Acct 310 Accounting Review
Part I
Rick Hayes, Ph.D., CPA
California State University L.A.
Accounting Analysis...
Analyze the effect of business
transactions on the basic
accounting equation:
Assets = Liabilities + Stockholders’ Equity
Must always balance.
2
Transaction Analysis
• Two or more items can be affected
• Example: purchase computer for
$10,000 by paying $6,000 in cash and
signing a note for $4,000
3
Event 1 – Investment of Cash
by Stockholders
Oct. 1 - Owner invested $10,000 Cash in
business in exchange for $10,000 of
Sierra Corporation Common Stock
4
Event 2 – Note Issued in Exchange
for Cash
Oct. 1 – Sierra issued a 3-month, 12%,
$5,000 Note Payable to Castle Bank in
exchange for cash.
5
Event 3 – Purchase of Office
Equipment for Cash
Oct. 2 – Sierra acquired office equipment by
paying $5,000 cash to Superior Sales Co.
6
Event 4 – Receipt of Cash in Advance
from Customer
Oct. 2 – Sierra received a $1,200
cash advance from R. Knox, a client.
7
Event 5 – Services Rendered for Cash
Oct. 3 – Sierra received $10,000 in cash
from Copa Co. for advertising services
performed
8
Event 5 – Services Rendered, WHAT IF
these were performed “on account”?
Later, when $10,000 is collected from customer…
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10
Examples
11
Total the Entries to Each Side
TITLE
Debit
Credit
Total Debits Total Credits
If the greater sum is on the left,
the account has a Debit Balance
12
Total the Entries to Each Side
TITLE
Debit
Credit
Total Debits Total Credits
If the greater sum is on the right,
the account has a Credit Balance
13
Summary of Transactions
Assets =
Liabilities + Equity
14
Normal Balances
for Assets and Liabilities
15
Normal Balances
for Stockholders’ Equity
16
Normal Balances
for Expenses and Revenues
17
Expansion of Basic Equation
18
Review
What is the normal balance for the
following accounts?
Cash
Debit
Credit
Accounts Payable
Accounts Receivable
Debit
Service Revenue
Credit
Common Stock
Credit
Salaries Expense
Debit
19
Review
What is the normal balance for the
following accounts?
Dividends
Debit
Debit
Building
Taxes Payable
Credit
Unearned Revenus
Credit
Prepaid Insurance
Debit
Rent Expense
Debit
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GENERAL JOURNAL
Date
Account Titles and Explanations
2007
Oct. 1 Cash
Common Stock
(Invested cash in business)
1 Cash
Notes Payable
(Issued 3-month, 12% note payable for cash)
2 Office Equipment
Cash
(Purchased office equipment for cash)
Debit Credit
10,000
10,000
5,000
5,000
5,000
5,000
The General Ledger
22
The General Ledger
23
Posting Entries
GENERAL JOURNAL
Account Titles and Explanations
2007
Oct. 1 Cash
Common Stock
10,000
10,000
Account CASH
Date
ref
debit
Account COMMON STOCK
Date
ref
debit
credit
Acct 1010
Balance
debit
credit
credit
Acct 3010
Balance
debit
credit
Posting Entries
GENERAL JOURNAL
Account Titles and Explanations
2007
Oct. 1 Cash
Common Stock
10,000
10,000
Account CASH
Date
Oct 1
ref
gj 1
debit credit
10,000
Account COMMON STOCK
Date
ref
debit
Oct 1
gj 1
Acct 1010
Balance
debit
credit
10,000
Acct 3010
Balance
credit debit
credit
10,000
10,000
Posting Entries
GENERAL JOURNAL
Account Titles and Explanations
2007
Oct. 1 Cash
Common Stock
10,000
10,000
Account CASH
Date
Oct 1
ref
gj 1
debit credit
10,000
Account COMMON STOCK
Date
ref
debit
Oct 1
gj 1
Acct 1010
Balance
debit
credit
10,000
Acct 3010
Balance
credit debit
credit
10,000
10,000
11
8
Trial Balance
A list of all the accounts and their balances
at a given time.
It serves to prove the
mathematical equality of
debits and credits after
posting.
It aids in the preparation of
financial statements.
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Sierra Corporation
Trial Balance
October 31, 2007
Cash
Advertising Supplies
Prepaid Insurance
Office Equipment
Notes Payable
Accounts Payable
Unearned Service Revenue
Common Stock
Dividends
Service Revenue
Salaries Expense
Rent Expense
Debit
Credit
$15,200
2,500
600
5,000
$ 5,000
2,500
1,200
10,000
500
10,000
4,000
900
$28,700 $28,700