Chapter 2- Financial accounting PDF

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Lecture notes for chapter 2 of financial accounting....

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Chapter 2 The Recording Process

red-added Blue- examples

Summary of debit and credit rules:

Increase Decrease Normal balance

Asse t Dr Cr Dr

Liability

Equity

Cr Dr Cr

Cr Dr Cr

Revenu e Cr Dr Cr

Expens e Dr Cr Dr

Dividend Dr Cr Dr

1. Assets/expenses/dividendsa. left side (debit) = increase b. right side (credit) = decrease 2. liabilities/ revenues/ common stock/ retained earnings a. Left side= decrease b. right side= increase - Debit: the left side of the account (increase) - Credit: the right side of the account (decrease) -

Accounts decreased by debits: inventory, accounts payable, dividends, cash, notes payable Trial balance is a list of all accounts showing their ending balances at a given time-primary purpose is to check that debits equal the credits

Chapter 2 Examples 1. The basic accounting equation may be expressed as: ● Assets=Liabilities + Stockholders’ Equity 2. A net loss will result during a time period when: ● expenses exceeds revenue 3. Stockholders equity is increased by ● Revenues and Expenses

and decreased by

:

4. The revenue recognition principle dictates that revenue should be recognized in the accounting records when: ● It is earned 5. Ample Company has total assets of $100,000 and total liabilities of $60,000. The company’s stockholders’ equity is ● $40,000 6. Credits ● Decrease assets and increase liabilities

IN CLASS PROBLEMS Journalize the following business transactions in general journal form. 1) Stockholders invest $35,000 in cash in starting a real estate office. 2) Purchased $400 of office supplies on credit. 3) Purchased office equipment for $6,000, paying $2,000 in cash and signed a 30-day, $4,000, note payable. 4) Real estate commissions billed to clients amount to $4,000. 5) Paid $700 in cash for the current months rent. 6) Paid $200 cash on account for office supplies purchased in transaction 2. 7) Received a bill for $600 for advertising for the current month. 8) Paid $2,200 cash for office salaries. 9) Paid cash dividend of $1,200 10) Received a check for $3,000 from a client in payment on account for commissions billed in transaction 4.

2 Elton Company had the following transactions during March, 2013, their first period of operations. (1) Journalize the transactions. (2) Post the journal entries to T-accounts and determine each account’s ending balance. 1) Stockholders invest $12,000 cash in Elton Company. 2) Purchased $2,000 of supplies on credit. 3) Service billed to clients amount to $4,000. 4) Paid $1,000 cash for current month’s rent. 5) Received $3,000 cash from a client in payment on account for service billed in 3). 6) Purchased equipment for $4,000 and singed a 30-day, 6%, $4,000, note payable. 7) Paid $1,000 cash for the supplies purchased in 2). ANSWER 1) Stockholders invest $12,000 cash in Elton Company. Dr. Cash 12,000 Cr. Common Stock 12,000 2) Purchased $2,000 of supplies on credit. Dr. Supplies 2,000 Cr. Accounts Payable 2,000 3) Service billed to clients amount to $4,000. Dr. Accounts Receivable 4,000 Cr. Service Revenue 4,000 4) Paid $1,000 cash for current month’s rent. Dr. Rent Expense 1,000 Cr. Cash 1,000 5) Received $3,000 cash from a client in payment on account for service billed in 3). Dr. Cash 3,000 Cr. Accounts Receivable 3,000 6) Purchased equipment for $4,000 and singed a 30-day, 6%, $4,000, note payable. Dr. Equipment 4,000 Cr. Notes Payable 4,000 7) Paid $1,000 cash for the supplies purchased in 2). Dr. Accounts Payable 1,000 Cr. Cash 1,000...