Analyzing Transactions

1. Analyzing Transactions ACG 2021 Chapter 2

2. Analyze Transactions from source documents Post journal info to general ledger Record relevant transactions in journal Prepare trial balance Steps in the Accounting Process

3. Usefulness of an Account • Account – shows increases and decreases in financial transactions • Ledger – a group of accounts • Chart of Accounts • List of accounts

4. Chart of Account Example • Stockholder’s equity • Capital stock • Retained earnings • Dividends • Revenue • Fees Earned • Expenses • Rent expense • Salaries expense • American Company • Chart of Accounts • Assets • Cash • Accounts receivable • Prepaid insurance • Supplies • Equipment • Liabilities • Accounts payable • Notes payable

5. Definition of Accounts

6. Characteristics of an Account • Each account has a title which is the name of the item recorded in the account • Each account has a space for recording increases in the amount of the item • Each account has a space for recording the decreases in the amount of the item

7. T- Account Debit Credit DR CR

8. Journal • The first book in which a transactions is recorded. • Chronological order • Debit before credit • Indent credit information • Each entry  debit = credit

9. Account Memorize Liabilities Assets Debit Decrease Credit Increase Credit Decrease Debit Increase Equity and revenues act like liabilities Expenses act like assets

10. Mar 1: American Co received cash for company’s capital stock $20,000

11. Mar 5: Paid rent of $500

12. Mar 10: Purchased supplies for cash $1,000

13. Mar 12: Received cash from customers for services rendered $2,500

14. Mar 15: Purchased equip on account $5,000

15. Mar 20: Billed customers for services rendered $3,000

16. Mar 25: Paid amount due on account $400

17. Mar 26: Paid dividends $1,000

18. Mar 31: Received cash from customers billed $900

19. American CompanyTrial BalanceMarch 31, 2007

20. Balance Sheet Accounts DEBIT CREDIT Asset accounts……. Increase (+) Decrease (-) Liability accounts.… Decrease (-) Increase (+) Stockholders’ equity accounts… Decrease (-) Increase (+)

21. Liability Accounts Asset Accounts Debit for decreases (–) Credit for increases (+) Debit for increases (+) Credit for decreases (–) Stockholders’ Equity Accounts Debit for decreases (–) Credit for increases (+) 0 2-1 Balance Sheet Accounts 32

22. 2-1 Income Statement Accounts Debits Credits Revenue accounts… Decrease (-) Increase (+) Expense accounts… Increase (+) Decrease (-) 40

23. Expense Accounts Revenue Accounts Less Debit for increases (+) Credit for decreases (–) Debit for decreases (–) Credit for increases (+) 2-1 Income Statement Accounts 41 (Continued)

24. 2-1 Equals Net income (credit > debits) increases stockholders’ equity (retained earnings) Net loss (debits > credits) decreases stockholders’ equity (retained earnings) 42