 5,200

Genie Car Wash, Inc. Balance Sheet April 30, 2009

Assets Cash Acct Rec. Supplies' Land

$ 33,300 2,000 3,700 18,000

Total Liabilities & Equity

Liabilities Acct Pay

50,000 3,700 7,000 3,000 (1,100) (1,200) (400) (1,900)

1,800 1,800 57,000

olders Equity on stock ed Earnings

50,000 5,200 55,200

abilities & Equity

Understand how accounting works

Accounting is based on a "dual entry" system

Each transaction effects at least two accou

Accounts can be represented by

thel letter T. We call them T-accounts .

The account "cash" would appear as: Cash

Every business transaction involves a debit and a credit

Liabilities & Equity

Assets + debits - credits

Liabilities + + credits - debits

Assets Dr debit (dr) side + Cr credit (cr) side -

Shareholde Contributed Capital Dr -

Assets Dr Cr debit (dr) credit (cr) side side + -

Shareholder's Equity ntributed Capital Retained Earning Cr Dr Cr + +

Record transactions in journal entries

The Ledger a grouping of all accounts

Account and explanation

Account and explanation

Account and explanation

purchase supplies on account

Account and explanation