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