Chapter

Analyzing and
Recording
Transactions
100 Shares

Recording???
$1 par value

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Learning
Learning Objectives
Objectives
Describe source
documents and their
purpose
Describe an account
and its use in recording
transactions
Describe a ledger and
chart of accounts
Define debits and
credits and explain their
role in double-entry
accounting
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Analyze the impact of

transactions on
accounts and financial
statements
Record transactions in a
journal and post entries
to a ledger
Prepare and explain the
use of a trial balance
Prepare financial
statements from
business transactions
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Analyzing
Analyzing and
and Recording
Recording Process
Process
Exchanges of economic consideration between
two parties.

External Transactions
occur between the
organization and an
outside party.
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Internal Transactions
occur within the
organization.
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Analyzing
Analyzing and
and Recording
Recording Process
Process

Analyze each transaction and

event form source documents

Prepare and analyze

the trial balance
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Record relevant transactions

and events in a journal

Post journal information

to ledger accounts
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Source
Source Documents
Documents
Checks
Employee
Earnings
Record

Bills from
Suppliers

Purchase
Orders

Bank
Statement
Sales
Tickets

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The
The Account
Account and
and Its
Its Analysis
Analysis
An
An account
account is
is aa
record
record of
of
increases
increases and
and
decreases
decreases in
in aa
specific
specific asset,
asset,
liability,
liability, equity,
equity,
revenue,
revenue, or
or
expense
expense item.
item.
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The
The general
general
ledger
ledger is
is aa record
record
containing
containing all
all
accounts
accounts used
used by
by
the
the company.
company.

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The
The Account
Account and
and Its
Its Analysis
Analysis

Assets
Liabilities
Equity
Liabilities
Equity
=
+
Accounts
Accounts
Accounts
Accounts
Accounts

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Asset
Asset Accounts
Accounts
Cash
Land

Buildings

Asset
Asset
Accounts
Accounts

Equipment
Supplies

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Accounts
Receivable
Notes
Receivabl
e
Prepaid
Accounts

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Liability
Liability Accounts
Accounts
Accounts
Accounts
Payable
Payable

Notes
Notes
Payable
Payable

Liability
Liability
Accounts
Accounts
Accrued
Accrued
Liabilities
Liabilities
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Unearned
Unearned
Revenues
Revenues
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Equity
Equity Accounts
Accounts
Owners
Owners
Capital
Capital

Owners
Owners
Withdrawals
Withdrawals

Equity
Equity
Accounts
Accounts
Revenues
Revenues
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Expenses
Expenses
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The
The Account
Account and
and Its
Its Analysis
Analysis
Assets

+
Owners
Owners
Capital
Capital

Liabilities
Liabilities

Owners
Owners
Withdrawals
Withdrawals

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Equity
Equity

+
Revenues
Revenues

Expenses
Expenses

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Debits
Debits and
and Credits
Credits
A T-account represents a ledger account and is a tool
used to understand the effects of one or more
transactions.

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Double-Entry
Double-Entry Accounting
Accounting
Assets
Assets
ASSETS

Debit

Credit

Liabilities
Liabilities
LIABILITIES

Debit

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Credit

Equity
Equity
EQUITIES

Debit

Credit

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Exh.
3.8

Double-Entry
Double-Entry Accounting
Accounting

Equity
Owners
Owners
Capital
Capital

Owners
Owners
Withdrawals
Withdrawals

Revenues
Revenues

Expenses
Expenses

Capital

Withdrawals

Revenues

Expenses

Debit Credit

Debit Credit

Debit Credit

Debit Credit

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Double-Entry
Double-Entry Accounting
Accounting
An account balance is the difference between
the increases and decreases in an account.

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Analyzing
Analyzing Transactions
Transactions An
An Illustration
Illustration
Analysis:

Double entry:

Posting:
101

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301

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Analyzing
Analyzing Transactions
Transactions An
An Illustration
Illustration
Analysis:

Double entry:

Posting:
126

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101

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Analyzing
Analyzing Transactions
Transactions An
An Illustration
Illustration
Analysis:

Double entry:

Posting:
167

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101

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Analyzing
Analyzing Transactions
Transactions An
An Illustration
Illustration
Analysis:

Double entry:

Posting:
126

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201

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Analyzing
Analyzing Transactions
Transactions An
An Illustration
Illustration
Analysis:

Double entry:

Posting:
403

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101

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Journalizing
Journalizing and
and Posting
Posting Transactions
Transactions
Assets
Assets

Step 1: Analyze
transactions and source
documents.

ACCOUNT NAME:
Date

Liabilities
Liabilities

Equity
Equity

Step 2: Apply doubleentry accounting

ACCOUNT No.
Description

PR

Debit

Credit

Balance

Step 4: Post entry to ledger

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Step 3: Record journal entry

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Journalizing
Journalizing Transactions
Transactions

Transaction
Transaction Date
Date

Titles
Titles of
of Affected
Affected Accounts
Accounts

Transaction
Transaction explanation
explanation
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Dollar
Dollar amount
amount of
of
debits
debits and
and credits
credits
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Balance
Balance Column
Column Account
Account
T-accounts are useful illustrations, but balance
column ledger accounts are used in practice.

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Posting
Posting Journal
Journal Entries
Entries

Identify the account.

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Posting
Posting Journal
Journal Entries
Entries

Enter the date.

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Posting
Posting Journal
Journal Entries
Entries

Enter the amount and description.

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Posting
Posting Journal
Journal Entries
Entries

Enter the ledger reference.

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Posting
Posting Journal
Journal Entries
Entries

Enter the journal reference.

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After processing its remaining transactions for December,

FastForwards Trial Balance is prepared.
FAST FORWARD
TRIAL BALANCE
31 DECEMBER 2006
Cash
Accounts receivable
Supplies
Prepaid Insurance
Equipment
Accounts payable
Unearned consulting revenue
C. Taylor, Capital
C. Taylor, Withdrawals
Consulting revenue
Rental revenue
Salaries expense
Rent expense
Utilities expense
Total

Debits
$ 3,950
9,720
2,400
26,000

Credits

6,200
3,000
30,000

600

The trial balance lists

all account balances
in the general ledger.
If the books are in
balance, the total
debits will equal the
total credits.

5,800
300
1,400
1,000
230
$ 45,300 $ 45,300

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Searching
Searching for
for and
and Correcting
Correcting Errors
Errors
If the trial balance does not balance, the
error(s) must be found and corrected.
Make sure the trial balance
columns are correctly added.

Recompute each account

balance in the ledger.

Make sure account

balances are correctly
entered into the ledger.

Verify that each journal

entry is posted correctly.

See if debit or credit

accounts are mistakenly
placed on the trial balance.

Verify that each original

journal entry has equal
debits and credits.

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Using
Using aa Trial
Trial Balance
Balance to
to Prepare
Prepare
Financial
Financial Statements
Statements
Point in
Time

Point in
Time

Period of Time
Income Statement
Statement of Owners Equity

Beginning
Balance
Sheet

Income Statement of
Cash Flows

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Ending
Balance
Sheet

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Income
Income Statement
Statement

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Statement
Statement of
of Owners
Owners Equity
Equity

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Balance
Balance Sheet
Sheet

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End of Chapter 2

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