1

3.
4.
5.
6.
1.
2.
Use accounting terms
Apply the Rules of Debit and Credit
Record Transactions in the Journal
Post from the Journal to the Ledger
Prepare and use a Trial Balance
Analyze Transactions without a Journal
2

Account
Ledger
Assets
Liabilities
Owner’s equity
Double-entry accounting
T-account
3

Cash
Gay Gillen,
Capital
Individual asset accounts
Accounts
Payable
All individual accounts combined make up the ledger.
Ledger
Individual liability accounts
Individual owner’s equity accounts
4

 What are some asset accounts?
– Cash
– Notes Receivable
– Accounts Receivable
– Prepaid Expenses
– Land
– Building
– Equipment
5

 What are some liability accounts?
– Notes Payable
– Accounts Payable
– Accrued Liabilities (for expenses incurred but not paid)
– Long-term Liabilities (bonds)
6


What are some owner’s equity accounts?
–
Capital or owner’s interest in the business
– Withdrawals
– Revenues
– Expenses
7

 Assume that the business sold $5,000 worth of gasoline on a given day and performed $3,000 of repair services.
 How much revenue did the business earn that day?
 $8,000
8


Revenues increase John’s equity in the business.
 The business had to pay mechanics and vendors $3,750 for the work performed that day.
9


Expenses decrease John’s equity in the business.

How much was the net increase in John’s equity that day?
 $4,250
10


In a corporation, the owner’s equity account is called Stockholders’ Equity.
Contributed Capital
Retained Earnings
11

 Double entry bookkeeping means to record the dual effects of each business transaction.

Assets = Liabilities + Owner’s Equity
 Assets are on the left (debit) side.
 Liabilities and Equity are on the right
(credit) side.
12

Account Title
Debit Credit
Left Side
13

Account Title
Debit Credit
Right Side
14

Assets
Debit
+
Credit
–
= Liabilities +
Owner’s Equity
Debit
–
Credit
+
Debit
–
Credit
+
15

Each transaction is recorded with at least:
One debit One credit
Total debits must equal total credits.
16

 On July 1, John invested $500,000 in cash and obtained a $300,000 loan to open a gas station.
 How much was the initial increase in cash?
 $800,000
 Which accounts were affected?
17

Cash
Liabilities
Owner’s Equity
18

John’s Gas Station
Balance Sheet
July 1, 2002
Cash
Assets Liabilities
$800,000 Notes payable
Owner’s Equity
$300,000
John, capital 500,000
Total liabilities
Total assets $800,000 and owner’s equity
$800,000
19

 What is a journal?
 It is a list in chronological order of all the transactions for a business.
1
Identify transaction from source documents.
2
Specify accounts affected.
3
Apply debit/credit rules.
4
Record transaction with description.
20

What does a journal entry include?
– date of the transaction
– title of the account debited
– title of the account credited
– amount of the debit and credit
– description of the transaction
– dollar signs are omitted
21

 On April 2, Gay Gillen invested $30,000 in Gay Gillen eTravel.
 What is the journal entry?
 April 2
Cash 30,000
Gay Gillen, Capital 30,000
Received initial investment from owner
22

 What is a ledger?
 It is a digest of all accounts utilized by an entity during an accounting period.
Loose leaf pages
Computer printout
Bound books
Cards
23

 What is posting?
 It is the transfer of information from the journal to the appropriate accounts in the ledger.
24


Assets = Liabilities + Owner’s Equity
 Debits = Credits
 The side where we expect increases to be recorded is the normal balance side.
25

Bal.
7,600
Cash
(1) 30,000 (2) 20,000
(4) 300
(6) 2,100
Office Supplies
(3) 500
Land
(2) 20,000
Bal.
20,000
Bal. 500
26

Liabilities and Owner’s Equity
Accounts After Posting
Accounts Payable
(4) 300 (3) 500
Bal. 200
Gay Gillen, Withdrawals
(6) 2,000
Bal. 2,000
Gay Gillen, Capital
(1) 30,000
Bal. 30,000
27

Details of Journals and Ledgers
Journal Page 1
Date Accounts and Explanation Debit Credit
April 2 Cash
Gay Gillen, Capital
30,000
30,000
Received initial investment from owner
28

Details of Journals and Ledgers
Posting
Account: Cash Account: 101
Balance
Date Ref.
Debit Credit Debit Credit
April 2 jrl 30,000 30,000
Insert the number of the journal page.
29

Details of Journals and Ledgers
Journal Page 1
Date Account and
Explanation Post Ref. Debit Credit
April 2 Cash 101 30,000
Gay Gillen, Capital 301
30,000
Initial investment from owner
Insert the ledger account in the journal.
30

The Four-Column Account Format
Account: Cash Account No. 101
Balance
Date Item Ref. Debit Credit Debit Credit
April 2 jr1 30,000 30,000
31

 What is a trial balance?
 It is an internal document.
 It is a listing of all the accounts with their related balances.
 Before computers, it provided a check on accuracy by showing whether total debits equal total credits.
32


What if it doesn’t balance ?
 Is the addition correct?
 Are all accounts listed?
 Are the balances listed correctly?
DEBITS CREDITS
33

 Divide the difference by two.
 Is there a debit/credit balance for this amount posted in the wrong column?
 Check journal postings.
 Review accounts for reasonableness.
 Computerized accounting programs usually prohibit out-of-balance entries.
34

 John is considering either purchasing a garage for $70,000 or renting one for
$10,000 per year.
 John does not need to record in the journal all of the transactions that would affect his decision.
 Why?
35

 John has not completed a transaction yet.
 However, John can visualize how the ledger accounts will be affected.
36

Rent the garage
Cash
10,000
Rent Expense
10,000
Buy the garage
Cash
70,000
Building
70,000
37

A chronological record of transactions is called
A.
B.
C.
D.
a journal.
a balance sheet.
a general ledger.
a trial balance.
38

Answer: A
The journal is also called the book of original entry and is a chronological record of transactions.
39

Q2: A list of all accounts used by a business and their balances at a given time is called
A.
B.
C.
D.
a journal.
a balance sheet.
an income statement.
a trial balance.
40

Answer: D
A trial balance, normally prepared at the end of an accounting period, lists all the accounts and their debit or credit balances.
The columns are totaled to prove total debits are equal to total credits.
41

Q3: When recording a transaction in the general journal
A.
B.
C.
D.
there can only be two accounts affected.
the amount of the debits must equal the amount of the credits.
the number of debit accounts must equal the number of credit accounts.
at least one account from both sides of the accounting equation must be affected.
42

Answer: B
In any journal entry there will be at least two accounts affected (there could be more), and total debit amounts must equal total credit amounts.
43

Q4: Which sequence correctly summarizes the accounting process?
A.
B.
C.
D.
Prepare a trial balance, journalize transactions, post to accounts
Post to accounts, journalize transactions, prepare a trial balance
Journalize transactions, post to accounts, prepare a trial balance
Journalize transactions, prepare a trial balance, post to accounts
44

Answer: C
Transactions are first journalized in the journal, then posted to the ledger accounts.
Once their balances are determined, a trial balance is prepared to ensure that debits equal credits.
45

A.
B.
C.
D.
Debits
Credits
Increases
Decreases
46

Answer: A
Debits are recorded on the left side of a Taccount and credits are recorded on the right side of a T-account. Whether an account is increased or decreased with a debit, depends on what type of account it is.
47

Q6: Which type of account is inventory?
A.
B.
C.
D.
Asset
Liability
Owner’s equity
Expense
48

Answer: A
Inventory is an asset. It is an economic resource that will benefit the company in the future when it is sold.
49

Q7: In a journal entry, is an increase in
Cash a debit or a credit?
A.
B.
Debit
Credit
Answer: A
Cash is an asset. Assets are increased with debits.
50

Q8: In a journal entry, is an increase in
Accounts Payable a debit or a credit?
A.
B.
Debit
Credit
Answer: B
Accounts Payable is a liability. Liabilities are increased with credits.
51

Q9: In a journal entry, is an increase in the owner’s capital a debit or a credit?
A.
B.
Debit
Credit
Answer: B
Capital is an owner’s equity account.
Owner’s equity is increased with a credit.
52

Q10: In a journal entry, is an increase in
Rent Expense a debit or a credit?
A.
B.
Debit
Credit
Answer: A
Increase expense accounts with a debit.
53

Q11: In a journal entry, is an increase in
Fees Earned a debit or a credit?
A.
B.
Debit
Credit
Answer: B
Fees earned is a revenue account.
Revenues are increased with credits.
54

Cash
Bal 400
Accounts Receivable Fees Earned
Bal 200
Transactions:
Oct. 10 – Earned $300 revenue on account
Oct. 20 – Received $100 as payment on account
Oct. 30 – Earned $200 in cash
Q12: On October 31, what is the Cash balance?
55

Answer: $700 ($400 + $100 + $200)
Cash
Bal 400
100
200
Bal 700
Accounts Receivable Fees Earned
Bal 200
300
100
300
200
56

Cash
Bal 400
Accounts Receivable Fees Earned
Bal 200
Transactions:
Oct. 10 – Earned $300 revenue on account
Oct. 20 – Received $100 as payment on account
Oct. 30 – Earned $200 in cash
Q13: On Oct 31, what is the Accounts Receivable balance?
57

Answer: $400 ($200 + $300 - $100)
Cash
Bal 400
100
200
Bal 700
Accounts Receivable Fees Earned
Bal 200
300
100
300
200
Bal 400
58