Chapter Two -Transaction Analysis

8/6/2019 Chapter Two -Transaction Analysis

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Transactions

Events that have a financial impact on the

business Selling products

Paying expenses

Have two sides:

Giving Receiving

Accounting records both sides of transactions

2Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.


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The Account

Account is a record of each asset, liability andstockholders equity element

Basic summary device of accounting

3

Assets Liabilities Stockholders

Equity

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.


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Assets



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Liabilities



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T-Account

ccount Title

Left side Right side

Debit Credit

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall. 7


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Rules of Debit and Credit

Assets Liabilities

Stockholders

Equity

Debit Debit DebitCredit Credit Credit



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Additional Stockholders Equity

Accounts: Revenues & Expenses

Assets

Liabilities

Stockholders

Equity

Common stock

Retained earnings

Dividends

Revenues

Expenses

+

+



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Rules of Debit and Credit

Assets Liabilities

Stockholders Equity

Debit Credit CreditDebit

Common stock Retainedearnings

Revenue

ExpensesDividends

-

- --

-

-

Credit

Credit

Credit Credit

Credit

Debit

DebitDebit

Debit Debit

-



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The Journal

Chronological record of transactions

Three steps

Specify each account affected by the transactionand classify by type

Determine if each account is increased or

decreasedx Use debit credit rules

Record in journal



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Journal Entry

JOURNAL

Date Accounts and explanation Debit Credit

May 1 Cash 50,000

Common stock 50,000

Issued common stock



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Posting

JOURNAL

Date Accounts and explanation Debit Credit

May 1 Cash 50,000

Common stock 50,000

Issued common stock

Cash Common stock

$50,000 $50,000



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Trial Balance

Lists all accounts with their balances

Assets listed first, then liabilities andstockholders equity

Shows that debits equal credits

Usually prepared at the end of the period



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Analyzing Accounts

Cash

Beginning balance

Ending balance

Cash receipts ?Cash payments



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Analyzing Accounts

ccounts receivable

Beginning balance

Ending balance

Sales on account ?Collections on account



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Analyzing Accounts

ccounts payable

Beginning balance

Ending balance

Payments on account? Purchases on account



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Normal Balances of Accounts

Assets Debit

Liabilities Credit

Stockholders Equity overall Credit

Common stock Credit

Retained earnings Credit

Dividends Debit

Revenues Credit

Expenses Debit



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Chapter Two -Transaction Analysis

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