Source Documents

1
Source Documents
Bills from Suppliers
Checks
Purchase Orders
Employee EarningsRecords
Bank Statements
Sales Tickets
2
The Account and its Analysis
An account is a record of increases and decreases
in a specific asset, liability, equity, revenue,
or expense item.
The general ledger is a record containing all
accounts used by the company.
3
The Account and its Analysis

4
Major Account Classifications
Liabilities are often identified on the balance
sheet by titles that include payable.
Liabilities are debts owed to outsiders
(creditors).
Assets are resources owned by the business.
Cash Supplies Building Accounts Receivable
Accounts Payable Notes Payable Wages Payable
5
Major Account Classifications
Owners equity is the owners right to the assets
of the business.
Revenues are increases in owners equity as a
result of selling services or products.
Expenses are the using up of assets or consuming
of services to generate revenue.
Chris Clark, Capital Chris Clark, Drawing
Rent Expense Salary Expense Utilities Expense
Fees Earned Fares Earned Commission Revenue
6
Ledger and Chart of Accounts
The ledger is a collection of all accounts for
aninformation system. A companys size
anddiversity of operations affect the numberof
accounts needed.
The chart of accounts is a list of all accounts
andincludes an identifying number for each
account.
7
Analyzing and Recording Process
8
Debits and Credits

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

9
The T-Account
Account Name
Left side debit
Right side credit
10
The T-Account
Account Name
Right side credit
Left side debit
All ASSETS have debit balances!!
All LIABILITIES have credit balances!!
11
The T-Account
Account Name
Right side credit
Left side debit
OWNERS EQUITY also has a credit balance!!
Assets
Liabilities Owners Equity
12
The T-Account
Account Name
OWNERS EQUITY has a credit balance!!
Investments by Owner Revenue
- Withdrawals by Owner - Expenses
13
Example - The T-Account
Cash
3,750 4,300 2,900
850 1,400 700 2,900

• Questions
• What amounts represent the increases to cash?
• What amounts represent the decreases?
• How much cash does the company have?

14
Balancing a T Account

• to determine an accounts balance

15
Cash
3,750 4,300 2,900
850 1,400 700 2,900
First, foot the debit side.
16
Cash
850 1,400 700 2,900
3,750 4,300 2,900
Next, foot the credit side.
17
Subtract total credits from total debits to
obtain the account balance.
Cash
850 1,400 700 2,900
3,750 4,300 2,900
Bal. 5,100
18
(A) On November 1, Chris Clark deposits 25,000
in a bank account in the name of NetSolutions.
Effects of this entry in the Ledger
Cash
Chris Clark, Capital
Nov. 1 25,000
Nov. 1 25,000
19
(B) On November 5, NetSolutions bought land for
20,000, paying cash.
Effects of this entry in the Ledger
Cash
Land
Nov. 1 25,000
Nov. 5 20,000
Nov. 5 20,000
Bal 5,000
Note A credit decreases an Asset (Cash)
20
(C) On November 10, NetSolutions purchased
supplies for 1,350.
Effects of this entry in the Ledger
Cash
Supplies
Nov. 10 1,350
Nov. 1 25,000
Nov. 5 20,000
Nov. 10 1,350
Bal 3,650
Note Even after several transactions, cash
will always have a debit balance!!
21
(D) On November 15, NetSolutions purchased
supplies for 2,000, on account.
Effects of this entry in the Ledger
Supplies
Accounts Payable
Nov. 10 1,350
Nov. 15 2,000
Nov. 15 2,000
Bal 3,350
22
(E) On November 30, NetSolutions paid creditors
on account, 500.
Effects of this entry in the Ledger
Cash
Accounts Payable
Nov. 1 25,000
Nov. 5 20,000
Nov. 10 1,350
Nov. 30 500
10 1,350
30 500
Bal 850
Bal 3,150
Notice A/Pyble, a Liability, has a credit
balance
Notice Cash, an Asset, has a debit balance
23
Double-Entry Accounting

• An account balance is the difference between the
  increases and decreases in an account.
• Notice the T-Account

24
Journalizing Posting Transactions
25
Journalizing Transactions
26
(A) On November 1, Chris Clark deposits 25,000
in a bank account in the name of NetSolutions.
Effects of this entry in the Ledger
Cash
Chris Clark, Capital
Nov. 1 25,000
Nov. 1 25,000
27
(A) On November 1, Chris Clark deposits 25,000
in a bank account in the name of NetSolutions.
Cash (?) 25 000 00
1 2 3 4
Chris Clark, Capital (?) 25 000 00
Owner invested money.
Remember Debits must always equal Credits!!
28
(B) On November 5, NetSolutions bought land for
20,000, paying cash.
Effects of this entry in the Ledger
Cash
Land
Nov. 1 25,000
Nov. 5 20,000
Nov. 5 20,000
Bal 5,000
29
(B) On November 5, NetSolutions bought land for
20,000, paying cash.
1 2 3 4
Land (?) 20 000 00
Cash (?) 20 000 00
Parcel of land bought for cash.
Remember Debits must always equal Credits!!
30
Write Journal Entries for remaining transactions

• C) On November 10, NetSolutions purchased
  supplies for 1,350.
• D) On November 15, NetSolutions purchased
  supplies for 2,000, on account.
• E) On November 30, NetSolutions paid creditors on
  account, 500.

31
(C) On November 10, NetSolutions purchased
supplies for 1,350.
1 2 3 4
Supplies (?) 1 350 00
Cash (?) 1 350 00
Purchased supplies for cash.
Remember Debits must always equal Credits!!
32
(D) On November 15, NetSolutions purchased
supplies for 2,000, on account.
1 2 3 4
Supplies (?) 2 000 00
Accounts Payable (?) 2 000 00
Purchased supplies on account.
Remember Debits must always equal Credits!!
33
(E) On November 30, NetSolutions paid creditors
on account, 500.
Accounts Payable (?) 500 00
1 2 3 4
Cash (?) 500 00
Paid creditors on account.
Remember Debits must always equal Credits!!
34
Posting
35
Trial Balance
36
NetSolutions Trial Balance December 31, 2005
Cash 2 065 00 Accounts Receivable 2 220
00 Supplies 2 000 00 Prepaid Insurance 2 400
00 Land 20 000 00 Office Equipment 1 800
00 Accounts Payable 900 00 Unearned Rent 360
00 Chris Clark, Capital 25 000 00 Chris Clark,
Drawing 4 000 00 Fees Earned 16 340 00 Wages
Expense 4 275 00 Rent Expense 1 600
00 Utilities Expense 985 00 Supplies Expense 800
00 Miscellaneous Expense 455 00 42 600 00 42
600 00
Unadjusted trial balance
37
NetSolutions Trial Balance December 31, 2005
Cash 2 065 00 Accounts Receivable 2 220
00 Supplies 2 000 00 Prepaid Insurance 2 400
00 Land 20 000 00 Office Equipment 1 800
00 Accounts Payable 900 00 Unearned Rent 360
00 Chris Clark, Capital 25 000 00 Chris Clark,
Drawing 4 000 00 Fees Earned 16 340 00 Wages
Expense 4 275 00 Rent Expense 1 600
00 Utilities Expense 985 00 Supplies Expense 800
00 Miscellaneous Expense 455 00 42 600 00 42
600 00
Assets
38
NetSolutions Trial Balance December 31, 2005
Cash 2 065 00 Accounts Receivable 2 220
00 Supplies 2 000 00 Prepaid Insurance 2 400
00 Land 20 000 00 Office Equipment 1 800
00 Accounts Payable 900 00 Unearned Rent 360
00 Chris Clark, Capital 25 000 00 Chris Clark,
Drawing 4 000 00 Fees Earned 16 340 00 Wages
Expense 4 275 00 Rent Expense 1 600
00 Utilities Expense 985 00 Supplies Expense 800
00 Miscellaneous Expense 455 00 42 600 00 42
600 00
Liabilities
39
NetSolutions Trial Balance December 31, 2005
Cash 2 065 00 Accounts Receivable 2 220
00 Supplies 2 000 00 Prepaid Insurance 2 400
00 Land 20 000 00 Office Equipment 1 800
00 Accounts Payable 900 00 Unearned Rent 360
00 Chris Clark, Capital 25 000 00 Chris Clark,
Drawing 4 000 00 Fees Earned 16 340 00 Wages
Expense 4 275 00 Rent Expense 1 600
00 Utilities Expense 985 00 Supplies Expense 800
00 Miscellaneous Expense 455 00 42 600 00 42
600 00
Owners Equity
40
NetSolutions Trial Balance December 31, 2005
Cash 2 065 00 Accounts Receivable 2 220
00 Supplies 2 000 00 Prepaid Insurance 2 400
00 Land 20 000 00 Office Equipment 1 800
00 Accounts Payable 900 00 Unearned Rent 360
00 Chris Clark, Capital 25 000 00 Chris Clark,
Drawing 4 000 00 Fees Earned 16 340 00 Wages
Expense 4 275 00 Rent Expense 1 600
00 Utilities Expense 985 00 Supplies Expense 800
00 Miscellaneous Expense 455 00 42 600 00 42
600 00
Revenue
41
NetSolutions Trial Balance December 31, 2005
Cash 2 065 00 Accounts Receivable 2 220
00 Supplies 2 000 00 Prepaid Insurance 2 400
00 Land 20 000 00 Office Equipment 1 800
00 Accounts Payable 900 00 Unearned Rent 360
00 Chris Clark, Capital 25 000 00 Chris Clark,
Drawing 4 000 00 Fees Earned 16 340 00 Wages
Expense 4 275 00 Rent Expense 1 600
00 Utilities Expense 985 00 Supplies Expense 800
00 Miscellaneous Expense 455 00 42 600 00 42
600 00
Expenses
42
Six Steps for Searching for and Correcting 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
from 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.