dtt - lecture 2

7/30/2019 DTT - Lecture 2

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Lecture2Analyzing Transactions

and Double Entry


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Analyzing Business TransactionsUsing T Accounts

Section 1: Transactions That AffectAssets, Liabilities, and Owners Equity

Section Objectives

1. Set up T accounts for assets, liabilities,and owners equity.

2. Analyze business transactions and enter

them in the accounts.

3. Determine the balance of an account.


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Analyze each transaction and

event from source documents

Analyzing and Recording Process

Record relevant transactionsand events in ajournal

Post journal

information

to ledger

accountsPrepare and analyze

the trial balance


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Sales

Tickets

Bank

Statements

Purchase

Orders

Checks

Source Documents

Bills fromSuppliers

Employee

EarningsRecords


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The Accounting Equation

ASSETSThe property a

business owns

LIABILITIESThe debts of

the business

OWNERS

EQUITYThe owners financial

interest in the business

=

+


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Account

Type

Assets

Liabilities

Capital

Revenue

Expenses

Withdrawals

Step 1

Write down the account types

using ALCREW.

Remembering Debits and Credits

ALCREW


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Account

Type

Normal

Balance

Assets

Liabilities

Capital

Revenue

Expenses

Withdrawals

Step 2

Write down the normalbalance (debit) of A,E,W. The

others are credits.


ALCREW

Account

Type

Assets

Liabilities

Capital

Revenue

Expenses

Withdrawals


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Account

Type

Normal

Balance

Assets Dr

Liabilities

Capital

Revenue

Expenses Dr

Withdrawals Dr

Step 2

Write down the normalbalance, debit, of A,E,W. The

others are credits.


ALCREW

Account

Type

Assets

Liabilities

Capital

Revenue

Expenses

Withdrawals


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Account

Type

Normal

Balance

Assets Dr

Liabilities Cr

Capital Cr

Revenue Cr

Expenses Dr

Withdrawals Dr

Step 2

Write down the normalbalance, debit, of A,E,W. The

others are credits.


ALCREW

Account

Type

Assets

Liabilities

Capital

Revenue

Expenses

Withdrawals


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Account

Type

Normal

BalanceTo

Balance

To

Balance

Assets Dr Dr

Liabilities Cr Cr

Capital Cr Cr

Revenue Cr Cr

Expenses Dr

Withdrawals Dr

Step 3

Remember, increases are the

same as the normal balances,

decreases are the opposite.


ALCREW


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Account

Type

Normal

BalanceTo

Balance

To

Balance

Assets Dr Dr Cr

Liabilities Cr Cr Dr

Capital Cr Cr Dr

Revenue Cr Cr Dr

Expenses Dr

Withdrawals Dr

Step 3

Remember, increases are the

same as the normal balances,

decreases are the opposite.


ALCREW


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Account

Type

Normal

BalanceTo

Balance

To

Balance

Assets Dr Dr Cr

Liabilities Cr Cr Dr

Capital Cr Cr Dr

Revenue Cr Cr Dr

Expenses Dr Dr Cr

Withdrawals Dr Dr Cr


ALCREW


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T Accounts

= +ASSETS

+

RecordIncreases

LEFT SIDE

-

RecordDecreases

RIGHT SIDE

LIABILITIES

-

RecordDecreases

LEFT SIDE

+

RecordIncreases

RIGHT SIDE

OWNERS EQUITY

-

RecordDecreases

LEFT SIDE

+

RecordIncreases

RIGHT SIDE

Set up T accounts for assets, liabilities and

owners equityObjective 1


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Effects of Business Transactions

1. Analyze the financial event.

Steps to analyze the effects of the business

transactions:

1. Apply the left-side-right side rules for each account affected.

2. Make the entry in T-account form.

Identify the accounts affected.

Classify the accounts affected.

Determine the amount of increase or decrease for each

account.

Objective 2 Analyze business transactions and enterthem in the accounts

f


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Determine the balance of an

accountObjective 3

An account balance is the difference between the

amounts recorded on the two sides of an account.


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the total of those entries is the account

balance.

an account contains entries on only one

side,

that amount is the balance.an account shows only one amount,

the balance is recorded on the left side.the total on the left side is larger,

the balance is recorded on the right side.the total on the right side is larger than

the total on the left side,

Recording Account Balances

IF THEN


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Account balances for Carter Consulting Services

ASSETS = LIABILITIES + OWNERS EQUITY

Cash Accounts Payable Carolyn Wells, Capital

(a) 100,000 (b) 5,000 ( e) 2,500 (c) 6,000 (b) 100,000

(d) 1,500 Bal. 3,500

(e) 2,500

(f) 8,000

Bal. 83,000 17,000

Supplies

SUMMARY OF ACCOUNT BALANCES

(d) 1,500

ASSETS = LIABILITIES + OWNERS EQUITY

Prepaid Rent 83,000 3,500 100,000

1,500

(f) 8,000 8,000

11,000

Equipment

103,500 = 3,500 + 100,000

(b) 5,000

(c) 6,000

Bal. 11,000

Summary of Account Balances


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Analyzing Business TransactionsUsing T Accounts

Section 2: Transactions That Affect Revenue,Expenses, and Withdrawals

Section Objectives

1. Set up T accounts for revenue and expenses.

2. Prepare a trial balance from T accounts.

3. Prepare an income statement, a statement of ownersequity, and a balance sheet.

4. Develop a chart of accounts.


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The Rules of Debit and Credit

A debit is an entry on the left side of an account.

A credit is an entry on the right side of an account.

A double-entry system is an accounting system that

involves recording the effects of each transaction asdebits and credits in separate accounts.

Every transaction in a Double entry accounting system

has at least one debit and one credit.

Every transaction must have at least one debit and onecredit. The total of the debits and credits recorded in the

separate accounts must be EQUAL.


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Any Account

Left Side Right Side

Accountants refer to the left side of an account as the debit side

instead of saying the left side.

The right side of the account is called the credit side.


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Rules for Debits and Credits


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Objective 5 Prepare a trial balance from T accounts

1. Use the proper heading to include who, what, and

when information.

2. List the accounts in chart of account order or in the

same order as they appear in the financial

statement.

3. Enter the ending balance of each account in the

appropriate Debit or Credit column.

4. Total the Debit column.

5. Total the Credit column.

6. Compare the column totals. They should be equal.


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Post.

Ref.

JOURNAL

Date Description Debit Credit

Page 1

1

2

3

4

Nov. 12005 Cash 25 000 00Chris Clark, Capital 25 000 00

Invested cash in NetSolutions.

(A) On November 1, Chris Clark

deposits $25,000 in a bank account

in the name of NetSolutions.


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(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

CashNov. 1 25,000 Nov. 1 25,000

Chris Clark, Capital


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4

5

6

7

8

9

10

5 Land 20 000 00

Cash 20 000 00

Purchased land for building

site.

(B) On November 5,

NetSolutions bought land

for $20,000, paying cash.


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CashNov. 1 25,000 Nov. 5 20,000

LandNov. 5 20,000

(B) On November 5,

NetSolutions bought land

for $20,000, paying cash.


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10

11

12

13

14

15

16

10 Supplies 1 350 00

Accounts Payable 1 350 00

Purchased supplies on account.

(C) On November 10,

NetSolutions purchased

supplies on account for

$1,350.


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(C) On November 10,

NetSolutions purchased

supplies on account for

$1,350.


Supplies

Nov. 10 1,350

Accounts Payable

Nov. 10 1,350


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(D) On November 18, NetSolutions

received fees of $7,500 from

customers for services provided .

18 Cash 7 500 00

Fees Earned 7 500 00

Received fees from customers.

14

15

16

17

18

19

20


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CashNov. 1 25,000 Nov. 5 20,000

Fees EarnedNov. 18 7,500

18 7,500

(D) On November 18, NetSolutions

received fees of $7,500 from

customers for services provided .


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(E) Throughout the month, NetSolutions

incurred the following expenses:

wages, $2,125; rent, $800; utilities,$450; and miscellaneous, $275 .

30 Wages Expense 2 125 00

Rent Expense 800 00

Utilities Expense 450 00

Miscellaneous Expense 275 00

Cash 3 650 00

Paid expenses.

18

19

20

21

22

23

24


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CashNov. 1 25,000 Nov. 5 20,000

Wages

ExpenseNov. 30 2,125

18 7,500

Rent ExpenseNov. 30 800

Utilities ExpenseNov. 30 450

Miscellaneous ExpenseNov. 30 275

30 3,650

(E) Throughout the month, NetSolutions

incurred the following expenses:

wages, $2,125; rent, $800; utilities,$450; and miscellaneous, $275 .


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30 Accounts Payable 950 00

Cash 950 00

Paid creditors on account.

30

31

32

33

34

35

36

(F) On November 30, NetSolutions

paid creditors on account, $950.


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CashNov. 1 25,000 Nov. 5 20,000

18 7,500 30 3,650


Accounts PayableNov. 10 1,350Nov. 30 950

30 950

(F) On November 30, NetSolutions

paid creditors on account, $950.


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(G) On November 30, a count

revealed that $800 of the supplies

inventory had been used.

30 Supplies Expense 800 00

Supplies 800 00

Supplies used during

November.

25

26

27

28

29

30

31


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SuppliesNov. 10 1,350

Supplies ExpenseNov. 30 800Nov. 30 800

(G) On November 30, a count

revealed that $800 of the supplies

inventory had been used.


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Post.

Ref.

JOURNAL

Date Description Debit Credit

Page 2

1

2

3

4

Nov. 302005 Chris Clark, Drawing 2 000 00Cash 2 000 00

Chris Clark withdrew cash for

personal use.

(H) On November 30, Chris Clark

withdrew $2,000 in cash fromNetSolutions for personal use.


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30 950

30 2,000

CashNov. 1 25,000 Nov. 5 20,000

18 7,500 30 3,650

Effects of this entry in the LedgerChris Clark,

Drawing

Nov. 10 1,350Nov. 30 2,000

(H) On November 30, Chris Clark

withdrew $2,000 in cash fromNetSolutions for personal use.


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Flow of Business Transactions

1Transaction

authorized 2Transaction

takes place 3Document

prepared

4

Entry

recorded injournal 5

Entry posted

to ledger


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The End