Chapter 2 Accounting

Step #2 in measuring external transactions

2.Analyze the impact of the transaction on the accounting equation

Step #3 in measuring external transactions

3. Assess whether the transaction results in debit or credit to account balances

Step #4 in measuring external transactions

4. Record the transaction in a journal using debits and credits.

Step #5 in measuring external transactions

5. Post the transaction to the general ledger

General Ledger

A collection of each account with it's individual transactions and resulting account balance.

General Ledger

A complete (book) that contains all accounts (transactions across all accounts) needed to prepare financial statements

account

A record of business activities related to a particular item.

What items should an account have?

Account title, account number, date of the transaction, and two columns for debits and credits.

Accounts Receivable

Asset

Net income appears in which two financial statements? A. Balance Sheet and Statement of Cash Flows B. Balance Sheet and Statement of Stockholders' Equity C. Income Statement and Statement of Cash Flows D.Income Statement and Statement of Stockholders' Equity

C. Income Statement and Statement of Cash Flows

Transaction# 1 Issue Common Stock

Cash and Stockholders Equity Increases

Salaries Expense

Expense

What contains a list of transactions affecting each account and the account's balance?

General Ledger

What contains a list of transactions affecting each account and the account's balance? Multiple choice question.

General Ledger

Deferred Revenue

Liability

Notes Payable

Liability

Accounts Payable

Means it will be paid in the future

What are the three components to the retained earnings account?

Revenues, expenses and Dividends

Revenues

Service Revenue

Analyze the impact of external transactions on the accounting equation

Step #2 Therefore the accounting equation must always remain in balance. Assets=liabilities +stockholders equity

Assess whether the impact of external transactions results in a credit or debit to an account balance.

Step #3 Assets=Debits Liabilities and Stockholders Equity =Credits

Record Transactions in a journal

Step #4 debits must equal total credits for all transactions

Post Transactions to the general ledger

Step #5 the process of transferring the debit and credit information from transactions recorded in the journal to individual accounts in the general ledger.

prepare a trial balance

Step #6 Lists all accounts and their balances Total debits must equal total credits These balances are used to create the financial statements

A list of all accounts and their balances at a particular date showing that debits equal credits is referred to as a(n)?

Trial Balance

Journal

a chronological record of all transactions affecting a firm

Trial Balance

a list of accounts and their balances at a given time

chart of accounts

a list of accounts used by a business to record a transaction.

is an advertising expense a debit or credit? and which accounts are debited and credited?

Advertising expense is an expense which is on the left side of the T bar, it is increased with a debit and accounts payable (liability)is increased with a credit.

Cash

Asset

Transaction#10 Pay Cash Dividends

Cash decreases, stockholders equity decreases and dividends increase.

Term "On Account"

company does not pay cash immediately but promises to pay cash in the future.

Issue Common Stock

increases assets + stockholders equity

Accounts Payable

liability

Accounting Cycle

the process by which companies produce their financial statements for a specific period

External Transactions

transactions conducted between the company with a separate economic entity

Step#1 in measuring external transactions

1.Use source documents to identify accounts affected by an external transaction

Step #6 in measuring external transactions

6. Prepare for a trial balance

Transaction #7 Provide Services on Account

Asset (Accounts Receivable) and stockholders Equity Increases (Service Revenue)

Transaction #6 Provide Services for Cash

Asset (Cash) and stockeholder's equity (Service Revenue) Increase

Transaction #9 Pay Salaries to Employees

Asset (Cash) decrease and stockholders equity decreases

Transaction #8 Receive Cash in advance from customers

Asset Cash and Liability (deferred Revenue) increases

borrow cash from the bank

Assets & liabilities increase (notes payable)

Transaction #4 Pay Rent in Advance

Assets (Prepaid Rent)increases and Asset (Cash) decreases

Transaction #5 Purchase Supplies on Account

Assets (Supplies) increase and Liability (increases)

Transaction #2 Borrow Cash From Bank

Assets and Liabilities (Notes Payable) increase

Transaction #3 Purchase Equipment

Assets increases (equipment) and Asset (Cash) decreases

Beta Company paid utilities expense of $2,000 for the current month. Which of the following statements correctly shows the effect of this transaction on the accounting equation?

Assets will decrease by $2,000, liabilities will remain unchanged, and stockholders' equity will decrease by $2,000

Amber Corporation provided services to customers on account for $26,000. Which of the following statements correctly shows the effect of this transaction on the accounting equation?

Assets will increase by $26,000, liabilities will remain unchanged, and stockholders' equity will increase by $26,000

a balance sheet presents?

Assets, liabilities, and stockholders equity.

Assets decrease with?

Credit

right side of T bar?

Credit

Assets increase with?

Debit

Left side of T bar?

Debit

Liabilities and Stockholders equity decrease with?

Debit

Callahan Corporation provides services to customers on account, $900. How would this transaction be recorded?

Debit Accounts Receivable $900, credit Service Revenue $900

Timmons Corporation purchases office supplies for $350 cash. How would this transaction be recorded?

Debit Supplies $350, credit Cash $350

A company borrows cash from a local bank. The company records this transaction with a:

Debit to Cash

Which of the following are external transactions?

Paying salaries to employees Borrowing money from the bank Purchasing inventory from suppliers

Fill in the blanks to complete the sentence. The process of transferring information from a journal entry to the specific accounts affected in the general ledger is referred to as?

Posting

Revenue Recognition Principle

Record revenue in the period in which we provide goods and services to customers for the amount the company is entitled to receive

Stockholders Equity

Retained Earnings + Common Stock

An account should have an account title, account number, a place for the date of the transaction, and two columns for?

account; general ledger

Prepaid Rent

asset

Supplies

asset

Purchase of equipment

assets increase (equipment) and cash decreases

The process of transferring information from the journal to the ledger is referred to as?

posting.

The purpose of a general ledger is to?

provide in a single location the list of transactions affecting each account and the account's balance.

The purpose of a journal is to

record a chronological listing of every transaction for a company.

is buying supplies a debit or credit? and which accounts are debited and credited?

supplies are considered an expense and increased with Debit. It is also credited under accounts payable.

Journal Entry

the format used for recording business transactions