Learning Objective 4

1
Learning Objective 4

• Apply the steps for transaction analysis and
  processing to simple transactions

2
Transaction Analysis

• Determine if a business transaction has taken
  place and should be recognized.
• Determine which accounts have been affected.
• Determine what you will debit
• Determine what you will credit
• (Sometimes you have to figure out the credit
  first, and the debit falls into place)

3
Transaction Analysis

• Write out the journal entry in good form
• Date Account to Debit amt
• Account to Credit
  amt
• Explanation of journal entry
• Post to the T account
• Be careful.it is easy to put a number on the
  wrong side!!!!

4
G. Rogers invests 60,000 into her design
consulting business

• Ask yourself What happened?
• Cash increased 60,000
• Why did it increase?She invested in the
  business.the owner contributed her equity to the
  business.her capital!
• Then..Capital increased 60,000.so .

5
Looking at the rules for debit/credit
Debit
Credit
ccc
Shows what the normal balance should be and how
to increase
Cash is an Asset
AWE
CLR
Capital is the C for Capital
6
The journal entry will be
Debit Credit Jan. 1, 1998
Cash 60,000
Capital, G. Rogers
60,000
To record owners
investment.
7
Posting to the T accounts
Cash
a)60,000
Capital
a)60,000
8
January 5, 98.. Rents office space for 1,000 per
month. Pays first two months, 2,000

• Ask yourself What happened?
• Paid 2 months in advance. We have a future
  benefit since the payment will not be used up
  within the month. Future benefits are assets.
  It is called Prepaid Rent.
• We have 2,000 less cash. Cash has decreased.

9
The journal entry will be
Debit Credit Jan. 5, 1998
Prepaid Rent 2,000

Cash
2,000
Record 2 months rent.
AWE
CLR
10
Posting to the T accounts
Cash
a)60,000

Capital
Prepaid Rent
a)60,000
b)2,000
11
Posting to the T accounts
Cash
a)60,000
b)2,000
Capital
Prepaid Rent
a)60,000
b)2,000
12
Posting to the T accounts
Cash
To determine your balance, you draw a line
across the account
a)60,000
b)2,000
Capital
Prepaid Rent
a)60,000
b)2,000
13
Posting to the T accounts
Cash
To determine your balance, you draw a line
across the account
a)60,000
b)2,000
Capital
Prepaid Rent
a)60,000
b)2,000
14
Posting to the T accounts
The side with the larger balance rules! If
debits are greater than credits, then the balance
is on the debit side! If credits, are
greater.then they rule!
Cash
a)60,000
b)2,000
Bal. 58,000
Capital
Prepaid Rent
a)60,000
b)2,000
15
Posting to the T accounts
Always double underline your final answer. If
there is only one entry in the account, it is not
necessary to draw a line.
Cash
a)60,000
b)2,000
Bal. 58,000
Capital
Prepaid Rent
a)60,000
b)2,000
16
Summary Slide

• To record a transaction, the accountant must do
  the following
• 1. Obtain a description of the transaction
• 2. Determine which accounts are involved and
  what type each is (AWECLR).
• 3. Determine which are increa sed/decreased.
• 4. Apply the rules for debits and credits.