
Accounting cycle .

Transaction .

Analyzing Transactions for Balance sheet.

Analyzing Transactions for income statement.

Transactions
(economic activities
& business condion)
Journal
(record transactions in the journal)
Ledger
(Posting transactons to ledger)
Unadjusted trail balance
(Prepar unadjusted trail balanc)
Financial Statement
(Prepar 4 financial statement)
Adjustment
(journalizing & posting adjusting entries)
Closing Entries
(journalizing & posting closing entries)
Adjusted Trail
Balance
(Prepar adjusted trail balanc)


A transaction is a business activity that affects the basic accounting equation.
Example :
1Sale a land.
2- Buy a car.
3 - Borrow a loan .

2-6

2-7
=
+
Resources owned by the business
The rights of creditors
The rights of the owners

2-8

2-9
1 Analyze 2 Record 3 Summarize
A transaction is a business activity that affects the basic accounting equation.
Duality of Effects
Every transaction has at least two effects on the basic accounting equation.
A = L+ SE
Assets must equal liabilities plus stockholders ’ equity for every accounting transaction.

(a) Issue Stock to Owners.
Mauricio Rosa incorporates Pizza Aroma Inc., on August 1. The company issues stock to Mauricio and his wife as evidence of their contribution of $50,000 cash, which is deposited in the company ’s bank account.
1.
Pizza Aroma receives $50,000 Cash.
2.
Pizza Aroma gives $50,000 Stock (Contributed Capital ).
Assets
(a) Cash +$50,000
= Liabilities + Stockholders' Equity
Contributed
Capital + $50,000
2-10

(b) Investment in Equipment.
Pizza Aroma pays $42,000 cash to buy restaurant booths and other equipment.
1.
Pizza Aroma receives $42,000 of Equipment.
2.
Pizza Aroma gives $42,000 Cash .
Assets
(b) Equipment +$42,000
Cash -$42,000
= Liabilities + Stockholders' Equity
2-11

(c) Obtain Loan from Bank.
Pizza Aroma borrows $20,000 from a bank depositing those funds in its bank account and signing a formal agreement to repay the loan in two years.
2-12
1.
Pizza Aroma receives $20,000 Cash.
2.
Pizza Aroma gives a note, payable to the bank for $20,000 .
Assets = Liabilities
(c) Cash +$20,000 = Note Payable +$20,000
+ Stockholders' Equity

(d) Investment in Equipment.
Pizza Aroma purchases $18,000 in pizza ovens and other restaurant equipment, paying $16,000 in cash and giving an informal promise to pay
$2,000 at the end of the month.
1.
Pizza Aroma receives $18,000 in equipment (pizza ovens).
2.
Pizza Aroma gives a Cash of $16,000 and Accounts
Payable of $2,000 .
Assets = Liabilities
(d) Cash -$16,000
Equipment +$18,000
= Accounts Payable +$2,000
+ Stockholders' Equity
2-13

2-14
(e) Order Cookware.
Pizza Aroma orders $630 of pans, dishes, and other cookware.
None have been received yet.
1.
An exchange of only promises is not a transaction.
2. This does not affect the accounting equation.
Assets
No Impact
=
=
Liabilities
No Impact
+ Stockholders' Equity
No Impact

(f) Pay Suppliers.
Pizza Aroma pays $2,000 to the equipment supplier from transaction (d).
1.
Pizza Aroma gives cash to settle its debt to the supplier.
2. Pizza Aroma receives a release from its promise to pay.
Assets
(f) Cash -$2,000
= Liabilities
= Accounts Payable -$2,000
+ Stockholders' Equity
2-15

(g) Receive Cookware.
Pizza Aroma receives $630 of the cookware ordered in (e) and promises to pay for it next month.
1.
Pizza Aroma receives cookware with a cost of $630.
2 . Pizza Aroma gave a promise to pay $630 on account.
Assets = Liabilities
(g) Cookware +$630 = Accounts Payable +$630
+ Stockholders' Equity
2-16

2-17
Most companies use computerized accounting systems, which can handle a large number of transactions. These systems follow a cycle, called the accounting cycle, which is repeated day-after-day, month-after-month, and year-after-year.

2-19
M2-13 Identifying Transactions and Preparing
Journal Entries
1- Borrowed $25,000 from the bank with a plan to use the funds to build a small workshop in August.
The loan must be report in two years.
1- dr Cash (+A) cr Notes Payable (+L)
25,000
25,000

2-20
M2-14 Identifying Transactions and Preparing
Journal Entries
2- The company purchased bookshelves for
$2,000 cash. The bookshelves are expected to be used for ten or more years.
2- dr Equipment (+A) cr Cash (-A)
2,000
2,000

2-21
M2-14 Identifying Transactions and Preparing
Journal Entries
3- The company paid $1,500 cash, for books purchased on account earlier in the month.
3dr Accounts Payable (-L) cr Cash (-A)
1,500
1,500

2-22
M2-15 Identifying Transactions and Preparing
Journal Entries
4- Repaid a $5,000 bank loan. (Ignore interest).
5- The company purchased an air hockey table for $2,200, paying $1,000 cash and signing short-term note for $1,200.
4dr Notes Payable (-L) cr Cash (-A)
5dr Equipment (+A) cr Cash (-A) cr Notes Payable (+L)
5,000
5,000
2,200
1,000
1,200

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3-25

3-26
(a) Provided services for cash.
In September, Pizza Aroma delivered pizza to customers for $15,000 cash.
1 Analyze
Assets
(a) Cash +$15,000
= Liabilities + Stockholders' Equity
Pizza
Revenue (+R) + $15,000
2 Record
(a) dr Cash (+A)
cr Pizza Revenue (+R, +SE)
15,000
15,000

3-27
(b) Receive cash for future services.
Pizza Aroma sold three $100 gift cards at the beginning of September.
1 Analyze
Assets
(b) Cash +$300
= Liabilities
Unearned
Revenue +$300
+ Stockholders' Equity
2 Record
(b) dr Cash (+A)
cr Unearned Revenue (+L)
300
300

3-28
(c) Provide services on credit.
Pizza Aroma delivers $500 of pizza to a college organization, billing this customer on account.
1 Analyze
Assets
(c) Accounts
Receivable +$500
= Liabilities + Stockholders' Equity
Pizza
Revenue (+R) +$500
2 Record
(c) dr Accounts Receivable (+A)
cr Pizza Revenue (+R, +SE)
500
500

3-29
(d) Receive payment on account.
Pizza Aroma received a $300 check from the college organization, as partial payment of its account balance.
1 Analyze
Assets
(d) Cash +$300
Accounts
Receivable -$300
= Liabilities + Stockholders' Equity
2 Record
(d) dr Cash (+A)
cr Accounts Receivable (-A)
300
300

3-30
(e) Pay cash to employees.
Pizza Aroma wrote checks to employees, totaling $8,100 for wages related to hours worked in September.
1 Analyze
Assets
(e) Cash -$8,100
= Liabilities + Stockholders' Equity
Wages
Expense (+E) -$8,100
2 Record
(e) dr Wages Expense (+E, -SE)
cr Cash (-A)
8,100
8,100

3-31
(f) Pay cash in advance.
On September 1, Pizza Aroma paid $7,200 in advance for September, October, and November rent.
1 Analyze
Assets
(f) Cash -$7,200
Prepaid
Rent +$7,200
= Liabilities + Stockholders' Equity
2 Record
(f) dr Prepaid Rent (+A)
cr Cash (-A)
7,200
7,200

3-32
(g) Pay cash in advance.
On September 2, Pizza Aroma wrote a check for $1,600 for pizza sauce, dough, cheese, and paper products.
1 Analyze
Assets
(g) Cash -$1,600
Supplies +$1,600
= Liabilities + Stockholders' Equity
2 Record
(g) dr Supplies (+A)
cr Cash (-A)
1,600
1,600

3-33
(h) Incur cost to be paid later.
Pizza Aroma received a bill for $400 for running a newspaper ad in September. The bill will be paid in October.
1 Analyze
Assets
(h)
= Liabilities
Accounts
Payable +$400
+ Stockholders' Equity
Advertising
Expense (+E) -$400
2 Record
(h) dr Advertising Expense (+E, -SE)
cr Accounts Payable (+L)
400
400

3-34
(i) Pay cash for expenses.
Pizza Aroma received and paid bills totaling $600 for September utilities services.
1 Analyze
Assets
(i) Cash -$600
= Liabilities + Stockholders' Equity
Utilities
Expense (+E) -$600
2 Record
(i) dr Utilities Expense (+E, -SE)
cr Cash (-A)
600
600

3-36
M3-13 Preparing Journal Entries for Business Activities c. Paid wages for the current month, totaling $2,000.
d. Performed cleaning services on account worth $2,800.
e. Some of Quick Cleaners’ equipment was repaired at a total cost of $150. The company paid the full amount immediately.
c. dr Wages Expense (+E -SE) 2,000 cr Cash (-A) 2,000 d. dr Accounts Receivable (+A) 2,800 cr Services/Cleaning Revenue (+R +SE) 2,800 e. dr Repairs and Maintenance Expense (+E -SE) 150 cr Cash (-A) 150

3-37
M3-14 Preparing Journal Entries for Business Activities
Junktrader is an online company that specializes in matching buyers and sellers of used items. Buyers and sellers can purchase a membership with Junktrader, which provides them advance notice of potentially attractive offers. Prepare journal entries for the following transactions, which occurred during a recent month.
a. Junktrader provided online advertising services for another company for $200 on account.
b. On the last day of the month, Junktrader paid $50 cash to run an ad promoting the company’s services. The ad ran that day in the local newspaper.
a. dr Accounts Receivable (+A) 200 cr Advertising Revenue (+R +SE) 200 b. dr Advertising Expense (+E -SE) 50 cr Cash (-A) 50

3-38
M3-14 Preparing Journal Entries for Business Activities c. Received $200 cash in membership fees for the month from new members.
d. Received an electricity bill for $85, for usage this month.
The bill will be paid next month.
e. Billed a customer $180 for helping them sell their junk.
The customer is expected to pay by the end of next month.
c. dr Cash (+A) 200 cr Membership Revenue (+R +SE) 200 d. dr Electricity Expense (+E -SE) 85 cr Accounts Payable (+L) 85 e. dr Accounts Receivable (+A) 180 cr Services Revenue (+R +SE) 180