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1
Analyzing and
Recording
Transactions
More of
CHAPTER 2
2
Learning Objectives
1.
2.
3.
4.
Explain the accounting cycle. (LO1)
Describe an account, its use, and its
relationship to the ledger. (LO2)
Define debits and credits and explain
their role in double-entry accounting.
(LO3)
Describe a chart of accounts and its
relationship to the ledger. (LO4)
3-3
Learning Objectives
5.
6.
7.
Analyze the impact of transactions on
accounts. (LO5)
Record transactions in a journal and
post entries to a ledger. (LO6)
Prepare and explain the use of a trial
balance. (LO7)
3-4
The normal balance of an
account refers to the debit or
credit side where increases
are recorded.
A) True
B) False
5
Analyzing Transactions
Example #1:
The owner, V. Klimb, invests $10,000 in the
business.
1
Accounts
affected
2
Increase/
Decrease
3
Debit/
Credit
Cash
Increase
Debit
V.Klimb,
capital
Increase
Credit
LO 5
3-6
Analyzing Transactions
Example #1:
The owner invests $10,000 in the business.


Debit Cash for $10,000
Credit V.Klimb, Capital for $10,000
Cash
10,000
LO 5
V.Klimb, Capital
10,000
3-7
The General Journal
Entries are originally recorded in the
General Journal. This process is
called “journalizing”.
GENERAL JOURNAL
Date
2014
Jan.
1
LO 6
Account Titles and Explanation
Cash
V.Klimb, Capital
Investment by owner
PR
Page 1
Debit
Credit
10 000
10 000
3-8
Elements of a Journal Entry
GENERAL JOURNAL
Date
2014
Jan.
1
1
1.
2.
3.
4.
Account Titles and Explanation
Cash
V.Klimb, Capital
Investment by owner
2
PR
Page 1
Debit
10 000
3
Credit
10 000
4
Date of transaction/event
Name of accounts affected
Amount of each change
A brief description
Note “debits” are listed first
9
Analyzing Transactions
Example #2:
The company purchases supplies by paying
$2,500 cash.
1
LO 5
Accounts
affected
2
Increase/
Decrease
3
Debit/
Credit
3-10
Analyzing Transactions
Example #2:
The company purchases supplies by paying
$2,500 cash.
Supplies
Increase
Debit/
Credit
Debit
Cash
Decrease
Credit
1
LO 5
Accounts
affected
2
Increase/
Decrease
3
3-11
Analyzing Transactions
Example #2:
The company purchases supplies by paying
$2,500 cash.
Supplies
Cash
2,500
2,500
GENERAL JOURNAL
Date
2014
Jan.
LO 5
Account Titles and Explanation
1
Supplies
Cash
Purchased store supplies for cash
PR
Page 1
Debit
Credit
2 500
2 500
3-12
Focussed Workout
QS 2-9
Ex 2-6 (pt 1)
14
The Ledger
•
A record (or list) containing all
accounts used by a business.
•
May be computerized or
maintained manually.
•
Each company has its own
unique set of accounts.
LO 2
3-15
18
Ledger Account
GENERAL LEDGER
ACCOUNT NAME
DATE
EXPLANATION
ACCOUNT NO. 101
PR
DEBIT
CREDIT
BALANCE
The “T” has not really gone away
19
Posting Journal Entries
•
•
•
General Journal information is
transferred to the General Ledger.
Account balances are updated.
This process is called “posting”.
LO 6
3-20
Posting
GENERAL JOURNAL
2
Date
Jan.
Account Titles and Explanation
1
1
Cash
Virgil Klimb, Capital
Investment by owner
Page 1
PR
101
301
Debit
10
3
000
5
General journal
information is
transferred
(posted) to the
general ledger
Credit
10
000
5
GENERAL LEDGER
Cash
DATE
EXPLANATION
ACCOUNT NO. 101
PR
Jan. 1
G1
DEBIT
CREDIT
10 0 0 0
BALANCE
10 0 0 0
4
Steps:
1. Identify the accounts.
Virgil Klimb, Capital
2. Enter date
DATE
EXPLANATION
Jan . 1
3. Enter amount
PR
G1
ACCOUNT NO. 301
DEBIT
CREDIT
10 0 0 0
BALANCE
10 0 0 0
4. Calculate new account balance
5. Enter posting references (where to/from)
LO 621
Test Run
QS 2-10, 2-11
Ex 2-6 (pt 2)
23
The Accounting Cycle
Ch 4
9 Prepare
post-closing
trial balance
1 Analyze
transactions
2
Ch 4
8
Journalize
Ch 2
Post
Ch 2
Close
3
Ch 1-4
Ch 3
LO 1
Ch 1-2
7 Prepare
statements
6 Prepare
adjusted
trial balance
4 Prepare
unadjusted
trial balance
5
Adjust
Ch 2
Ch 3
3-24
Trial Balance
•
•
•
A list of accounts and their
balances at a point in time.
Used to determine if total debits
equals total credits.
May also be used to prepare
financial statements.
LO 7
3-25
Just One Account from
the General Ledger (GL)
26
Ledger for Vertically Inclined - March 31, 2014
27
28
Practice!
EX 2-12,13
QS 2-12
29
What if it Doesn’t Balance?
Add debit column and credit column,
again
 Check for the difference

 Divisible
by 9?
Amounts copied correctly
 Amounts in the right columns
 Recheck posting
 Recheck original journal entries

30
Income Statement
2,400
31
Statement of Changes
in Equity
2,400
11,800
32
Balance Sheet
11,800
33
Comprehensive Practice
Solution
available on
D2L
34
Review
•
•
•
•
What is journalizing?
What is posting?
What is the purpose of
a trial balance?
What goes on each
statement?
3-36
Chapter 2 – Major Hurdle
How are you doing?
3-37