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Analyzing and Recording Transactions

Analyzing and Recording Transactions. Chapter. 2. Learning objectives. Analyzing and Recording Process Source document, Accounts & Ledger T-account vs. Debit & Credit Double-Entry Accounting Journalizing and Posting transactions Transaction analysis for FastForward Trial Balance

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Analyzing and Recording Transactions

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  1. Analyzing and Recording Transactions Chapter 2

  2. Learning objectives • Analyzing and Recording Process • Source document, Accounts & Ledger • T-account vs. Debit & Credit • Double-Entry Accounting • Journalizing and Posting transactions • Transaction analysis for FastForward • Trial Balance • Decision analysis: Debt ratio • Wells Fargo, Hangseng Bank, CCB

  3. Analyzing and Recording Process- Transactions Exchanges of economic consideration between two parties. External Transactions occur between the organization and an outside party. Internal Transactions occur within the organization.

  4. Record relevant transactions and events in a journal Analyze each transaction and event form source documents Post journal information to ledger accounts Prepare and analyze the trial balance 1.Analyzing and Recording Process- Transaction recording process

  5. 2.Source Documents, Accounts & Ledger- Source documents Bills from Suppliers Checks Purchase Orders Employee EarningsRecord Bank Statement Sales Tickets

  6. 2.Source Documents, Accounts & Ledger - The Account and its Analysis An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item. The general ledger is a record containing all accounts used by the company.

  7. 2.Source Documents, Accounts & Ledger - The Account and its Analysis AssetsAccounts LiabilitiesAccounts EquityAccounts = +

  8. 2.Source Documents, Accounts & Ledger - Asset Accounts Cash Accounts Receivable Land AssetAccounts Notes Receivable Buildings Prepaid Accounts Equipment Supplies

  9. 2.Source Documents, Accounts & Ledger - Liability Accounts Accounts Payable Notes Payable LiabilityAccounts Unearned Revenues Accrued Liabilities

  10. 2.Source Documents, Accounts & Ledger - Equity Accounts Owner’s Capital Owner’s Withdrawals EquityAccounts Revenues Expenses

  11. – – + + Owner’s Capital Owner’s Withdrawals Revenues Expenses 2.Source Documents, Accounts & Ledger - The Account and its Analysis = + Assets Liabilities Equity

  12. A T-account represents a ledger account and is a tool used to understand the effects of one or more transactions. 3. T-Account VS. Debits & Credits

  13. = + Assets Liabilities Equity EQUITIES ASSETS LIABILITIES Debit Credit Debit Credit Debit Credit +- - + - + 3. T-Account VS. Debits & Credits - Rules for debit & credit accounts

  14. _ _ Owner’s Capital Owner’s Withdrawals + Revenues Expenses Capital Withdrawals Revenues Expenses Debit Credit Debit Credit Debit Credit Debit Credit - + +- - + +- Exh. 3.8 3. T-Account VS. Debits & Credits - Rules for debit & credit accounts(cont.) Equity

  15. 3. T-Account VS. Debits & Credits- account balance An account balance is the difference between the increases and decreases in an account.

  16. = + Assets Liabilities Equity EQUITIES ASSETS LIABILITIES Debit Credit Debit Credit Debit Credit +- - + - + 4. Double-Entry Accounting • Each transaction affect al least 2 accounts • In each transactions, amount debited = amount credited • For all transactions, sum of debits = sum of credits • Sum of debit account balance = sum of credit account balance

  17. = + Assets Liabilities Equity Step 1: Analyze transactions and source documents. Step 2: Apply double-entry accounting Step 4: Post entry to ledger Step 3: Record journal entry 5. Journalizing and Posting Transactions- Process

  18. Titles of Affected Accounts • Transaction Date • Transaction explanation • Dollar amount of debits and credits 5. Journalizing and Posting Transactions - Journalizing Transactions

  19. T-accounts are useful illustrations, but balance column ledger accounts are used in practice. Three more columns Post reference column Description column Balance column 5. Journalizing and Posting Transactions - Balance Column Account

  20. 5. Journalizing and Posting Transactions - Posting Journal Entries 1 Identify the account.

  21. 5. Journalizing and Posting Transactions - Posting Journal Entries (cont.) Enter the date. 2

  22. 5. Journalizing and Posting Transactions - Posting Journal Entries (cont.) Enter the amount and description. 3

  23. 5. Journalizing and Posting Transactions - Posting Journal Entries (cont.) 4 Enter the journal reference.

  24. 5. Journalizing and Posting Transactions - Posting Journal Entries (cont.) Compute the balance. 5

  25. 5. Journalizing and Posting Transactions - Posting Journal Entries (cont.) 6 Enter the ledger reference.

  26. 6. Transactions Analysis for FastForward- 16 Transactions • Chuke Taylor invests $30,000 cash in Fastward • FastForward pay $2,500 cash for supplies • FastForward pay $26,000 cash for equipment • FastForward purchase $7,100 supplies on credit • FastForward collect $4,200 cash for consulting service • FastForward pay $1,000 cash for December rent • FastForward pay $700 cash for employee salary • FastForward provide consulting service of $1,600 and rent its facility for $300. the customer is billed $1,900 for these services.

  27. 6. Transactions Analysis for FastForward- 16 Transactions (cont.) • FastForward receive $1,900 cash from client of transaction 8 • FastForward pay $900 cash to supplier of transaction 4 • Chuke Taylor withdraw $600 cash from Fastward • FastForward receive $3,000 cash in advance from customer for consulting service • FastForward pay $2,400 cash insurance premium for a 24-month coverage beginning from December 1. • FastForward pay $120 fro supplies • FastForward pay $230 cash for December utilities • FastForward pay $700 cash in employee salary for work performed in the latter part of December.

  28. Analysis: Double entry: 101 301 Posting: 6. Transactions Analysis for FastForward- Transaction 1

  29. Analysis: Double entry: Posting: 101 126 6. Transactions Analysis for FastForward- Transaction 2

  30. Analysis: Double entry: Posting: 101 167 6. Transactions Analysis for FastForward- Transaction 3

  31. Analysis: Double entry: Posting: 201 126 6. Transactions Analysis for FastForward- Transaction 4

  32. Analysis: Double entry: Posting: 101 403 6. Transactions Analysis for FastForward- Transaction 5

  33. Analysis: Double entry: Posting: 101 640 6. Transactions Analysis for FastForward- Transaction 6

  34. Analysis: Double entry: Posting: 101 6. Transactions Analysis for FastForward- Transaction 7

  35. 6. Transactions Analysis for FastForward- Transaction 8 Provided services of $1600 and rent its test facilities for $300. the customer is billed $1,900 for these services. The accounts involved are: (1) Accounts Receivable (asset) (2) Consulting Revenue (equity) (3) Rental Revenue (equity)

  36. Double entry: Posting: 406 403 6. Transactions Analysis for FastForward- Transaction 8 Provided services of $1600 and rent its test facilities for $300.

  37. 6. Transactions Analysis for FastForward- Transaction 9 The client in transaction 8 paid $1900 to FastForward. The accounts involved are: (1) Cash (asset) (2) Accounts Receivable (asset)

  38. Double entry: Posting: 101 106 6. Transactions Analysis for FastForward- Transaction 9 The client in transaction 8 paid $1900 to FastForward.

  39. 6. Transactions Analysis for FastForward- Transaction 10 Paid $900 cash as partial payment for its earlier $7100 purchase of supplies, leaving $6200 unpaid. The accounts involved are: (1) Cash (asset) (2) Accounts Payable (liability)

  40. Double entry: Posting: 101 201 6. Transactions Analysis for FastForward- Transaction 10 Paid $900 cash as partial payment for its earlier $7100 purchase of supplies, leaving $6200 unpaid.

  41. 6. Transactions Analysis for FastForward- Transaction 11 Taylor withdrew $600 from the business for personal use. The accounts involved are: (1) Cash (asset) (2) Taylor, Withdrawals (equity) Remember that the balance in the Taylor, Withdraws account actually increases. But, equity actually decreases because withdraws reduce equity.

  42. Double entry: Posting: 101 6. Transactions Analysis for FastForward- Transaction 11 Taylor withdrew $600 from the business for personal use.

  43. 6. Transactions Analysis for FastForward- Transaction 12 FastForward receive $3,000 cash in advance from customer for consulting service The accounts involved are: (1) Cash (asset) (2) Unearned Consulting Revenue(liability)

  44. Double entry: Posting: 101 6. Transactions Analysis for FastForward- Transaction 12 FastForward receive $3,000 cash in advance from customer for consulting service

  45. 6. Transactions Analysis for FastForward- Transaction 13 The accounts involved are: (1) Prepaid Insurance (asset) (2) Cash (asset) FastForward pay $2,400 cash insurance premium for a 24-month coverage beginning from Dec. 1.

  46. Double entry: Posting: 101 6. Transactions Analysis for FastForward- Transaction 13 FastForward pay $2,400 cash insurance premium for a 24-month coverage beginning from Dec. 1.

  47. 6. Transactions Analysis for FastForward- Transaction 14 FastForward pay $120 cash for supplies The accounts involved are: (1) Supplies (asset) (2) Cash (asset)

  48. Double entry: Posting: 101 6. Transactions Analysis for FastForward- Transaction 14 FastForward pay $120 cash for supplies

  49. 6. Transactions Analysis for FastForward- Transaction 15 FastForward pay $230 cash for Dec. utilities The accounts involved are: (1) Utility Expense (equity) (2) Cash (asset) Remember that the balance in the utility expense account actually increases. But, equity actually decreases because expenses reduce equity.

  50. Double entry: Posting: 101 6. Transactions Analysis for FastForward- Transaction 15 FastForward pay $230 cash for Dec. utilities

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