2
Analyzing
Transactions
1
After studying this chapter, you should be able to:
1. Describe the characteristics of an account and
record transactions using a chart of accounts
and journal.
2. Describe and illustrate the posting of journal
entries to accounts.
3. Prepare an unadjusted trial balance and explain
how it can be used to discover errors.
4. Discover and correct errors in recording
transactions.
2
2-1
Objective 1
Describe the characteristics of
an account and record
transactions using a chart of
accounts and journal.
3
2-1
Accounting systems are
designed to show the
increases and decreases in
each financial statement item
as a separate record. This
record is called an account.
4
2-1
The T Account
Title
The T account has
a title.
55
2-1
Title
Debit
The left side of
the account is
called the debit
side.
66
2-1
Title
Debit
Credit
The right side of the
account is called the
credit side.
77
2-1
Title
Debit
Credit
Amounts
entered on the
left side are
debits.
88
2-1
Title
Debit
Credit
Amounts
entered on the
right side are
credits.
99
2-1
(In Rp 000)
(a)
(d)
Cash
25,000 (b)
7,500 (e)
(f)
(h)
Balance
20,000
3,650
950
2,000
5,900
Balance of the account
10
10
2-1
A group of accounts
for a business entity is
called a ledger.
11
2-1
A list of the accounts
in a ledger is called a
chart of accounts.
12
2-1
Assets are resources owned
by the business entity.
•
•
•
•
Cash
Supplies
Prepaid expenses
Buildings
13
2-1
Liabilities are debts owed to
outsiders (creditors).
• Accounts payable
• Notes payable
• Wages payable
14
2-1
Owner’s equity is the owner’s
right to the assets of the
business. A drawing account
represents the amount of
withdrawals by the owner.
15
2-1
Revenues are increases in
owner’s equity as a result
of selling services or
products to customers.
• Fees earned
• Commission revenue
• Rent revenue
16
2-1
The using up of assets or
consuming services in the
process of generating
revenues results in expenses.
• Wages expense
• Rent expense
• Miscellaneous expense
17
2-1
Every transaction affects
at least two accounts.
18
Journalizing
2-1
This transaction is initially
entered in a record called a
journal. The process of
recording a transaction in the
journal is called journalizing.
19
2-1
Journalizing requires the following steps:
1. Record the date. If this is the first entry on
the page, the year is inserted above the
month. As long as the month does not
change, the rest of the journal entries on
the require on the day be recorded.
2. The title of the account debited is listed in
the Description column.
(Continued)
20
2-1
3. Enter the amount in the Debit column.
4. Record the credit account in the
Description column.
5. Enter the amount in the Credit column.
Watch these steps take place as the entry
to record Chris Clark’s deposit is
presented in the next slide.
21
Balance Sheet Accounts
2-1
@solusinet
(a) On November 1, Cita Cinta opens a
new business and deposits Rp.
25,000,000 in a bank account in the
name of SolusiNet.
22
2-1
Page 1
JOURNAL
Date
Description
2007
1 Nov.
1 Cash
2
Cita Cinta, Capital
3
Invested cash in SolusiNet.
P.R.
Debit
Credit
25 000 000
25 000 000
4
23
23
2-1
The effect of this entry is shown in the
accounts of SolusiNet as follows:
Cash
Cita Cinta, Capital
Nov. 1 25,000
Nov. 1
(In Rp 000)
25,000
24
2-1
@solusinet
(b) On November 5,
SolusiNet bought land
for Rp 20,000,000
paying cash.
25
2-1
5 Land
20 000 000
Cash
20 000 000
Purchased land for
building site.
26
2-1
@solusinet
(c) On November 10,
SolusiNet purchased
supplies on account for
Rp1,350,000
27
2-1
10 Supplies
Accounts Payable
1 350 000
1 350 000
Purchased supplies on
account.
28
2-1
@solusinet
(f) On November 30,
SolusiNet paid
creditors on account,
Rp. 950,000
29
2-1
30 Accounts Payable
Cash
950 000
950 000
Paid creditors on
account.
30
2-1
Balance Sheet Accounts
Debits
Credits
Asset accounts……. Increase (+) Decrease (-)
Liability accounts.… Decrease (-) Increase (+)
Owner’s equity
(capital) accounts… Decrease (-) Increase (+)
31
2-1
Balance Sheet Accounts
Asset Accounts
Debit for
increases
(+)
Credit for
decreases
(–)
Liability Accounts
Debit for
decreases
(–)
Credit for
increases
(+)
Owner’s Equity Accounts
Debit for
decreases
(–)
Credit for
increases
(+)
32
2-1
Example Exercise 2-1
Prepare a journal entry for the purchase of a truck on June 3
for Rp.42,500, 000 paying Rp.8,500,000 cash and the
remainder on account.
Follow My Example 2-1
June 3 Truck
Cash
Accounts Payable
Rp. 42,500,000
8,500,000
34,000,000
33
For Practice: PE 2-1A, PE 2-1B
Income Statement Accounts
2-1
@solusinet
(d) On November 18, SolusiNet
received fees of Rp7,500,000 from
customers for services provided.
34
2-1
30 Cash
7 500 000
Fees Earned
7 500 000
Received fees from
customers.
35
2-1
@solusinet
(e) Throughout the month, SolusiNet
incurred the following expenses:
wages, Rp. 2,125,000; rent Rp.
800,000; utilities, Rp. 450,000; and
miscellaneous, Rp.275,000.
36
2-1
30 Wages Expense
2 125 000
Rent Expense
800 000
Utilities Expense
450 000
Miscellaneous Expense
275 000
Cash
3 650000
Paid expenses.
37
2-1
@solusinet
(g) On November 30, a count
revealed that Rp.800,000 of
the supplies inventory had
been used during the month.
38
2-1
30 Supplies Expense
Supplies
800 000
800 000
Supplies used during
November.
39
2-1
Income Statement Accounts
Debits
Revenue accounts… Decrease (-)
Expense accounts… Increase (+)
Credits
Increase (+)
Decrease (-)
40
2-1
Income Statement Accounts
Revenue Accounts
Debit for
Credit for
decreases
increases
(–)
(+)
Less
Expense Accounts
Debit for
increases
(+)
Credit for
decreases
(–)
41
Continued
2-1
Equals
Net Income (credit > debits)
increases owners’ equity (capital)
Net Loss (debits > credits) decreases
owners’ equity (capital)
42
2-1
Example Exercise 2-2
Prepare a journal entry on August 7 for the fees earned on
account, Rp.115,000,000.
Follow My Example 2-2
Aug. 7
Accounts Receivable
Fees Earned
For Practice: PE 2-2A, PE 2-2B
115,000,000
115,000,000
43
Drawing Account
2-1
The owner of a proprietorship may
withdraw cash from the business for
personal use. Such withdrawals have the
effect of decreasing owner’s equity.
44
2-1
@solusinet
(h) On November 30, Cita Cinta
withdrew Rp.2,000,000 in cash
from SolusiNet for personal use.
45
2-1
2007
Nov 30 Cita Cinta, Drawing
Cash
2 000 000
2 000 000
Cita Cinta withdrew
cash for personal use.
46
2-1
Example Exercise 2-3
Prepare a journal entry on December 29 for the payment of
Rp.12,000,000 to the owner of Smartstaff Consulting
Services, Dominique Walsh, for personal use.
Follow My Example 2-3
Dec. 29 Dominique Walsh, Drawing
Cash
12,000,000
12,000,000
47
For Practice: PE 2-3A, PE 2-3B
2-1
Increase
(Normal Bal.) Decreases
Balance sheet accounts:
Asset
Liability
Owner’s Equity:
Capital
Drawing
Income statement accounts:
Revenue
Expense
Debit
Credit
Credit
Debit
Credit
Debit
Debit
Credit
Credit
Debit
Debit
Credit
48
2-1
Example Exercise 2-4
State for each account whether it is likely to have (a)
debit entries only, (b) credit entries only, or (c) both
debit and credit entries. Also, indicate its normal
balance.
1.
2.
3.
4.
5.
6.
Ambarwati, Drawing
Accounts Payable
Cash
Fees Earned
Supplies
Utilities Expense
49
2-1
Follow My Example 2-4
1.
2.
3.
4.
5.
6.
Debit entries only; normal debit balance
Debit and credit entries; normal credit balance
Debit and credit entries; normal debit balance
Credit entries only; normal credit balance
Debit and credit entries; normal debit balance
Debit entries only; normal debit balance
50
For Practice: PE 2-4A, PE 2-4B
2-1
The equality of debits and credits
for each transaction is built into the
accounting equation: Assets =
Liabilities + Owner’s Equity.
Because of this double equality,
this system is called the doubleentry accounting system.
51
Transaction Analysis
2-1
1. Determine whether an asset, liability,
owner’s equity, revenue, expense, or
drawing account is affected by the
transaction.
2. For each account affected by the transaction,
determine whether the account increases or
decreases.
3. Determine whether each increase or
decrease should be recorded as a debit or a
credit.
Continued
52
2-1
4. Record the transaction using a journal
entry.
5. Periodically post journal entries to the
accounts in the ledger.
6. Prepare an unadjusted trial balance at
the end of the period.
53
2-2
Objective 2
Describe and illustrate
the posting of journal
entries to the accounts.
54
2-2
The process of transferring
the debits and credits from
the journal entries to the
accounts is called posting.
55
2-2
@solusinet
Dec. 1 SolusiNet paid a premium of
Rp.2,400,000 for a
comprehensive insurance policy
covering liability, theft and fire.
The policy covers a one-year
period.
56
2-2
(In Rp. 000)
57
2-2
@solusinet
Dec. 1 SolusiNet paid rent for December,
Rp.800,000. The company from
which SolusiNet is renting its store
space requires the payment of rent
on the first of each month, rather
than at the end of the month.
58
2-2
1
Rent Expense
Cash
Paid rent for
52
11
800 000
800 000
December.
59
2-2
An alternative approach is to debit
Rent Expense for Rp.800,000 on
December 1. This avoids having to
transfer the balance to an expense
account at the end of the month.
60
2-2
SolusiNet received an offer from a local
retailer to rent the land purchased on
November 5. The retailer plans to use
the land as a parking lot for its employees
and customers. SolusiNet agreed to rent
the land to the retailer for three months,
with the rent payable in advance.
61
2-2
@solusinet
Dec. 1 SolusiNet receives Rp. 360,000
for three month’s rent for use of
its land beginning December 1.
1 Cash
11
Unearned Rent
23
360 000
360 000
Received advance
payment for three
months’ rent on land.
62
2-2
@solusinet
Dec. 4 SolusiNet purchased office equipment
on account from PD.Tunas Jaya. for
Rp.1,800,000
4
Office Equipment
Accounts Payable
18 1 800 000
21
1 800 000
Purchased office
equipment on account.
63
2-2
@solusinet
Dec. 6 SolusiNet paid Rp.180,000 for
a newspaper advertisement.
6
Miscellaneous Expense
Cash
59
11
180 000
180 000
Paid for newspaper ad.
64
2-2
@solusinet
Dec. 11 SolusiNet paid
creditors Rp.400,000
11
Accounts Payable
Cash
21
11
400 000
400 000
Paid creditors on
account.
65
2-2
@solusinet
Dec. 13 SolusiNet paid a receptionist and
part-time assistant Rp.950,000 for
two weeks’ wages.
13
Wages Expense
Cash
51
11
950 000
950 000
Paid two weeks’ wages.
66
2-2
@solusinet
Dec. 16 SolusiNet received
Rp.3,100,000 from fees earned
for the first half of December.
16 Cash
11
Fees Earned
41
3 100 00
3 100 00
Received fees from
customers.
67
2-2
@solusinet
Dec. 16 Fees earned on account
totaled Rp.1,750,000 for the
first half of December.
16
Accounts Receivable
Fees Earned
12
41
1 750 000
1 750 000
Recorded fees earned
on account.
68
2-2
@solusinet
Dec. 20 SolusiNet paid Rp.900,000 to Executive
Supply Co. on the Rp.1,800,000 debt
owed from the December 4 transaction.
20
Accounts Payable
Cash
21
11
900 000
900 000
Paid part of amount
owed to Executive
Supply Co.
69
2-2
@solusinet
Dec. 21 SolusiNet received
Rp.650,000 from customers
in payment of their accounts.
21
Cash
11
Accounts Receivable
12
650 000
650 000
Received fees from
customers on account.
70
2-2
@solusinet
Dec. 23 SolusiNet paid Rp
1,450,000 for supplies.
23
Supplies
Cash
Purchased supplies.
14
11
1 450 000
1 450 000
71
2-2
@solusinet
Dec. 27 SolusiNet paid the receptionist and
part-time assistant Rp.1,200,000
for two weeks’ wages.
27
Wages Expense
Cash
51
11
1 200 000
1 200 000
Paid two weeks’ wages.
72
2-2
@solusinet
Dec. 31 NetSolutions paid Rp.310,000
for telephone charges for the
month.
31
Utilities Expense
Cash
54
11
310 000
310 000
Paid telephone charges.
73
2-2
@solusinet
Dec. 31 SolusiNet paid Rp.225,000 for
electric usage for the month.
Page 1
JOURNAL
Date
Description
Post.
Ref.
Debit
54
225 000
Credit
2007
Dec 31 Utilities Expense
Cash
11
225 000
Paid for electric usage.
74
2-2
@solusinet
Dec. 31 SolusiNet received Rp.2,870,000
from fees earned for the second
half of December.
31
Cash
11
Fees Earned
Received fees from
41
2 870 000
2 870 000
customers.
75
2-2
@solusinet
Dec. 31 NetSolutions earned
Rp.1,120,000 on account
for the second half of
December.
31
Accounts Receivable
Fees Earned
12
41
1 120 000
1 120 000
Recorded fees earned
on account.
76
2-2
@solusinet
Dec. 31 Cita Cinta withdrew
Rp.2,000,000 for personal use.
31
Cita Cinta, Drawing
Cash
Cita Cinta withdrew
32
11
2 000 000
2 000 000
cash for personal use.
77
2-2
Example Exercise 2-5
On March 1, the cash account balance was
Rp. 22,350,000. During March, cash
receipts totaled Rp.241,880,000 and the
March 31 balance was Rp.19,125,000.
Determine the cash payments made during
March.
78
2-2
Follow My Example 2-5
In Rp.000
Using the following T-account solve for the amount of
cash payment (indicated by ? below).
Cash
Mar. 1 Bal
22,350 ?
Cash receipts 241,880
Mar. 31 Bal. 19,125
Cash payments
Rp.19,125 = Rp.22,350 + Rp.241,880 – Cash payments
Cash payments = Rp.22,350 + Rp.241,880 –Rp.19,125 =
Rp.245,105
79
For Practice: PE 2-5A, PE 2-5B
2-3
Objective 3
Prepare an unadjusted
trial balance and explain
how it can be used to
discover errors.
80
2-3
The equality of debits and credits
in the ledger should be proved at
the end of each accounting period
by preparing a trial balance. The
heading should first list the name
of the company, the statement’s
title, and the date it is prepared.
81
2-3
Cash
Account Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Account Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Suppliexpense
Miscellaneous Expense
2
2
2
2
20
1
4
4
1
42
SolusiNet
Unadjusted Trial Balance
31-Dec-07
In Rp.
Debit
Credit
Balances
Balances
0 6 5 000
2 2 0 000
0 0 0 000
4 0 0 000
0 0 0 000
8 0 0 000
9 0 0 000
3 6 0 000
25 0 0 0 000
0 0 0 000
16 3 4 0 000
2 7 5 000
6 0 0 000
9 8 5 000
8 0 0 000
4 5 5 000
6 0 0 000 42 6 0 0 000
82
2-3
Example Exercise 2-6
For each of the following errors, considered individually,
indicate whether the error would cause the trial balance
totals to be unequal. If the error would cause the trial
balance total to be unequal, indicate whether the debit or
credit total is higher and by how much.
a. Payment of a cash withdrawal of Rp.5,600,000 was
journalized and posted as a debit of RP.6,500,000 to
Salary Expense and a credit of RP.6,500,000 to Cash.
b. A fee of Rp.2,850,000 earned from a client was
debited to Accounts Receivable for Rp.2,580,000 and
credited to Fees Earned for Rp.2,850,000.
c. A payment of Rp.3,500,000 to a creditor was posted
as a debit of Rp.3,500,000 to Accounts Payable and a
debit of Rp.3,500,000 to Cash.
83
2-3
Follow My Example 2-6
a. The totals are equal since both the debit and credit
entries were journalized and posted for Rp.6,500,000.
b. The totals are unequal. The credit total is higher by
Rp.270,000 (Rp.2,850,000 – Rp.2,580,000).
c. The totals are unequal. The debit total is higher by
Rp.7,000,000 (Rp.3,500,000 + Rp.3,500,000).
For Practice: PE 2-6A, PE 2-6B
84
2-4
Objective 4
Discover and correct
errors in recording
transactions.
85
2-4
A transposition occurs when
the order of the digits is
changed mistakenly, such as
writing Rp.542,000 as
Rp.452,000 or Rp.524,000.
In a slide, the entire number is
mistakenly moved one or more
spaces to the right or the left, such
as writing RP.542.000 as $54,200.
86
2-4
Another type of error is a posting
error. Assume that on May 5 a
Rp.12,500,000 purchase of office
equipment on account was
incorrectly journalized and posted
as a debit to Supplies and a credit
to Accounts Payable for
Rp.12,500,000.
87
2-4
Entry to Correct Error
May 31 Office Equipment
Supplies
18 12 500 000
14
12 500 000
To correct erroneous
debit to Supplies on
May 5. See invoice
from Bella Office
Equipment Company.
88
2-4
Example Exercise 2-7
The following errors took place in journalizing and
posting transactions:
a. A withdrawal of Rp.6,000,000 by Roni Ahmad,
owner of the business, was recorded as a debit to
Office Salaries Expense and a credit to Cash.
b. Utilities Expense of Rp.4,500,000 paid for the
current month was recorded as a debit to
Miscellaneous Expense and a credit to Accounts
Payable.
Journalize the entries to correct the errors. Omit
explanations.
89
2-4
Follow My Example 2-7
In Rp.000
a. Cheri Ramey, Drawing
Office Salaries Expense
6,000
b. Accounts Payable
Miscellaneous Expense
4,500
6,000
4,500
Utilities Expense
4,500
Cash
4,500
Note: The first entry in (b) reverses the incorrect
entry, and the second entry records the correct
entry.
For Practice: PE 2-7A, PE 2-7B
90