02 - 02 - Chapter 2 (Student) .PPT 2 (Student)

Chapter 2
Copyright 2014 Pearson Canada Inc.
2-1
Objectiv
e
1
Define and use accounting terms
Apply the rules of debit and credit
Analyze and record transactions in the journal
Post from the journal tor the ledger
Prepare and use a trial balance
Apply IFRS to recording business transactions
1-2
Define and use key accounting terms

What are the key terms used when recording transactions?
2-3
1.
2.
3.
4.
5.
6.
7.
8.
Identify and analyze transactions

Record transactions in a journal
Post (copy) from the journal to the accounts in the
ledger
Prepare the trial balance
Journalize and post adjusting entries
Prepare the financial statements
Journalize and post the closing entries
Prepare the postclosing trial balance
2-4
http://www.prolegomenes.com/img/the-accounting-cycle-3.jpg
The account is the detailed record of the changes that

have occurred in a particular:
Asset
Liability
Item of Owners Equity
2-6
Accountants record transactions in a journal

This is the chronological record of transactions
The information is then posted (copied) to individual

accounts
Date
Apr. 2
Accounts andJournal
Explanations
Cash
Lisa Hunter, Capital
Post
Ref.
Debit
Page
1
Credit
250,000
250,000
Received initial investment

from owner.
2-7
Cash
Accounts
Payable
Lisa Hunter,
Capital
All the accounts

combined make
up the ledger
Individual asset
accounts
Individual liability
accounts
Ledger
Individual owners equity

accounts
2-8
Assets are economic resources that will benefit the

business in the future.
Assets include:
Cash
Accounts receivable
Notes receivable
Prepaid expenses
Land
Building
Equipment, Furniture, and Fixtures
2-9
Liabilities are debts incurred by the business

Liabilities include:
Bank loan
Accounts payable
Notes payable
Accrued liabilities (taxes payable, salary payable, interest
payable)
2 - 10
Correction: page 62 of your text:
This is incorrect
Account
Balance Sheet
Current portion ( < 1 yr)
Bank Loan
Long-term portion (> 1 yr)

Copyright 2
2011
Pearson Canada
11
Inc.
The owners claims to the assets of a business

Owners equity includes:
Capital
Withdrawals
Revenues
Expenses
2 - 12
Items affecting the Capital Account

Capital
account
(ending
balance)
Beginning Capital
+ Investments
+ Net Income (revenues > expenses)
Net loss (expenses > revenues)
Withdrawals
2 - 13
Lists all accounts. In many cases, the

account names are listed along with the
account numbers.
One example has assets begin with 1000,

liabilities with 2000, owners equity with
3000, revenues with 4000, and expenses
with 5000
2 - 14
Assets
1100 Cash
1200 Accounts Receivable
1400 Office Supplies
1500 Office Furniture
1900 Land
Income Statement
Accounts (part of
owners equity)
Liabilities
2100 Accounts Payable
2300 Notes Payable
Owners Equity
3000 Lisa Hunter, Capital
3100 Lisa Hunter, Withdrawals
Revenue
4000 Service Revenue
Expenses
5100 Rent Expense
5200 Salary Expense
5300 Utilities Expense
2 - 15

How do we track changes in accounts?
2 - 16
Double entry accounting = dual (or two) effects of each

transaction, the receiving side and the giving side
Each transaction affects at least two accounts
The owner invests $250,000 into a new business

ASSETS = LIABILITES + OWNERS EQUITY
+250,000
+$250,000
The business
received cash
of $250,000
Gave Lisa Hunter $250,000 of

owners equity in the business
2 - 17
Credit purchase of a truck for $50,000
ASSETS
+$50,000
Increases
Equipment
LIABILITIES + OWNERS EQUITY

+$50,000
Increases
Accounts
Payable
2 - 18
Account Title
Debit
Credit
LEFT
SIDE
RIGHT
SIDE
2 - 19
Assets
Increase
= Debit
Decrease
= Credit
Liabilities and Owners Equity

Decrease
= Debit
Increase
= Credit
ASSET = LIABILITES + OWNERS EQUTY

DEBITS = CREDITS
2 - 20
Debit/Credit song
Copyright 2
2011
Pearson Canada
21
Inc.
DEBITS
ASSETS
Debit
+
Credit
=
=
CREDITS
LIABILITIES
Debit
Credit
+
+ OWNERS EQUITY
Debit
Credit
+
TOTAL DEBITS MUST EQUAL TOTAL CREDITS
2 - 22
Lisa Hunter invested $250,000 cash to start her

business
Assets
Cash
Debit for
increase,
$250,000
Liabilities + Owner Equity

L. Hunter, Capital
Credit for
increase,
$250,000
2 - 23
Lisa Hunter invested $250,000 cash to begin HES

$100,000 cash purchase of land
Assets
Cash
250,000
100,000
Liabilities + Owner Equity

L. Hunter, Capital
250,000
Balance
150,000
Land
100,000
2 - 24
Liabilities
Assets
Owners Equity
+ Capital Withdrawals
+ Revenues Expenses
2 - 25
The normal balance for asset accounts = debit

The normal balance for liability accounts = credit
The normal balance for capital accounts = credit
The normal balance for revenue accounts = credit
The normal balance for expense accounts = debit
The normal balance for withdrawal accounts = debit
2 - 26
Analyze and record transactions in the

journal
How do we record business transactions?
2 - 27
Source documents are the evidence of transactions
Journalizing a transaction is the chronological record of

the entitys transaction
What are some examples of source documents?
2 - 28
Process of journalizing transactions is as follows:

1.
2.
3.
4.
Identify the transaction from the source document

Identify each account affected by the transaction
Record the transaction in the journal with an explanation or
description
2 - 29
The date of the transaction

The title of the account debited, along with the dollar
amount
Title of the account credited, along with the dollar
amount
A short explanation of the transaction
2 - 30
Journal
Date
Apr. 2
Accounts and Explanations

Cash
Page 1
Post
Ref.
Debit
Credit
250,000
Lisa Hunter, Capital
250,000
Received initial investment

from owner.
Insert the ledger account in

the journal
2 - 31
Taylor Moffat opened a veterinary practice.

Record the following transactions (with
explanations)
Sept 1
Moffat invested $32,000 cash in a business bank

account to start her practice. The business received
the cash and gave Moffat owners equity in the
business.
Sept 2
Purchased medical supplies on account for $9,500.
Sept 2
Paid cash for Septembers office rent of $4,100
Sept 3
Recorded $6,800 revenue for service rendered to

patients on account.
2 - 32
Date
Account Name & Description
Debit Credit
2 - 33
Post from the journal to the ledger

What is the next step in recording a transaction?
2 - 34
Posting is the transferring of the data from the journal

to the ledger
2 - 35
Account: Cash
Date
Item
Jrnl.
Ref.
Debit
Credit
Balance
2014
Apr. 2
250,000
250,000 Dr.
Account: Lisa Hunter, Capital

Date
Item
Jrnl.
Ref.
Debit
Credit
Balance
2014
Apr. 2
250,000
Insert the journal page number
250,000 Cr
2 - 36
Using the information from the journal

entries you did for Moffat in September,
post those to the ledger.
2 - 37
Account:
1000
Date
Account:
1300
Date
Cash
Item
Account No.
Ref
Debit
Credit
Accounts Receivable
Item
Balance
Account No.
Ref
Debit
Credit
Balance
Ref
Debit
Credit
Balance
Ref
Debit
Credit
Balance
Account:
Supplies
Account No. 1500
Date
Item
Account:
Accounts Payable
Account No. 2000
Date
Account:
3000
Date
Item
Capital, Moffat
Item
Account No.
Ref
Debit
Credit
Balance
Ref
Debit
Credit
Balance
Account:
Revenue
Account No. 4000
Date
Account:
5500
Date
Item
Rent Expense
Item
Account No.
Ref
Debit
Credit
Balance
2 - 38
There are templates on myDouglas for the

journal, ledger, and TB. Print a few for when
you are doing questions to save yourself
time and hassle.
2 - 39
Prepare and use a trial balance

How can we check if the records are in balance?
2 - 40
A trial balance summarizes the ledger by listing all

accounts with their balances
Before computers, the trial balance provided a check on

accuracy by showing whether total debits equal total
credits
2 - 41
HUNTER ENVIRONMENT SERVICES

Trial Balance
April 30, 2014
Account Number
Account
Balance
Debit
Credit
1100
Cash
$222,000
1200
Accounts Receivable
1400
Office supplies
1900
Land
2100
Accounts Payable
3000
Lisa Hunter, capital
3100
4999
Lisa Hunter, Withdrawals

Service Revenue
6,000
5100
Rent Expense
6,000
5200
Salary Expense
6,500
5300
Utilities Expense
1,500
Totals
10,000
7,000
50,000
$
2,000
250,000
55,000
$307,000
$307,000
2 - 42
Now use the information from the ledger

that you created for Moffat to make a trial
balance.
Does it balance?
2 - 43
Moffat Vet Practice

Trial Balance
September 3, 2014
Acct
No.
Account Name
Debit
Credit
Total
2 - 44
If your Trial Balance does NOT balance

Search for missing accounts
Search the journal for the amount of the difference
Divide the difference between total debits and total
credits by 2
Divide the out-of-balance amount by 9
2 - 45
Apply international financial reporting

standards (IFRS) to recording business
transactions
How does IFRS apply to transactions?
2 - 46
The procedures that identify and record

business transactions described previously
are followed by companies that report their
results using international financial
reporting standards (IFRS) and those using
accounting standards for private enterprises
(ASPE).
All companies must ensure that debits and

credits are equal for all transactions.
2 - 47
Accounting terms
Debits and credits (and a catchy song)
Recording journal entries, and posting to

the ledger
Trial balances
2 - 48
Print Chapter 3 powerpoints for next class
Your first quiz is on January 16

(practice questions from text)
Chapter 2 homework is due on January 19
2 - 49

02 - 02 - Chapter 2 (Student) .PPT 2 (Student)

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Chapter 2

Copyright 2014 Pearson Canada Inc.

Define and use accounting terms

Apply the rules of debit and credit

Analyze and record transactions in the journal

Post from the journal tor the ledger

Prepare and use a trial balance

Apply IFRS to recording business transactions

Copyright 2014 Pearson Canada Inc.

Define and use key accounting terms

Copyright 2014 Pearson Canada Inc.

Identify and analyze transactions

Copyright 2014 Pearson Canada Inc.

The account is the detailed record of the changes that

Copyright 2014 Pearson Canada Inc.

Accountants record transactions in a journal

The information is then posted (copied) to individual

Received initial investment

Copyright 2014 Pearson Canada Inc.

All the accounts

Individual owners equity

Assets are economic resources that will benefit the

Copyright 2014 Pearson Canada Inc.

Liabilities are debts incurred by the business

Copyright 2014 Pearson Canada Inc.

Correction: page 62 of your text:

Long-term portion (> 1 yr)

The owners claims to the assets of a business

Copyright 2014 Pearson Canada Inc.

Items affecting the Capital Account

Copyright 2014 Pearson Canada Inc.

Lists all accounts. In many cases, the

One example has assets begin with 1000,

Copyright 2014 Pearson Canada Inc.

Copyright 2014 Pearson Canada Inc.

Apply the rules of debit and credit

Copyright 2014 Pearson Canada Inc.

Double entry accounting = dual (or two) effects of each

Each transaction affects at least two accounts

The owner invests $250,000 into a new business

Gave Lisa Hunter $250,000 of

Copyright 2014 Pearson Canada Inc.

Credit purchase of a truck for $50,000

LIABILITIES + OWNERS EQUITY

Copyright 2014 Pearson Canada Inc.

Copyright 2014 Pearson Canada Inc.

Liabilities and Owners Equity

ASSET = LIABILITES + OWNERS EQUTY

Copyright 2014 Pearson Canada Inc.

TOTAL DEBITS MUST EQUAL TOTAL CREDITS

Copyright 2014 Pearson Canada Inc.

Lisa Hunter invested $250,000 cash to start her

Liabilities + Owner Equity

Copyright 2014 Pearson Canada Inc.

Lisa Hunter invested $250,000 cash to begin HES

Liabilities + Owner Equity

Copyright 2014 Pearson Canada Inc.

The normal balance for asset accounts = debit

Copyright 2014 Pearson Canada Inc.

Analyze and record transactions in the

Copyright 2014 Pearson Canada Inc.

Source documents are the evidence of transactions

Journalizing a transaction is the chronological record of