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
Power Notes
Analyzing Transactions
Chapter F2
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
Chapter F2
Note,To select a topic,type the slide # and press Enter.
C2 - 3
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
― The basic accounting equation can be
expanded to include all five financial categories
indicating what has been received and given.‖
DEBITS
received
CREDITS
given=
C2 - 5
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
― 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
― 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
― 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
― 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
― 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
― On November 1,2002,I started a business
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
Business Transactions
General Journal
receive
Debit
give
Credit
NetSolutions
(investee)
Chris Clark (investor)
give
redit
Entry A.
Date Description Debit Credit
11/1
Chris Clark deposits
$25,000 in a bank
account for
NetSolutions in
exchange for capital
stock.
C2 - 13
Chris Clark deposits
$25,000 in a bank
account for
NetSolutions in
exchange for capital
stock.
Business Transactions
General Journal
receive
Debit
give
Credit
NetSolutions
(investee)
Cash
Chris Clark (investor)
give
redit
Entry A.
Date Description Debit Credit
11/1 Cash 25,000
C2 - 14
Business Transactions
General Journal
Date Description Debit Credit
11/1 Cash 25,000
Capital Stock 25,000
receive
Debit
give
Credit
NetSolutions
(investee)
Cash Capital
Stock
Chris Clark (investor)
give
redit
Entry A.
Chris Clark deposits
$25,000 in a bank
account for
NetSolutions in
exchange for capital
stock.
C2 - 15
NetSolutions buys
land for $20,000.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(buyer)
Land Owner (seller)
give
redit
Entry B.
General Journal
Date Description Debit Credit
11/5
C2 - 16
NetSolutions buys
land for $20,000.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(buyer)
Land
Land Owner (seller)
give
redit
Entry B.
General Journal
Date Description Debit Credit
11/5 Land 20,000
C2 - 17
NetSolutions buys
land for $20,000.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(buyer)
Land Cash
Land Owner (seller)
give
redit
Entry B.
General Journal
Date Description Debit Credit
11/5 Land 20,000
Cash 20,000
C2 - 18
NetSolutions buys
supplies for
$1,350,agreeing to
pay in the near
future.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(buyer)
Supplier (seller)
give
redit
Entry C.
General Journal
Date Description Debit Credit
11/10
C2 - 19
NetSolutions buys
supplies for
$1,350,agreeing to
pay in the near
future.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(buyer)
Supplies
Supplier (seller)
give
redit
Entry C.
General Journal
Date Description Debit Credit
11/10 Supplies 1,350
C2 - 20
NetSolutions buys
supplies for
$1,350,agreeing to
pay in the near
future.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(buyer)
Supplies
Supplier (seller)
give
redit
Entry C.
A promise
to pay later
General Journal
Date Description Debit Credit
11/10 Supplies 1,350
Accounts Payable 1,350
C2 - 21
NetSolutions
earns fees of
$7,500,receiving
cash.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(seller)
Customer (buyer)
give
redit
Entry D.
General Journal
Date Description Debit Credit
11/18
C2 - 22
NetSolutions
earns fees of
$7,500,receiving
cash.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(seller)
Cash
Customer (buyer)
give
redit
Entry D.
General Journal
Date Description Debit Credit
11/18 Cash 7,500
C2 - 23
NetSolutions
earns fees of
$7,500,receiving
cash.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(seller)
Cash
Customer (buyer)
give
redit
Entry D.
Services
General Journal
Date Description Debit Credit
11/18 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
General Journal
receive
Debit
give
Credit
NetSolutions
(buyer)
Various suppliers
give
redit
Entry E.
C2 - 25
Date Description Debit Credit
11/18 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
General Journal
receive
Debit
give
Credit
NetSolutions
(buyer)
Services,
benefits
Various suppliers
give
redit
Entry E.
C2 - 26
Date Description Debit Credit
11/18 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
General Journal
receive
Debit
give
Credit
NetSolutions
(buyer)
Services,
benefits
Various suppliers
give
redit
Entry E.
Cash
C2 - 27
NetSolutions pays
$950 to creditors
on account.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(payor)
Supplier (payee)
give
redit
Entry F.
General Journal
Date Description Debit Credit
11/30
C2 - 28
NetSolutions pays
$950 to creditors
on account.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(payor)
Reduction in
obligation
Supplier (payee)
give
redit
Entry F.
General Journal
Date Description Debit Credit
11/30 Accounts Payable 950
C2 - 29
NetSolutions pays
$950 to creditors
on account.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(payor)
Reduction in
obligation
Supplier (payee)
give
redit
Entry F.
Cash
General Journal
Date Description Debit Credit
11/30 Accounts Payable 950
Cash 950
C2 - 30
At the end of the
month,the cost of
supplies on hand
is $550.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(user)
Internal Transaction
(no external entity)
give
redit
Entry G.
General Journal
Date Description Debit Credit
11/30
C2 - 31
At the end of the
month,the cost of
supplies on hand
is $550.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(user)
Use of
supplies
Internal Transaction
(no external entity)
give
redit
Entry G.
General Journal
Balance of Supplies account $1,350 less $550 on hand = $800 used
Date Description Debit Credit
11/30 Supplies Expense 800
C2 - 32
At the end of the
month,the cost of
supplies on hand
is $550.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(user)
Use of
supplies
Internal Transaction
(no external entity)
give
redit
Entry G.
Supplies
General Journal
Date Description Debit Credit
11/30 Supplies Expense 800
Supplies 800
Balance of Supplies account $1,350 less $550 on hand = $800 used
C2 - 33
NetSolutions paid
dividends of
$2,000,
Business Transactions
receive
Debit
give
Credit
NetSolutions
(payor)
Chris Clark (stockholder)
give
redit
Entry H.
General Journal
Date Description Debit Credit
11/30
C2 - 34
Business Transactions
receive
Debit
give
Credit
NetSolutions
(payor)
Reduction in
equity
Chris Clark (stockholder)
give
redit
Entry H.
General Journal
Date Description Debit Credit
11/30 Dividends 2,000
NetSolutions paid
dividends of
$2,000,
C2 - 35
Business Transactions
receive
Debit
give
Credit
NetSolutions
(payor)
Reduction in
obligation
Chris Clark (stockholder)
give
redit
Entry H.
Cash
General Journal
Date Description Debit Credit
11/30 Dividends 2,000
Cash 2,000
NetSolutions paid
dividends of
$2,000,
C2 - 36
NetSolutions
Chart of Accounts
Balance Sheet Income Statement
1,Assets
11 Cash
12 Accounts Receivable
14 Supplies
15 Prepaid Insurance
17 Land
18 Office Equipment
2,Liabilities
21 Accounts Payable
23 Unearned Rent
3,Owner’s Equity
31 Capital Stock
32 Retained Earnings
33 Dividends
4,Revenue
41 Fees Earned
5,Expenses
51 Wages Expense
52 Rent Expense
54 Utilities Expense
55 Supplies Expense
59 Miscellaneous
Expense
C2 - 37
NetSolutions
Trial Balance
November 30,2002
11 Cash 5,900
14 Supplies 550
17 Land 20,000
21 Accounts Payable 400
31 Capital Stock 25,000
33 Dividends 2,000
41 Fees Earned 7,500
51 Wages Expense 2,125
52 Rent Expense 800
54 Utilities Expense 450
55 Supplies Expense 800
59 Miscellaneous Expense 275
32,900 32,900
C2 - 38
NetSolutions
Trial Balance
November 30,2002
11 Cash 5,900
14 Supplies 550
17 Land 20,000
21 Accounts Payable 400
31 Capital Stock 25,000
33 Dividends 2,000
41 Fees Earned 7,500
51 Wages Expense 2,125
52 Rent Expense 800
54 Utilities Expense 450
55 Supplies Expense 800
59 Miscellaneous Expense 275
32,900 32,900
Balance
Sheet
C2 - 39
Income
Statement
NetSolutions
Trial Balance
November 30,2002
11 Cash 5,900
14 Supplies 550
17 Land 20,000
21 Accounts Payable 400
31 Capital Stock 25,000
33 Dividends 2,000
41 Fees Earned 7,500
51 Wages Expense 2,125
52 Rent Expense 800
54 Utilities Expense 450
55 Supplies Expense 800
59 Miscellaneous Expense 275
32,900 32,900
C2 - 40
1,Transactions are analyzed
and recorded in journal.
Documents
Journal
Journal,Ledger,Trial Balance
C2 - 41
1,Transactions are analyzed
and recorded in journal.
Documents
Journal
2,Transactions are posted
from journal to ledger.
Journal Ledger
Journal,Ledger,Trial Balance
C2 - 42
1,Transactions are analyzed
and recorded in journal.
Documents
Journal
2,Transactions are posted
from journal to ledger.
Journal Ledger
3,Trial balance is prepared.
Journal,Ledger,Trial Balance
Trial Balance
C2 - 43
Post.
Date Description Ref,Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400
General Journal Page 1
Recording and Posting an Entry
1,Analyze and record the transaction as shown.
2,Post the debit side of the transaction.
3,Post the credit side of the transaction.
C2 - 44
Post.
Date Description Ref,Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400
Post,Balance
Date Item Ref,Debit Credit Debit Credit
12/1
Account,Prepaid Insurance Account No,15
General Journal
General Ledger
Page 1
Recording and Posting an Entry
1
1 Enter the transaction date in the ledger account.
C2 - 45
Post.
Date Description Ref,Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400
Post,Balance
Date Item Ref,Debit Credit Debit Credit
12/1 1 2,400
Account,Prepaid Insurance Account No,15
General Journal
General Ledger
Page 1
Recording and Posting an Entry
2
2 Enter the debit amount in the ledger debit column.
C2 - 46
Post.
Date Description Ref,Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400
Post,Balance
Date Item Ref,Debit Credit Debit Credit
12/1 1 2,400 2,400
Account,Prepaid Insurance Account No,15
General Journal
General Ledger
Page 1
Recording and Posting an Entry
3
3 Update the ledger account balance.
C2 - 47
Post.
Date Description Ref,Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400
Post,Balance
Date Item Ref,Debit Credit Debit Credit
12/1 1
Account,Prepaid Insurance Account No,15
General Journal
General Ledger
Page 1
Recording and Posting an Entry
4
4 Enter the journal page in the ledger account.
C2 - 48
Post.
Date Description Ref,Debit Credit
12/1 Prepaid Insurance 15 2,400
Cash 2,400
Post,Balance
Date Item Ref,Debit Credit Debit Credit
12/1 1 2,400 2,400
Account,Prepaid Insurance Account No,15
General Journal
General Ledger
Page 1
Recording and Posting an Entry
5
5 Enter the ledger account number in the journal.
C2 - 49
Recording and Posting an Entry
Post.
Date Description Ref,Debit Credit
12/1 Prepaid Insurance 15 2,400
Cash 11 2,400
Post,Balance
Date Item Ref,Debit Credit Debit Credit
11/30 Balance 5,900
12/1 1 2,400 3,500
Account,Cash Account No,11
General Journal
General Ledger
Page 1
1 5 2
3
4
All five parts of the credit posting are shown.
C2 - 50
Correcting Errors
Three Types of Errors
Journal Entry Ledger Posting Correction Procedure
1,incorrect not posted correct Journal
C2 - 51
Correcting Errors
Three Types of Errors
Journal Entry Ledger Posting Correction Procedure
1,incorrect not posted correct Journal
2,correct incorrectly posted correct Ledger
C2 - 52
Correcting Errors
Three Types of Errors
Journal Entry Ledger Posting Correction Procedure
Error 3 requires a correcting journal entry,
1,incorrect not posted correct Journal
2,correct incorrectly posted correct Ledger
3,incorrect already posted record and post
a correcting entry
C2 - 53
General Journal – As recorded and posted
Correcting Errors – An Example
On May 5 a purchase of office equipment on account
was incorrectly journalized and posted as shown.
What part of this entry is incorrect?
What correcting entry would you make?
Date Description Debit Credit
5/5 Supplies 12,500
Accounts Payable 12,500
C2 - 54
General Journal – As recorded and posted
On May 5 a purchase of office equipment on account
was incorrectly journalized and posted as shown.
General Journal – A correcting entry
Correcting Errors – An Example
Date Description Debit Credit
5/5 Supplies 12,500
Accounts Payable 12,500
Date Description Debit Credit
5/5
C2 - 55
General Journal – As recorded and posted
On May 5 a purchase of office equipment on account
was incorrectly journalized and posted as shown.
Correcting Errors – An Example
General Journal – A correcting entry
Date Description Debit Credit
5/5 Supplies 12,500
Accounts Payable 12,500
Date Description Debit Credit
5/5 Office Equipment 12,500
C2 - 56
General Journal – As recorded and posted
On May 5 a purchase of office equipment on account
was incorrectly journalized and posted as shown.
Correcting Errors – An Example
General Journal – A correcting entry
Date Description Debit Credit
5/5 Office Equipment 12,500
Supplies 12,500
Date Description Debit Credit
5/5 Supplies 12,500
Accounts Payable 12,500
C2 - 57
Objective,Use horizontal analysis to compare financial
statements from different periods.
Financial Analysis and Interpretation
Comparative Balance Sheet
December 31,2003 and 2002
Assets
Current assets $ 550,000 $ 533,000
Long-term investments 95,000 177,500
Plant assets (net) 444,500 470,000
Intangible assets 50,000 50,000
$1,139,500 $1,230,500
Increase (Decrease)
2003 2002 Amount Percent
C2 - 58
Objective,Use horizontal analysis to compare financial
statements from different periods.
Financial Analysis and Interpretation
Comparative Balance Sheet
December 31,2003 and 2002
Assets
Current assets $ 550,000 $ 533,000 $ 17,000 3.2%
Long-term investments 95,000 177,500 (82,500) (46.5%)
Plant assets (net) 444,500 470,000 (25,500) (5.4%)
Intangible assets 50,000 50,000 —
$1,139,500 $1,230,500 $ (91,000) (7.4%)
Increase (Decrease)
2003 2002 Amount Percent
Horizontal Analysis,
Current year (2003) $550,000
Base year (2002) $533,000 = 103.2%
Increase amount $17,000
Base year (2002) $533,000 = 3.2%
C2 - 59
Objective,Use horizontal analysis to compare financial
statements from different periods.
Financial Analysis and Interpretation
Comparative Income Statement
December 31,2003 and 2002
Sales $1,530,500 $1,234,000
Sales returns 32,500 34,000
Net sales $1,498,000 $1,200,000
Cost of goods sold 1,043,000 820,000
Gross profit $ 455,000 $ 380,000
Increase (Decrease)
2003 2002 Amount Percent
C2 - 60
Objective,Use horizontal analysis to compare financial
statements from different periods.
Financial Analysis and Interpretation
Comparative Income Statement
December 31,2003 and 2002
Sales $1,530,500 $1,234,000 $296,500 24.0%
Sales returns 32,500 34,000 (1,500) (4.4%)
Net sales $1,498,000 $1,200,000 $298,000) 24.8%
Cost of goods sold 1,043,000 820,000 223,000 27.2%
Gross profit $ 455,000 $ 380,000 $ 75,000 19.7%
Increase (Decrease)
2003 2002 Amount Percent
Horizontal Analysis,
Current year (2003) $1,498,000
Base year (2002) $1,200,000 = 124.8%
Increase amount $298,000
Base year (2002) $1,200,000 = 24.8%
C2 - 61
Note,To see the topic slide,type 2 and press Enter.
This is the last slide in Chapter F2,
Power Notes
Analyzing Transactions
Chapter F2
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
Power Notes
Analyzing Transactions
Chapter F2
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
Chapter F2
Note,To select a topic,type the slide # and press Enter.
C2 - 3
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
― The basic accounting equation can be
expanded to include all five financial categories
indicating what has been received and given.‖
DEBITS
received
CREDITS
given=
C2 - 5
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
― 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
― 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
― 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
― 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
― 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
― On November 1,2002,I started a business
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
Business Transactions
General Journal
receive
Debit
give
Credit
NetSolutions
(investee)
Chris Clark (investor)
give
redit
Entry A.
Date Description Debit Credit
11/1
Chris Clark deposits
$25,000 in a bank
account for
NetSolutions in
exchange for capital
stock.
C2 - 13
Chris Clark deposits
$25,000 in a bank
account for
NetSolutions in
exchange for capital
stock.
Business Transactions
General Journal
receive
Debit
give
Credit
NetSolutions
(investee)
Cash
Chris Clark (investor)
give
redit
Entry A.
Date Description Debit Credit
11/1 Cash 25,000
C2 - 14
Business Transactions
General Journal
Date Description Debit Credit
11/1 Cash 25,000
Capital Stock 25,000
receive
Debit
give
Credit
NetSolutions
(investee)
Cash Capital
Stock
Chris Clark (investor)
give
redit
Entry A.
Chris Clark deposits
$25,000 in a bank
account for
NetSolutions in
exchange for capital
stock.
C2 - 15
NetSolutions buys
land for $20,000.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(buyer)
Land Owner (seller)
give
redit
Entry B.
General Journal
Date Description Debit Credit
11/5
C2 - 16
NetSolutions buys
land for $20,000.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(buyer)
Land
Land Owner (seller)
give
redit
Entry B.
General Journal
Date Description Debit Credit
11/5 Land 20,000
C2 - 17
NetSolutions buys
land for $20,000.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(buyer)
Land Cash
Land Owner (seller)
give
redit
Entry B.
General Journal
Date Description Debit Credit
11/5 Land 20,000
Cash 20,000
C2 - 18
NetSolutions buys
supplies for
$1,350,agreeing to
pay in the near
future.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(buyer)
Supplier (seller)
give
redit
Entry C.
General Journal
Date Description Debit Credit
11/10
C2 - 19
NetSolutions buys
supplies for
$1,350,agreeing to
pay in the near
future.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(buyer)
Supplies
Supplier (seller)
give
redit
Entry C.
General Journal
Date Description Debit Credit
11/10 Supplies 1,350
C2 - 20
NetSolutions buys
supplies for
$1,350,agreeing to
pay in the near
future.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(buyer)
Supplies
Supplier (seller)
give
redit
Entry C.
A promise
to pay later
General Journal
Date Description Debit Credit
11/10 Supplies 1,350
Accounts Payable 1,350
C2 - 21
NetSolutions
earns fees of
$7,500,receiving
cash.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(seller)
Customer (buyer)
give
redit
Entry D.
General Journal
Date Description Debit Credit
11/18
C2 - 22
NetSolutions
earns fees of
$7,500,receiving
cash.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(seller)
Cash
Customer (buyer)
give
redit
Entry D.
General Journal
Date Description Debit Credit
11/18 Cash 7,500
C2 - 23
NetSolutions
earns fees of
$7,500,receiving
cash.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(seller)
Cash
Customer (buyer)
give
redit
Entry D.
Services
General Journal
Date Description Debit Credit
11/18 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
General Journal
receive
Debit
give
Credit
NetSolutions
(buyer)
Various suppliers
give
redit
Entry E.
C2 - 25
Date Description Debit Credit
11/18 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
General Journal
receive
Debit
give
Credit
NetSolutions
(buyer)
Services,
benefits
Various suppliers
give
redit
Entry E.
C2 - 26
Date Description Debit Credit
11/18 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
General Journal
receive
Debit
give
Credit
NetSolutions
(buyer)
Services,
benefits
Various suppliers
give
redit
Entry E.
Cash
C2 - 27
NetSolutions pays
$950 to creditors
on account.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(payor)
Supplier (payee)
give
redit
Entry F.
General Journal
Date Description Debit Credit
11/30
C2 - 28
NetSolutions pays
$950 to creditors
on account.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(payor)
Reduction in
obligation
Supplier (payee)
give
redit
Entry F.
General Journal
Date Description Debit Credit
11/30 Accounts Payable 950
C2 - 29
NetSolutions pays
$950 to creditors
on account.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(payor)
Reduction in
obligation
Supplier (payee)
give
redit
Entry F.
Cash
General Journal
Date Description Debit Credit
11/30 Accounts Payable 950
Cash 950
C2 - 30
At the end of the
month,the cost of
supplies on hand
is $550.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(user)
Internal Transaction
(no external entity)
give
redit
Entry G.
General Journal
Date Description Debit Credit
11/30
C2 - 31
At the end of the
month,the cost of
supplies on hand
is $550.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(user)
Use of
supplies
Internal Transaction
(no external entity)
give
redit
Entry G.
General Journal
Balance of Supplies account $1,350 less $550 on hand = $800 used
Date Description Debit Credit
11/30 Supplies Expense 800
C2 - 32
At the end of the
month,the cost of
supplies on hand
is $550.
Business Transactions
receive
Debit
give
Credit
NetSolutions
(user)
Use of
supplies
Internal Transaction
(no external entity)
give
redit
Entry G.
Supplies
General Journal
Date Description Debit Credit
11/30 Supplies Expense 800
Supplies 800
Balance of Supplies account $1,350 less $550 on hand = $800 used
C2 - 33
NetSolutions paid
dividends of
$2,000,
Business Transactions
receive
Debit
give
Credit
NetSolutions
(payor)
Chris Clark (stockholder)
give
redit
Entry H.
General Journal
Date Description Debit Credit
11/30
C2 - 34
Business Transactions
receive
Debit
give
Credit
NetSolutions
(payor)
Reduction in
equity
Chris Clark (stockholder)
give
redit
Entry H.
General Journal
Date Description Debit Credit
11/30 Dividends 2,000
NetSolutions paid
dividends of
$2,000,
C2 - 35
Business Transactions
receive
Debit
give
Credit
NetSolutions
(payor)
Reduction in
obligation
Chris Clark (stockholder)
give
redit
Entry H.
Cash
General Journal
Date Description Debit Credit
11/30 Dividends 2,000
Cash 2,000
NetSolutions paid
dividends of
$2,000,
C2 - 36
NetSolutions
Chart of Accounts
Balance Sheet Income Statement
1,Assets
11 Cash
12 Accounts Receivable
14 Supplies
15 Prepaid Insurance
17 Land
18 Office Equipment
2,Liabilities
21 Accounts Payable
23 Unearned Rent
3,Owner’s Equity
31 Capital Stock
32 Retained Earnings
33 Dividends
4,Revenue
41 Fees Earned
5,Expenses
51 Wages Expense
52 Rent Expense
54 Utilities Expense
55 Supplies Expense
59 Miscellaneous
Expense
C2 - 37
NetSolutions
Trial Balance
November 30,2002
11 Cash 5,900
14 Supplies 550
17 Land 20,000
21 Accounts Payable 400
31 Capital Stock 25,000
33 Dividends 2,000
41 Fees Earned 7,500
51 Wages Expense 2,125
52 Rent Expense 800
54 Utilities Expense 450
55 Supplies Expense 800
59 Miscellaneous Expense 275
32,900 32,900
C2 - 38
NetSolutions
Trial Balance
November 30,2002
11 Cash 5,900
14 Supplies 550
17 Land 20,000
21 Accounts Payable 400
31 Capital Stock 25,000
33 Dividends 2,000
41 Fees Earned 7,500
51 Wages Expense 2,125
52 Rent Expense 800
54 Utilities Expense 450
55 Supplies Expense 800
59 Miscellaneous Expense 275
32,900 32,900
Balance
Sheet
C2 - 39
Income
Statement
NetSolutions
Trial Balance
November 30,2002
11 Cash 5,900
14 Supplies 550
17 Land 20,000
21 Accounts Payable 400
31 Capital Stock 25,000
33 Dividends 2,000
41 Fees Earned 7,500
51 Wages Expense 2,125
52 Rent Expense 800
54 Utilities Expense 450
55 Supplies Expense 800
59 Miscellaneous Expense 275
32,900 32,900
C2 - 40
1,Transactions are analyzed
and recorded in journal.
Documents
Journal
Journal,Ledger,Trial Balance
C2 - 41
1,Transactions are analyzed
and recorded in journal.
Documents
Journal
2,Transactions are posted
from journal to ledger.
Journal Ledger
Journal,Ledger,Trial Balance
C2 - 42
1,Transactions are analyzed
and recorded in journal.
Documents
Journal
2,Transactions are posted
from journal to ledger.
Journal Ledger
3,Trial balance is prepared.
Journal,Ledger,Trial Balance
Trial Balance
C2 - 43
Post.
Date Description Ref,Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400
General Journal Page 1
Recording and Posting an Entry
1,Analyze and record the transaction as shown.
2,Post the debit side of the transaction.
3,Post the credit side of the transaction.
C2 - 44
Post.
Date Description Ref,Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400
Post,Balance
Date Item Ref,Debit Credit Debit Credit
12/1
Account,Prepaid Insurance Account No,15
General Journal
General Ledger
Page 1
Recording and Posting an Entry
1
1 Enter the transaction date in the ledger account.
C2 - 45
Post.
Date Description Ref,Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400
Post,Balance
Date Item Ref,Debit Credit Debit Credit
12/1 1 2,400
Account,Prepaid Insurance Account No,15
General Journal
General Ledger
Page 1
Recording and Posting an Entry
2
2 Enter the debit amount in the ledger debit column.
C2 - 46
Post.
Date Description Ref,Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400
Post,Balance
Date Item Ref,Debit Credit Debit Credit
12/1 1 2,400 2,400
Account,Prepaid Insurance Account No,15
General Journal
General Ledger
Page 1
Recording and Posting an Entry
3
3 Update the ledger account balance.
C2 - 47
Post.
Date Description Ref,Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400
Post,Balance
Date Item Ref,Debit Credit Debit Credit
12/1 1
Account,Prepaid Insurance Account No,15
General Journal
General Ledger
Page 1
Recording and Posting an Entry
4
4 Enter the journal page in the ledger account.
C2 - 48
Post.
Date Description Ref,Debit Credit
12/1 Prepaid Insurance 15 2,400
Cash 2,400
Post,Balance
Date Item Ref,Debit Credit Debit Credit
12/1 1 2,400 2,400
Account,Prepaid Insurance Account No,15
General Journal
General Ledger
Page 1
Recording and Posting an Entry
5
5 Enter the ledger account number in the journal.
C2 - 49
Recording and Posting an Entry
Post.
Date Description Ref,Debit Credit
12/1 Prepaid Insurance 15 2,400
Cash 11 2,400
Post,Balance
Date Item Ref,Debit Credit Debit Credit
11/30 Balance 5,900
12/1 1 2,400 3,500
Account,Cash Account No,11
General Journal
General Ledger
Page 1
1 5 2
3
4
All five parts of the credit posting are shown.
C2 - 50
Correcting Errors
Three Types of Errors
Journal Entry Ledger Posting Correction Procedure
1,incorrect not posted correct Journal
C2 - 51
Correcting Errors
Three Types of Errors
Journal Entry Ledger Posting Correction Procedure
1,incorrect not posted correct Journal
2,correct incorrectly posted correct Ledger
C2 - 52
Correcting Errors
Three Types of Errors
Journal Entry Ledger Posting Correction Procedure
Error 3 requires a correcting journal entry,
1,incorrect not posted correct Journal
2,correct incorrectly posted correct Ledger
3,incorrect already posted record and post
a correcting entry
C2 - 53
General Journal – As recorded and posted
Correcting Errors – An Example
On May 5 a purchase of office equipment on account
was incorrectly journalized and posted as shown.
What part of this entry is incorrect?
What correcting entry would you make?
Date Description Debit Credit
5/5 Supplies 12,500
Accounts Payable 12,500
C2 - 54
General Journal – As recorded and posted
On May 5 a purchase of office equipment on account
was incorrectly journalized and posted as shown.
General Journal – A correcting entry
Correcting Errors – An Example
Date Description Debit Credit
5/5 Supplies 12,500
Accounts Payable 12,500
Date Description Debit Credit
5/5
C2 - 55
General Journal – As recorded and posted
On May 5 a purchase of office equipment on account
was incorrectly journalized and posted as shown.
Correcting Errors – An Example
General Journal – A correcting entry
Date Description Debit Credit
5/5 Supplies 12,500
Accounts Payable 12,500
Date Description Debit Credit
5/5 Office Equipment 12,500
C2 - 56
General Journal – As recorded and posted
On May 5 a purchase of office equipment on account
was incorrectly journalized and posted as shown.
Correcting Errors – An Example
General Journal – A correcting entry
Date Description Debit Credit
5/5 Office Equipment 12,500
Supplies 12,500
Date Description Debit Credit
5/5 Supplies 12,500
Accounts Payable 12,500
C2 - 57
Objective,Use horizontal analysis to compare financial
statements from different periods.
Financial Analysis and Interpretation
Comparative Balance Sheet
December 31,2003 and 2002
Assets
Current assets $ 550,000 $ 533,000
Long-term investments 95,000 177,500
Plant assets (net) 444,500 470,000
Intangible assets 50,000 50,000
$1,139,500 $1,230,500
Increase (Decrease)
2003 2002 Amount Percent
C2 - 58
Objective,Use horizontal analysis to compare financial
statements from different periods.
Financial Analysis and Interpretation
Comparative Balance Sheet
December 31,2003 and 2002
Assets
Current assets $ 550,000 $ 533,000 $ 17,000 3.2%
Long-term investments 95,000 177,500 (82,500) (46.5%)
Plant assets (net) 444,500 470,000 (25,500) (5.4%)
Intangible assets 50,000 50,000 —
$1,139,500 $1,230,500 $ (91,000) (7.4%)
Increase (Decrease)
2003 2002 Amount Percent
Horizontal Analysis,
Current year (2003) $550,000
Base year (2002) $533,000 = 103.2%
Increase amount $17,000
Base year (2002) $533,000 = 3.2%
C2 - 59
Objective,Use horizontal analysis to compare financial
statements from different periods.
Financial Analysis and Interpretation
Comparative Income Statement
December 31,2003 and 2002
Sales $1,530,500 $1,234,000
Sales returns 32,500 34,000
Net sales $1,498,000 $1,200,000
Cost of goods sold 1,043,000 820,000
Gross profit $ 455,000 $ 380,000
Increase (Decrease)
2003 2002 Amount Percent
C2 - 60
Objective,Use horizontal analysis to compare financial
statements from different periods.
Financial Analysis and Interpretation
Comparative Income Statement
December 31,2003 and 2002
Sales $1,530,500 $1,234,000 $296,500 24.0%
Sales returns 32,500 34,000 (1,500) (4.4%)
Net sales $1,498,000 $1,200,000 $298,000) 24.8%
Cost of goods sold 1,043,000 820,000 223,000 27.2%
Gross profit $ 455,000 $ 380,000 $ 75,000 19.7%
Increase (Decrease)
2003 2002 Amount Percent
Horizontal Analysis,
Current year (2003) $1,498,000
Base year (2002) $1,200,000 = 124.8%
Increase amount $298,000
Base year (2002) $1,200,000 = 24.8%
C2 - 61
Note,To see the topic slide,type 2 and press Enter.
This is the last slide in Chapter F2,
Power Notes
Analyzing Transactions
Chapter F2
