Module 3
Analysis and Recording
of Transactions
Learning Objectives
Explain and describe the accounting cycle.
Define types of accounts.
Define and explain debits versus credits.
Practice using T-accounts to analyze transactions.
Define and practice double entry accounting.
Record (journalize) and post transactions.
Prepare a trial balance.
Run an SAP demonstration.
Practice entering transactions in SAP.
SAP 2007 / SAP University Alliances
Introductory Accounting
The Accounting Cycle
1 Analyze
transactions
2 Journalize
3
9 Prepare
post-closing
trial balance
8
Close
Post
7 Prepare
4 Prepare
statements
unadjusted
trial balance
5
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6 Prepare
Adjust
adjusted
trial balance
Introductory Accounting
The Accounting Equation
A detailed record of increases and decreases in a
specific asset, liability, or equity item.
Assets
=
Liabilities
+
Equity
Examples:
Cash
Accounts Payable
Owner, Capital
Accounts Receivable
Notes Payable
Owner, Withdrawals
Supplies
Unearned Revenues
Service Revenue
Furniture
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Rent Expense
Introductory Accounting
The General Ledger
A record containing all accounts
used by a business.
May be computerized or maintained
manually.
Each company has its own unique
set of accounts.
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Introductory Accounting
The T-Account
Represents an account in the ledger.
Learning tool.
The difference between the debit side and credit side is the balance.
Account Title
(Left side)/Debit
(Right side)/Credit
Debit balance
Credit balance
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Introductory Accounting
Calculating the Account Balance
Example:
Cash
Cash from sale
1000
650 Paid utilities
Ow ner's investment 2000
Total debits
1
3000
balance
3
1750
600 Paid rent
2
1250 Total credits
Steps:
1. Add the amounts on the debit side.
2. Add the amounts on the credit side.
3. Calculate the difference between the
debits and credits.
SAP 2007 / SAP University Alliances
Introductory Accounting
Double-Entry Accounting
Transactions are recorded using debits and credits.
Every transaction affects at least two accounts.
Equal debits and credits will keep the accounting equation in
balance.
Debits = Credits
Always!
SAP 2007 / SAP University Alliances
Introductory Accounting
Double-Entry Accounting
Assets
Assets
=
Liabilities
Liabilities
+
Equity
Owner’s Equity
Debit
Credit
Debit
Credit
Debit
Credit
+
-
-
+
-
+
SAP 2007 / SAP University Alliances
Introductory Accounting
Double-Entry Accounting
Equity Accounts
Capital
Withdrawals
Revenues
Expenses
Debit Credit
Debit Credit
Debit Credit
Debit Credit
-
+
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+
-
-
+
+
Introductory Accounting
-
Normal Balances
An account’s normal balance is the debit or
credit side where increases are recorded.
Assets
Assets
Debit for
increase
Normal
balance
Credit for
decrease
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= Liabilities
+
Owner's Capital
Liabilities
Debit for
decrease
Equity
Credit for
increase
Normal
balance
Debit for
decrease
Introductory Accounting
Credit for
increase
Normal
Balance
Chart of Accounts
A list of all accounts used in the
ledger by a company.
Unique for each company.
Accounts are usually numbered.
SAP 2007 / SAP University Alliances
Introductory Accounting
Analyzing Transactions
Steps:
1. Determine which accounts are being affected.
2. Determine if account balances are increasing
or decreasing.
3. Apply rules of debits and credits.
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Introductory Accounting
Analyzing Transactions
Example 1:
The owner invests $10,000 in the business.
1
Accounts
affected
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2
Increase/
Decrease
3
Debit/
Credit
Introductory Accounting
Analyzing Transactions
Example 1:
The owner invests $10,000 in the business.
1
Accounts
affected
2
Increase/
Decrease
3
Debit/
Credit
Cash
Owner, capital
SAP 2007 / SAP University Alliances
Introductory Accounting
Analyzing Transactions
Example #1:
The owner invests $10,000 in the business.
1
Accounts
affected
2
Increase/
Decrease
Cash
Increase
Owner, capital
Increase
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3
Debit/
Credit
Introductory Accounting
Analyzing Transactions
Example #1:
The owner invests $10,000 in the business.
Cash
Increase
Debit/
Credit
Debit
Owner, capital
Increase
Credit
1
Accounts
affected
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2
Increase/
Decrease
3
Introductory Accounting
Analyzing Transactions
Example 1:
The owner invests $10,000 in the business.
Debit cash for $10,000
Credit owner, capital for $10,000
Cash
10,000
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Owner, Capital
10,000
Introductory Accounting
Analyzing Transactions
Example 2:
The company purchases supplies by paying
$2,500 cash.
1
Accounts
affected
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2
Increase/
Decrease
3
Debit/
Credit
Introductory Accounting
Analyzing Transactions
Example 2:
The company purchases supplies by paying
$2,500 cash.
1
Accounts
affected
2
Increase/
Decrease
3
Debit/
Credit
Supplies
Cash
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Introductory Accounting
Analyzing Transactions
Example 2:
The company purchases supplies by paying
$2,500 cash.
1
Accounts
affected
2
Increase/
Decrease
Supplies
Increase
Cash
Decrease
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3
Debit/
Credit
Introductory Accounting
Analyzing Transactions
Example 2:
The company purchases supplies by paying
$2,500 cash.
Supplies
Increase
Debit/
Credit
Debit
Cash
Decrease
Credit
1
Accounts
affected
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2
Increase/
Decrease
3
Introductory Accounting
Analyzing Transactions
Example 2:
The company purchases supplies by paying $2,500
cash.
Debit supplies for $2,500
Credit cash for $2,500
Supplies
2,500
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Cash
2,500
Introductory Accounting
Analyzing Transactions
Example 3:
The company purchases supplies for $1,100 on
credit.
1
Accounts
affected
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2
Increase/
Decrease
3
Debit/
Credit
Introductory Accounting
Analyzing Transactions
Example 3:
The company purchases supplies for $1,100 on
credit.
1
Accounts
affected
2
Increase/
Decrease
3
Debit/
Credit
Supplies
Accounts
Payable
SAP 2007 / SAP University Alliances
Introductory Accounting
Analyzing Transactions
Example 3:
The company purchases supplies for $1,100 on
credit.
1
Accounts
affected
2
Increase/
Decrease
Supplies
Increase
Accounts
Payable
Increase
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3
Debit/
Credit
Introductory Accounting
Analyzing Transactions
Example 3:
The company purchases supplies for $1,100 on
credit.
Supplies
Increase
Debit/
Credit
Debit
Accounts
Payable
Increase
Credit
1
Accounts
affected
SAP 2007 / SAP University Alliances
2
Increase/
Decrease
3
Introductory Accounting
Analyzing Transactions
Example 3:
The company purchases supplies for $1,100 on credit.
Debit supplies for $1,100
Credit accounts payable for $1,100
Supplies
1,100
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Accounts Payable
1,100
Introductory Accounting
The General Journal
Entries are originally recorded in the General Journal.
This process is called journalizing.
GENERAL JOURNAL
Date
2005
Jan.
1
Jan.
Jan.
5
Account Titles and Explanation
Cash
John Sample, Capital
To record investment by owner
PR
Page 1
Debit
10 000
10 000
Supplies
Cash
Purchased supplies for cash
2 500
10 Supplies
Accounts Payable
Purchased supplies on credit
1 100
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Credit
2 500
1 100
Introductory Accounting
Posting Journal Entries
General Journal information is
transferred to the General Ledger.
Account balances are updated.
This process is called posting.
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Introductory Accounting
The Posting Process
GENERAL JOURNAL
Date
Jan.
Account Titles and Explanation
1
PR
Cash
John Sample, Capital
Investment by owner
101
301
General journal
information is
transferred to
the general
ledger
Page 1
Debit
10
Credit
000
10
000
3
1
2
5
GENERAL LEDGER
5
Cash
DATE
EXPLANATION
PR
Jan. 1
G1
ACCOUNT NO. 101
DEBIT
CREDIT
10 0 0 0
BALANCE
10 0 0 0
4
Steps:
1. Identify the account.
2. Enter dateJanDATE
.1
John Sample, Capital
EXPLANATION
PR
G1
ACCOUNT NO. 301
DEBIT
CREDIT
10 0 0 0
BALANCE
10 0 0 0
3. Enter amount
4. Calculate new account balance
5. Enter posting references
SAP 2007 / SAP University Alliances
Introductory Accounting
Trial Balance
A list of accounts and their balances
at a point in time.
Used to determine if total debits
equals total credits.
Also used to prepare financial
statements.
SAP 2007 / SAP University Alliances
Introductory Accounting
Trial Balance
Sample Company
Trial Balance
January 31, 2005
Cash
Accounts receivable
Prepaid insurance
Supplies
Equipment
Accounts payable
Unearned consulting revenue
Notes payable
John Sample, Capital
John Sample, Withdrawals
Consulting revenue
Rental revenue
Rent expense
Salaries expense
Utilities expense
Total
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$
Debits
8,070
2,400
3,600
6,000
Credits
$
200
3,000
6,000
10,000
600
3,800
300
$
1,000
1,400
230
23,300
$
23,300
Introductory Accounting