1 / 41

Chapter Four

Chapter Four. The Double-Entry Accounting System. Debit. Credit. Debit. Credit. Debit/Credit Terminology. T-account. Account Title. Debit = Left. Credit = Right. Debits and Credits. Asset accounts increase on the left or debit side and decrease on the right or credit side.

xenia
Télécharger la présentation

Chapter Four

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter Four The Double-Entry Accounting System

  2. Debit Credit Debit Credit Debit/Credit Terminology T-account Account Title

  3. Debit = Left Credit = Right Debits and Credits Asset accounts increase on the left or debitside and decreaseon the right or credit side. Equity accounts increase on the right or credit side and decrease on the left or debit side. Liability accounts increase on the right or credit side and decrease on the left ordebit side. In every transaction, the total dollar value of all debits equals the total dollar value of all credits.

  4. Double-Entry Accounting Let’s see how debits and credits work by looking at transactions for Collins Consultants.

  5. Event 1: Collins Consultants was established on January 1, 2005, when it acquired $15,000 cash from Collins. • Increase assets (cash). • Increase equity (common stock). Asset Source Transaction

  6. Event 2: On February 1, Collins Consultants issued a 12%, $10,000 note payable to the National Bank to borrow cash. Asset Source Transaction • Increase assets (cash). • Increase liabilities (notes payable).

  7. Event 3: On February 17, Collins Consultants purchased $850 of office supplies on account from Morris Supply Company. • Increase assets (supplies). • Increase liabilities (accounts payable). Asset Source Transaction

  8. Event 4: On February 28, Collins Consultants signed a contract to evaluate the internal control system used by Kendall Food Stores. Kendall paid Collins $5,000 in advance for these future services. Asset Source Transaction • Increase assets (cash). • Increase liabilities (unearned revenue).

  9. Event 5: On March 1, Collins Consultants received $18,000 from signing a contract to provide professional advice to Harwood Corporation over a one-year period. Asset Source Transaction • Increase assets (cash). • Increase liabilities (unearned revenue).

  10. Event 6: On April 10, Collins Consultants provided $2,000 of services to Rex Company on account. Asset Source Transaction • Increase assets (accounts receivable). • Increase equity (consulting revenue).

  11. Event 7: On April 29, Collins Consultants performed services and received $8,400 cash. Asset Source Transaction • Increase assets (cash). • Increase equity (consulting revenue).

  12. Event 8: On May 1, Collins Consultants loaned Reston Company $6,000. Reston issued a 9% note to Collins. Asset Exchange Transaction • Increase assets (notes receivable). • Decrease assets (cash).

  13. Event 9: On June 30, Collins purchased office equipment for $42,000 cash. Asset Exchange Transaction • Increase assets (office equipment). • Decrease assets (cash).

  14. Event 10: On July 31, Collins paid $3,600 cash in advance for a one year lease to rent office space for a one-year period beginning August 1. Asset Exchange Transaction • Increase assets (prepaid rent). • Decrease assets (cash).

  15. Event 11: On August 8, Collins Consultants collected $1,200 from Rex Company as partial payment of the accounts receivable (see Event 6). Asset Exchange Transaction • Increase assets (cash). • Decrease assets (accounts receivable).

  16. Event 12: On September 4, Collins Consultants paid employees who worked for the company $2,400 in salaries. Asset Use Transaction • Decrease assets (cash). • Decrease equity (salaries expense).

  17. Event 13: On September 20, Collins Consultants paid a $1,500 cash dividend to its owner. Asset Use Transaction • Decrease assets (cash). • Decrease equity (dividends).

  18. Event 14: On October 10, Collins Consultants paid Morris Supply Company the $850 owed from purchasing office supplies on account (see Event 3). Asset Use Transaction • Decrease assets (cash). • Decrease liabilities (accounts payable).

  19. Event 15: On November 15, Collins completed its consulting evaluation of the internal control system used by Kendall Food Stores (see Event 4). • Decrease liabilities (unearned revenue). • Increase equity (consulting revenue). Claims Exchange Transaction

  20. Event 16: On December 18, Collins Consultants received a $900 bill from Creative Ads for advertisements which had appeared in regional magazines. Collins plans to pay the bill later. • Increase liabilities (accounts payable). • Decrease equity (advertising expense). Claims Exchange Transaction

  21. Adjustment 1: Collins Consultants recognized accrued interest on the $6,000 note receivable from Reston (see Event 8). • Increase assets (interest receivable). • Increase equity (interest revenue). Asset Source Transaction

  22. Adjustment 2: Collins Consultants recognized accrued interest expense on the $10,000 note payable it issued to National Bank (see Event 2). • Increase liabilities (interest payable). • Decrease equity (interest expense). Claims Exchange Transaction

  23. Adjustment 3: Collins Consultants recognized $800 of accrued but unpaid salaries. • Increase liabilities (salaries payable). • Decrease equity (salaries expense). Claims Exchange Transaction

  24. Adjustment 4: Collins Consultants recognized $4,000 of depreciation on the office equipment it had purchased on June 30 (see Event 9). • Decrease assets (accumulated depreciation). • Decrease equity (depreciation expense). Asset Use Transaction

  25. Adjustment 5: Collins Consultants recognized rent expense for the portion of prepaid rent used up since entering the lease agreement on July 31 (see Event 10). • Decrease assets (prepaid rent). • Decrease equity (rent expense). Asset Use Transaction

  26. Adjustment 6: A physical count at the end of the year indicates that $125 worth of the supplies purchased on February 17 are still on hand (see Event 3). Asset Use Transaction • Decrease assets (supplies). • Decrease equity (supplies expense).

  27. Adjustment 7: Collins Consultants adjusted its accounting records to reflect revenue earned to date on the contract to provide services to Harwood Corporation for a one-year period beginning March 1 (see Event 5). Claims Exchange Transaction • Decrease liabilities (unearned revenue). • Increase equity (consulting revenue).

  28. Special Journals General Journals The General Journal Accountants initially record data from source documents into a journal.

  29. The Closing Process Establishes zero balances in all revenue, expense, and dividend accounts. Let’s look at the closing entries for Collins Consultants.

  30. Components of the Annual Report Notes Management’s Discussion & Analysis Audit Opinion

  31. The Securities and Exchange Commission Government Agency Public Companies SEC Rules

  32. End of Chapter Four

More Related