Transaction Analysis
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Transcript of Transaction Analysis
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Transaction AnalysisChapter 2
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Explain what a transaction is
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Transactions
•Events that have a financial impact on the business
•Can be reliably measured•Have two sides:
▫Giving▫Receiving
•Accounting records both sides of transactions
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Examples of Transactions
A company sells a product to a customer and receives cash
A company sells a product to a customer and receives cash
GivingReceivin
g
A company pays cash for advertisingA company pays cash for advertising
Giving Receiving
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Define “account” and list and differentiate between different types of accounts
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The Account
•Account is a record of each asset, liability, and stockholders’ equity element▫Basic summary device of accounting
Assets Assets LiabilitiesLiabilities Stockholders’ Equity
Stockholders’ Equity
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Assets
Economic resources that provide future benefit
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Assets
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Liabilities
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Stockholders’ Equity
Owners’ claim to assets
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Stockholders’ Equity Accounts
Common stock Owners’ investment in the company
Retained earnings Cumulative net income (loss) less dividends
Dividends Distributions to owners
Revenues Increase in equity from providing goods and services
Expenses Costs of operating a business
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Show the impact of business transactions on the accounting equation
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Exercise 2-16A
Assets Liabilities
Stockholders’ Equity
Cash LandSupplie
sAccounts Payable
Common Stock
Retained
Earnings
Aug. 6
+39,000 +39,000
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Exercise 2-16A
Assets Liabilities
Stockholders’ Equity
Cash LandSupplie
sAccounts Payable
Common Stock
Retained
Earnings
Aug. 6
+39,000 +39,000
Aug. 9
−29,000 +29,000
Bal. 10,000 29,000 39,000
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Exercise 2-16A
Assets Liabilities
Stockholders’ Equity
Cash LandSupplie
sAccounts Payable
Common Stock
Retained
Earnings
Aug. 6 +39,000 +39,000
Aug. 9 −29,000 +29,000
Bal. 10,000 29,000 39,000
Aug. 12
+1,700 +1,700
Bal. 10,000 29,000 1,700 1,700 39,000
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Exercise 2-16A
Assets Liabilities
Stockholders’ Equity
Cash LandSupplie
sAccounts Payable
Common Stock
Retained
Earnings
Aug. 6 +39,000 +39,000
Aug. 9 −29,000 +29,000
Bal. 10,000 29,000 39,000
Aug. 12
+1,700 +1,700
Bal. 10,000 29,000 1,700 1,700 39,000
Aug. 15
No entry
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Exercise 2-16A
Assets Liabilities
Stockholders’ Equity
Cash LandAccts . Rec.
Supplies
Accounts Payable
Cmn. Stock
Ret. Earn.
Bal. 10,000 29,000 39,000
Aug. 12
+1,700 +1,700
Bal. 10,000 29,000 1,700 1,700 39,000
Aug. 15
No entry
Aug. 15-31
+3,800 +3,800 +7,600
Bal. 13,800 29,000 3,800 1,700 1,700 39,000 7,600
revenue
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Exercise 2-16A
Assets Liabilities Stockholders’ Equity
Cash LandAccts. Rec. Supplies
Accounts Payable
Cmn. Stock
Ret. Earn.
Bal. 10,000 29,000 1,700 1,700 39,000
Aug. 15
No entry
Aug. 15-31
+3,800 +3,800 +7,600
Bal. 13,800 29,000 3,800 1,700 1,700 39,000 7,600
Aug. 15-31
−1,300 −1,300
−700 −700
−500 −500
Bal. 11,300 29,000 3,800 1,700 1,700 39,000 5,100
Expenses
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Exercise 2-16A
Assets Liabilities
Stockholders’ Equity
Cash LandAccts. Rec.
Supplies
Accounts Payable
Cmn. Stock
Ret. Earn.
Bal. 13,800 29,000 3,800 1,700 1,700 39,000 7,600
Aug. 15-31
−1,300 −1,300
−700 −700
−500 −500
Bal. 11,300 29,000 3,800 1,700 1,700 39,000 5,100
Aug 31
+700 −700
Bal. 12,000 29,000 3,800 1,000 1,700 39,000 5,100
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Exercise 2-16A
Assets Liabilities Stockholders’ Equity
Cash LandAccts. Rec.
Supp.
Accts. Pay.
Notes Pay.
Cmn. Stock
Ret. Earn.
Bal. 11,300 29,000
3,800 1,700
1,700 39,000 5,100
Aug 31
+700 −700
Bal. 12,000 29,000
3,800 1,000
1,700 39,000 5,100
Aug 31
+12,000
+12,000
Bal. 24,000 29,000
3,800 1,000
1,700 12,000 39,000 5,100
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Exercise 2-16A
Assets Liabilities Stockholders’ Equity
Cash LandAccts. Rec.
Supp.
Accts. Pay.
Notes Pay
Cmn. Stock
Ret. Earn.
Bal. 11,300
29,000
3,800 1,700
1,700 39,000 5,100
Aug 31
+700 −700
Bal. 12,000
29,000
3,800 1,000
1,700 39,000 5,100
Aug 31
12,000
12,000
Bal. 24,000
29,000
3,800 1,000
1,700 12,000 39,000 5,100
Aug 31
−800 −800
Bal. 23,200
29,000
3,800 1,000
900 12,000 39,000 5,100
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Exercise 2-16AAssets Liabilities Stockholders’
Equity
Cash LandAccts. Rec. Supp.
Accts. Pay.
Notes. Pay.
Cmn. Stock
Ret. Earn.
Bal. 11,300 29,000 3,800 1,700 1,700 39,000 5,100
Aug 31
+700 −700
Bal. 12,000 29,000 3,800 1,000 1,700 39,000 5,100
Aug 31
12,000 12,000
Bal. 24,000 29,000 3,800 1,000 1,700 12,000 39,000 5,100
Aug 31
−800 −800
Bal. 23,200 29,000 3,800 1,000 900 12,000 39,000 5,100$57,000$57,000 $57,000$57,000
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Exercise 2-16A
How much are total assets? $57,000$57,000
How much does the business expect to collect
from its patients?$3,800$3,800
How much does the business owe in total?
$900$900 $12,000$12,000
How much of the assets does Morin really own?
$12,900$12,900
$57,000$57,000 $12,900$12,900$44,100$44,100
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Exercise 2-16A
How much net income did the business
experience during its first month of operations?
How much net income did the business
experience during its first month of operations?
Revenue:$7,600
Revenue:$7,600
Expenses: $1,300 + $700 + $500
Expenses: $1,300 + $700 + $500
Net income $5,100
Net income $5,100
Expenses: $2,500
Expenses: $2,500
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Analyze the impact of business transactions on accounts
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Double-Entry Accounting
•Business transactions include two parts▫Giving▫Receiving
•Accounting based on a double-entry system▫Each transaction affects at least two
accounts
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T-Account
Account Title
(Left side) (Right side)
Debit Credit
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Accounting Equation and Rules of Debit and Credit
Assets LiabilitiesStockholders’
Equity
Debit Debit DebitCredit Credit Credit
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Debit Credit Example
Cash Common Stock
39,000 39,000
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Debit Credit Example
Cash Common Stock
39,000
Land 29,000
29,000
Bal. 10,000
Bal. 29,000
Bal. 39,000
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Additional Stockholders’ Equity Accounts: Revenues and Expenses
Assets
Liabilities
Stockholders’ Equity
Stockholders’ Equity
Common Stock
Retained Earnings
Dividends
Revenues
Expenses
+
+
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Rules of Debit and Credit
Assets LiabilitiesStockholders’ Equity
Debit Credit CreditDebit
Common Stock Retained Earnings
Revenue
ExpensesDividends
-
- --
-
-
Credit
Credit
Credit Credit
Credit
Debit
DebitDebit
Debit Debit
-
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Record (journalize and post) transactions in the books
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The Journal
•Chronological record of transactions•Three steps
▫Specify each account affected by the transaction and classify by type
▫Determine if each account is increased or decreased Use debit credit rules
▫Record in journal
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Journal Entry
JOURNAL
Date Accounts and explanation Debit Credit
Apr. 2
Cash 50,000
Common Stock 50,000
Issued common stock
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The Ledger
Individual asset
accounts
Individual liability
accounts
Individual
equity account
s
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Copying Information (Posting) from the Journal to the Ledger
JOURNAL
Date Accounts and explanation Debit Credit
Apr. 2 Cash 50,000
Common Stock 50,000
Issued common stock
Cash Common stock
50,000 50,000
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Flow of Accounting Data
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Construct and use a trial balance
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Trial Balance
•Lists all accounts with their balances•Assets listed first, then liabilities and
stockholders’ equity•Shows that debits equal credits•Usually prepared at the end of the period•Facilitates preparation of the financial
statements
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Analyzing Accounts
Cash
Beginning balance
Ending balance
Cash receipts ?Cash payments
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Analyzing Accounts
Accounts Receivable
Beginning balance
Ending balance
Sales on account ?Collections on account
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Analyzing Accounts
Accounts Payable
Beginning balance
Ending balance
Payments on account? Purchases on account
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Correcting Accounting Errors
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Chart of Accounts
Balance Sheet Accounts
Assets Liabilities Stockholders’ Equity
101 Cash 201 Accts. Payable 301 Common Stock
111 Accts. Receivable 231 Notes Payable 311 Dividends
141 Office Supplies 312 Retained Earnings
151 Office Furniture
191 Land
Income Statement Accounts(Part of Stockholders’ Equity)
Revenues Expenses
401 Service Revenue 501 Rent Expense
502 Salary Expense
503 Utilities Expense
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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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Account Formats
•Tw0-column T-account•Four-column format
Account: Cash Account No. 101
Balance
Date
Item Debit Credit Debit Credit
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Analyzing Transactions Using Only T-Accounts•Decisions often are made without a
complete accounting system•T-Accounts allow managers to analyze
transactions quickly
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Short Exercise 2-13Cash
Accounts Payable Common Stock
Computer Equipment
100,000
100,000
60,000
60,000
Debits = $160,000Debits = $160,000
Credits = $160,000Credits = $160,000
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