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Analyzing and Recording Business Transactions: © The Mcgraw-Hill Companies, Inc., 2008 Mcgraw-Hill/Irwin
Analyzing and Recording Business Transactions: © The Mcgraw-Hill Companies, Inc., 2008 Mcgraw-Hill/Irwin
Post journal
information
to ledger
Prepare and analyze accounts
the trial balance
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008
C2
Source Documents
Bills from
Checks Suppliers Purchase
Orders
Employee
Earnings
Records Bank
Statements
Sales
Tickets
An account is a
record of
increases and The general
decreases in a ledger is a record
specific asset, containing all
liability, equity, accounts used by
revenue, or the company.
expense item.
Assets
Assets Liability
Liability Equity
Equity
Assets
Accounts
Accounts
Accounts = Liability
Accounts
Accounts
Accounts + Equity
Accounts
Accounts
Accounts
Cash
Accounts
Land
Receivable
Notes
Buildings
Asset Receivabl
Accounts e
Prepaid
Equipment
Accounts
Supplies
Accounts Notes
Payable Payable
Liability
Accounts
Accrued Unearned
Liabilities Revenue
Retained
Earnings
Common
Stock Dividends
Equity
Accounts
Revenues Expenses
+ – + –
Common
Dividends Revenues Expenses
Stock
Equity
Common _ _
Stock
Dividends
+ Revenues Expenses
Step 1: Analyze
Step 2: Apply double-
transactions and source
entry accounting
documents.
Analysis:
Double entry:
(1) Cash 101 30,000
Common stock 301 30,000
Posting:
Cash 101 Common Stock 301
(1) 30,000 (1) 30,000
Analysis:
Double entry:
(2) Supplies 126 2,500
Cash 101 2,500
Posting:
Supplies 126 Cash 101
(2) 2,500 (1) 30,000 (2) 2,500
Analysis:
Double entry:
(3) Equipment 167 26,000
Cash 101 26,000
Posting:
Equipment 167 Cash 101
(3) 26,000 (1) 30,000 (2) 2,500
(3) 26,000
Analysis:
Double entry:
(4) Supplies 126 7,100
Accounts payable 201 7,100
Posting:
Supplies 126 Accounts Payable 201
(2) 26,000 (4) 7,100
(4) 7,100
Analysis:
Double entry:
(5) Cash 101 4,200
Consulting Revenue 403 4,200
Posting:
Consulting Revenue 403 Cash 101
(5) 4,200 (1) 30,000 (2) 2,500
(5) 4,200 (3) 26,000
FastForwar
drial Balance
T
December 31, 2007
Debits Credits The trial balance lists
Cash $ 4,350
Accounts receivable -
all account balances
Supplies 9,720 in the general ledger.
Prepaid Insurance 2,400
If the books are in
Equipment 26,000
Accounts payable $ 6,200 balance, the total
Unearned consulting revenue 3,000 debits will equal the
Common stock 30,000
Dividends 200
total credits.
Consulting revenue 5,800
Rental revenue 300
Salaries expense 1,400
Rent expense 1,000
Utilities expense 230
Total $ 45,300 $ 45,300
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008
P2 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 Recompute each account
columns are correctly added. balance in the ledger.
Income Statement
Statement of Retained Earnings
Statement of Cash
Flows
Beginning Ending
Balance Balance
Sheet Sheet
FASTFORWARD
Income Statement
For the Month Ended December 31, 2007
Revenues:
Consulting revenue $ 5,800
Rental revenue 300
Total revenues $ 6,100
Expenses:
Rent expense 1,000
Salaries expense 1,400
Utilities expense 230
Total expenses 2,630
Net income $ 3,470