C2 - 1
Learning Objectives
1. Usefulness of an Account 2. Characteristics of an Account
3. Analyzing and Summarizing Transactions 4. Illustration of Analyzing and Summarizing
5. Trial Balance 6. Discovery and Correction of Errors
7. Financial Analysis and Interpretation
Analyzing Transactions Analyzing Transactions
Chapter 2
C2
C2 - 2
•
Double-Entry Accounting
•
Analyzing and Recording Transactions
•
Chart of Accounts, Trial Balance
•
Journal, Ledger, and Trial Balance
•
Recording and Posting an Entry
•
Correcting Errors
•
Horizontal Analysis Slide Power Note Topics
3 11
36 40
43 50
57
Power Notes
Analyzing Transactions Analyzing Transactions
Chapter 2
Note: To select a topic, type the slide and press Enter.
C2 - 3
Double-Entry Accounting Double-Entry Accounting
“ Double-entry accounting is based on a simple concept: each party in a business
transaction will receive something and give something in return. In bookkeeping terms,
what is received is a debit and what is given is a credit. The T account is a representation
of a scale or balance.”
Luca Pacioli Developer of
Double-Entry Accounting
Scale or Balance
Receive DEBIT
Give CREDIT
T account
Left Side
Receive DEBIT
Right Side
Give CREDIT
C2 - 4
Expanded Accounting Equation Expanded Accounting Equation
“ The basic accounting equation can be expanded diperluas to include mencakup all
five financial categories indicating what has been received and given.”
DEBITS
received
CREDITS
given
=
C2 - 5
Expanded Accounting Equation Expanded Accounting Equation
“ The basic accounting equation can be expanded to include all five financial categories
indicating what has been received and given.”
DEBITS
received
CREDITS
given
=
Assets
C2 - 6
Expanded Accounting Equation Expanded Accounting Equation
“ The basic accounting equation can be expanded to include all five financial categories
indicating what has been received and given.”
Assets
DEBITS
received
CREDITS
given
=
Expenses
C2 - 7
Expanded Accounting Equation Expanded Accounting Equation
“ The basic accounting equation can be expanded to include all five financial categories
indicating what has been received and given.”
Expenses Assets
DEBITS
received
CREDITS
given
=
Liabilities
C2 - 8
Expanded Accounting Equation Expanded Accounting Equation
“ The basic accounting equation can be expanded to include all five financial categories
indicating what has been received and given.”
Expenses Liabilities
Assets
DEBITS
received
CREDITS
given
=
Owner’s Equity
C2 - 9
Expanded Accounting Equation Expanded Accounting Equation
“ The basic accounting equation can be expanded to include all five financial categories
indicating what has been received and given.”
Expenses Liabilities
Owner’s Equity Assets
DEBITS
received
CREDITS
given
=
Revenues
C2 - 10
Expanded Accounting Equation Expanded Accounting Equation
“ The basic accounting equation can be expanded to include all five financial categories
indicating what has been received and given.”
Expenses Liabilities
Owner’s Equity Assets
DEBITS
received
CREDITS
given
=
Revenues Net
Income
C2 - 11
NetSolutions NetSolutions
A Sole Proprietorship A Sole Proprietorship
A Sole Proprietorship A Sole Proprietorship
“ On November 1, 2002, I started a sole proprietorship called NetSolutions. I plan to
use my knowledge of microcomputers and offer computer consulting services for a fee.
The following double-entry transactions show how amounts received debits always equal
amounts given credits.”
Chris Clark, Owner
C2 - 12
Chris Clark deposits 25,000
in a bank account for NetSolutions.
General Journal
receive Debit
give Credit
NetSolutions investee
Chris Clark investor
give Credit
Entry A.
Date Description
Debit Credit
111
C2 - 13
Chris Clark deposits 25,000
in a bank account for NetSolutions.
General Journal
receive Debit
give Credit
NetSolutions investee
Cash Chris Clark investor
give Credit
Entry A.
Date Description
Debit Credit
111 Cash
25,000
C2 - 14
Chris Clark deposits 25,000
in a bank account for NetSolutions.
General Journal
Date Description
Debit Credit
111 Cash
25,000 Chris Clark, Capital
25,000 receive
Debit give
Credit
NetSolutions investee
Cash A promise
to the owner Chris Clark investor
give Credit
Entry A.
C2 - 15
NetSolutions buys land for 20,000.
receive Debit
give Credit
NetSolutions buyer
Land Owner seller
give Credit
Entry B.
General Journal
Date Description
Debit Credit
115
C2 - 16
NetSolutions buys land for 20,000.
receive Debit
give Credit
NetSolutions buyer
Land Land Owner seller
give Credit
Entry B.
General Journal
Date Description
Debit Credit
115 Land
20,000
C2 - 17
NetSolutions buys land for 20,000.
receive Debit
give Credit
NetSolutions buyer
Land Cash
Land Owner seller
give Credit
Entry B.
General Journal
Date Description
Debit Credit
115 Land
20,000 Cash
20,000
C2 - 18
NetSolutions buys supplies for
1,350, agreeing to pay in the near
future.
receive Debit
give Credit
NetSolutions buyer
Supplier seller
give Credit
Entry C.
General Journal
Date Description
Debit Credit
1110
C2 - 19
NetSolutions buys supplies for
1,350, agreeing to pay in the near
future.
receive Debit
give Credit
NetSolutions buyer
Supplies Supplier seller
give Credit
Entry C.
General Journal
Date Description
Debit Credit
1110 Supplies 1,350
C2 - 20
NetSolutions buys supplies for
1,350, agreeing to pay in the near
future.
receive Debit
give Credit
NetSolutions buyer
Supplies Supplier seller
give Credit
Entry C.
A promise to pay later
General Journal
Date Description
Debit Credit
1110 Supplies 1,350
Accounts Payable 1,350
C2 - 21
NetSolutions earns fees of
7,500, receiving cash.
receive Debit
give Credit
NetSolutions seller
Customer buyer
give Credit
Entry D.
General Journal
Date Description
Debit Credit
1118
C2 - 22
NetSolutions earns fees of
7,500, receiving cash.
Business Transactions Business Transactions
receive Debit
give Credit
NetSolutions seller
Cash Customer buyer
give Credit
Entry D.
General Journal
Date Description
Debit Credit
1118 Cash 7,500
C2 - 23
NetSolutions earns fees of
7,500, receiving cash.
Business Transactions Business Transactions
receive Debit
give Credit
NetSolutions seller
Cash Customer buyer
give Credit
Entry D.
Services
General Journal
Date Description
Debit Credit
1118 Cash 7,500
Fees Earned 7,500
C2 - 24
Date Description
Debit Credit
NetSolutions paid: wages, 2,125; rent,
800; utilities, 450; and miscellaneous,
275.
Business Transactions Business Transactions
General Journal
receive Debit
give Credit
NetSolutions buyer
Various suppliers
give Credit
Entry E.
C2 - 25
Date Description
Debit Credit
1118 Wages Expense 2,125
Rent Expense 800
Utilities Expense 450
Misc. Expense 275
NetSolutions paid: wages, 2,125; rent,
800; utilities, 450; and miscellaneous,
275.
Business Transactions Business Transactions
General Journal
receive Debit
give Credit
NetSolutions buyer
Services, benefits
Various suppliers
give Credit
Entry E.
C2 - 26
Date Description
Debit Credit
1118 Wages Expense 2,125
Rent Expense 800
Utilities Expense 450
Misc. Expense 275
Cash 3,650
NetSolutions paid: wages, 2,125; rent,
800; utilities, 450; and miscellaneous,
275.
Business Transactions Business Transactions
General Journal
receive Debit
give Credit
NetSolutions buyer
Services, benefits
Various suppliers
give Credit
Entry E.
Cash
C2 - 27
NetSolutions pays 950 to creditors
on account.
Business Transactions Business Transactions
receive Debit
give Credit
NetSolutions payor
Supplier payee
give Credit
Entry F.
General Journal
Date Description
Debit Credit
1130
C2 - 28
NetSolutions pays 950 to creditors
on account.
Business Transactions Business Transactions
receive Debit
give Credit
NetSolutions payor
Reduction in obligation
Supplier payee
give Credit
Entry F.
General Journal
Date Description
Debit Credit
1130 Accounts Payable 950
C2 - 29
NetSolutions pays 950 to creditors
on account.
Business Transactions Business Transactions
receive Debit
give Credit
NetSolutions payor
Reduction in obligation
Supplier payee
give Credit
Entry F.
Cash
General Journal
Date Description
Debit Credit
1130 Accounts Payable 950
Cash 950
C2 - 30
At the end of the month, the cost of
supplies on hand is 550.
Business Transactions Business Transactions
receive Debit
give Credit
NetSolutions user
Internal Transaction no external entity
give Credit
Entry G.
General Journal
Date Description
Debit Credit
1130
C2 - 31
At the end of the month, the cost of
supplies on hand is 550.
Business Transactions Business Transactions
receive Debit
give Credit
NetSolutions user
Use of supplies
Internal Transaction no external entity
give Credit
Entry G.
General Journal
Balance of Supplies account 1,350 less 550 on hand = 800 used
Date Description
Debit Credit
1130 Supplies Expense 800
C2 - 32
At the end of the month, the cost of
supplies on hand is 550.
Business Transactions Business Transactions
receive Debit
give Credit
NetSolutions user
Use of supplies
Internal Transaction no external entity
give Credit
Entry G.
Supplies
General Journal
Date Description
Debit Credit
1130 Supplies Expense 800
Supplies 800
Balance of Supplies account 1,350 less 550 on hand = 800 used
C2 - 33
Chris Clark withdraws 2,000
in cash.
Business Transactions Business Transactions
receive Debit
give Credit
NetSolutions payor
Chris Clark payee
give Credit
Entry H.
General Journal
Date Description
Debit Credit
1130
C2 - 34
Chris Clark withdraws 2,000
in cash.
Business Transactions Business Transactions
receive Debit
give Credit
NetSolutions payor
Reduction in obligation
Chris Clark payee
give Credit
Entry H.
General Journal
Date Description
Debit Credit
1130 Chris Clark, Drawing 2,000
C2 - 35
Chris Clark withdraws 2,000
in cash.
Business Transactions Business Transactions
receive Debit
give Credit
NetSolutions payor
Reduction in obligation
Chris Clark payee
give Credit
Entry H.
Cash
General Journal
Date Description
Debit Credit
1130 Chris Clark, Drawing 2,000
Cash 2,000
C2 - 36 NetSolutions
Chart of Accounts
Balance Sheet Income Statement
1. Assets