Agriculutural Technical Institute Bus Tec T101 Accounting: Recording Business Transactions

AGRICULUTURAL TECHNICAL INSTITUTE
BUS TEC T101 ACCOUNTING
Chapter
2
Recording
Business Transactions
CH 1: ACCT & THE BUS ENVIRONMENT
REVIEW
The Account Equation
(A=L+OE) is the basis
for all accounting
BUSINESS FINANCIAL FINANCIAL
TRANSCTIONS ACCOUNTING STATEMENTS
CH 1: ACCT & THE BUS ENVIRONMENT
REVIEW
1. Terms 2. Procedures
a. Assets a. Transactions
b. Liabilities b. Prepare Financial St
c. Equity 1. Income St
d. Revenue 2. Equity St.
e. Expenses 3. Balance Sh.
f. Acct Principles 4. Cash Flow St
ACCOUNTING CONCEPTS
Business Transactions Chapter One
Journal Entries Chapter Two
Posting to Ledgers
Trial Balance
Financial Statements
CH 2: RECORDING BUS TRANSACTIONS
LEARNING OBJECTIVES
AFTER COMPLETING THIS CHAPTER, THE STUDENT
SHOULD BE ABLE TO:
1. Define & Use Key Accounting Terms

2. Apply the Rules of Debits and Credits
3. Record Transactions in the Journal
4. Post from the Journal to the Ledger
5. Prepare & Use a Trial Balance
46
OBJ 1 Define & Use Key Accounting Terms
Accounts
Accounts Ledger
Ledger
Individual asset accounts
All individual
Cash accounts
Cash combined
make up
the ledger.
Accounts
Accounts Ledger
Payable Ledger
Payable
Individual liability accounts
Gay
GayGillen,
Gillen,
Capital
Capital
Individual owner’s equity accounts

55
Chart of Accounts in the Ledger
 This is a listing of all accounts & related
account numbers used by a business.
 Each account should have its own number.
 The numbering system should allow flexibility
for changing business needs.
Typically for a small business

100’s = Assets Accts 400’s = Revenue
200’s = Liability Accts 500’s = Expenses
300’s = Equity Accts
45
Assets
Assets
 What are some asset accounts?
– Cash (Checking Acct)
– Accts Receivable (Unwritten Promises to Pay)
– Notes Receivable (Written Promises to Pay)
– Prepaid Expenses (Expense Paid in Advance)
– Equipment
– Building
– Land
In Order by Liquidity: Time to Convert to Cash

45
Assets
Assets Liabilities
Liabilities
 What are some liability accounts?
– Accounts Payable (Things bought on short
term credit)
– Notes Payable (Loans longer than 1 yr)
– Accrued Liabilities (for expenses incurred but
not paid)
– Long-term Liabilities (bonds)
46
Assets
Assets Liabilities
Liabilities Owner’s
Owner’s Equity
Equity
 What are some owner’s equity accounts?
– Capital or owner’s interest in the business
– Withdrawals by the owner
– Revenues from business activities
– Expenses related to business activities
In a corporation, the owner’s equity account is
called Stockholders’ Equity.
Contributed
Contributed Capital
Capital Retained
Retained Earnings
Earnings
47
Double-Entry Accounting
 Double entry bookkeeping means to
record the multiple effects of each
business transaction.
 Assets = Liabilities + Owner’s Equity
 Assets are on the left (debit) side.
 Liabilities and Equity are on the right
(credit) side.
47
The T-Account
Account Title
Debit Credit
LEFT SIDE RIGHT SIDE

Debits are always on the left,
and Credits on the right
But their effects differs based on
what account is changed
48 Apply the rules of debit & credit.
OBJ 2
Rules of Debit and Credit
Assets Liabilities + Owner’s
= Equity
Debit Credit Debit Credit Debit Credit
+ - - + - +
$Debits = $Credits
NB NB NB
Normal Account Balances
The side where we expect increases (+) to
be recorded is the normal balance side.
OBJ 2
Rules of Debit and Credit
A = L + OE
D + C+
EXPENSES: D+ REVENUE: C+
WITHDRAWALS: D+ CAPITAL: C+
OBJ 2
The Double-Entry System
Each transaction is recorded with at least:
One debit One credit
Total debits must equal total credits.
1. For any one transaction

2. For any account in Ledger
3. For the Ledger as a whole DEBITS CREDITS
4. For the Balance Sheet

OBJ 1
Reviews Rules of Debits & Credits
ACCOUNTING EFFECT OF EFFECT OF
COMPONENT DEBIT CREDIT
1. Assets
2. Liabilities
3. Owner’s
Equity
4. Revenue
5. Expenses
50
OBJ 3 Record Transactions in Journal.
Journals
 What is a journal?
 It is a list in CHRONOLOGICAL order of all
the transactions for a business.
1 Identify transaction from source documents
(sales slip, invoice, etc.)
2 Specify accounts affected.
3 Apply debit/credit rules.
4 Record transaction with description.
50 Record Transactions in Journal.
OBJ 3
Journal Entry Rules
 What does a journal entry include?
–date of the transaction
–title of the account debited (First)
–title of the account credited (Second)
-amount of the debit and credit
–description of the transaction
-dollar signs are omitted

Date Accounts & Explanation Debit Credit
Aug 2 Supplies 500
Acct Payable 500
Bought Supplies on Acct
OBJ
1. When should a transaction be recorded?

a. Must effect the entity’s financial position
b. Must be reliable
2. Where should the transaction be recorded?
-- In the Journal
3. What to record for each transaction?
-- Incr / Decr for all accounts affected
4. How should the transaction be recorded?
-- Follow the rules of debits and credits
OBJ
3
1. SHAY GILLIAN FORMS A BUSINESS BY TRANSFERRING $30,000
FROM A SAVING ACCT TO A BUSINESS CHECKING ACCT ON APR 2
ASSETS = LIAB CAPITAL
ACCT
CK REC SUPP EQP BLD LD = ACTS NOTES INV REC/EXP
+30000 +30000
General Journal Page 1
April 2 Cash 30,000
Shay Gillen, Capital 30,000
Received initial investment from owner
OBJ
3
2. PAID $20,000 CASH ON 4/3 FOR LD TO BUILD AN OFFICE.
ASSETS LIAB CAPITAL
ACCT
+30000 +30000
-20000 +20000

April 2 Cash 30,000
April 3 Land 20,000
Cash 20,000
Buy land for office building
53 Record Transactions in G Journal
OBJ
3
3. BOUGHT OFFICE SUPPLIES FOR $500 ON ACCOUNT ON APR 6

ASSETS LIAB CAPITAL
ACCT
+30000 +30000
-20000 +20000
+500 +500
April 2 Cash 30,000
April 3 Land 20,000
Cash 20,000
April 6 Supplies 500
Accounts Payable 500
Bought supplies on account
51
OBJ 4 Posting from Gen Journal
Journal
It is a list in chronological order of all the
transactions for a business.
Ledger
It is a digest of all accounts utilized by an entity
during an accounting period. It is a listing of
transactions for an entity .
Loose leaf Computer Bound
pages books Cards
printout
Posting
is the process of transferring of data from the
journal to appropriate ledger accounts.
51
Posting
First we’ll look at: Posting to T-accounts
Then we’ll look at: Posting to a 4 column ledger

46
OBJ 4 Post from Journal to T Accts
Date Accounts & Explanation Ref Debit Credit
April 2 Cash 30,000
1
Assets Liabilities Capital
Cash Equip Acct Payable Gillian
30,000 30,000
Revenue
Acct Rec Bldg
Notes Payable
Expenses
Supplies Land
47
April 3 Land 20,000
Cash 20,000
2
30,000 20,000 30,000
Revenue
Acct Rec Bldg
Notes Payable
Expenses
Supplies Land
20,000
47
Acct Payable 500
3
30,000 20,000 500
30,000
Revenue
Acct Rec Bldg
Notes Payable
Expenses
Supplies Land
500 20,000
47
April 7 Acct Payable 300
Cash 300
April 8 Gillian, Withdraws 2,000

Cash 2,000
48

30,000 20,000 300 500 30,000
300 30,000
2,000 Bal 200
Bal 7,700 Bldg Notes Payable Revenue
Acct Rec
Supplies Land Withdraw Expenses

500 20,000 2,000
Bal 500 Bal 20,000 Bal 2,000
51
Posting
Now: Let’s look at the 4 column account

format
4 Post Fr Journal to 4 Col Ledger
OBJ
The Four-Column Account
Account: Cash
Format Account No. 101
Balance
Date Item Ref. Debit Credit Debit Credit
April 2 GJ 30,000 30,000
Why this format instead of T accounts?

1. Has room for reference information
2. Has a running balance, so information is
easier to retrieve
53
OBJ 4 Post Fr Journal to 4 Col Ledger
April 2 Cash 30,000
54
OBJ
Posting Steps
1. Copy (post) transaction date from journal to
the appropriate ledger account
53
April 2 Cash 30,000
Account: Cash Account No. 101

Balance
April 2
1
Enter the date
from the journal
54
OBJ
Posting Steps
2. Copy (post) journal name & page from
journal to the appropriate ledger account
53
April 2 Cash 30,000

Balance
April 2 GJ-1
1 2
Enter Enter
the journal
date pg&no
54
OBJ
Posting Steps
3. Copy (post) debit from journal to the
appropriate ledger account
53
April 2 Cash 30,000

Balance
April 2 GJ-1 30,000
1 2 3 3
Enter Enter Enter
the journal debit or
date pg&no credit
54
OBJ
Posting Steps
4. Calculate running balance
53
April 2 Cash 30,000

Balance
April 2 GJ-1 30,000 30,000
1 2 3 3 4
Enter Enter Enter Cal
the journal debit or Run
date pg&no credit Bal
54
OBJ
Posting Steps
5. Copy (post) ledger account number back to
the Post Ref col in the journal
53
April 2 Cash 101 30,000

Balance
April 2 GJ-1 30,000 30,000
1 2 3 3 4 5
Enter Enter Enter Cal Put acct no
the journal debit or Run in Post Ref
date pg&no credit Bal col
54
OBJ
Posting Steps
5. Copy (post) ledger account number back to
the Post Ref col in the journal
6. Repeat steps 1-4 for the credit entry
53
April 2 Cash 301 30,000
Account: Shay Gillen, Capital Account No. 301

Balance
April 2 GJ-1 30,000 30,000
1 2 3 3 4 5
Enter Enter Enter Cal Put acct no
the journal debit or Run in Post Ref
date pg&no credit Bal col
47
April 3 Land 20,000
Cash 20,000
Acct Payable 500
April 7 Acct Payable 300
Cash 300
April 8 Gillen, Withdrawals 2,000

Cash 2,000
53
Account: Land Account No. 106
Balance
April 3 GJ-1 20,000 20,000

Balance
April 2 GJ-1 30,000 30,000
April 3 GJ-1 20,000 10,000
53
Account: Supplies Account No. 103
Balance
April 6 GJ-1 500 500
Account: Accounts Payable Account No. 201
Balance
April 6 GJ-1 500 500
53
Account: Accounts Payable Account No. 201
Balance
April 6 GJ-1 500 500
April 7 GJ-1 300 200

Balance
April 2 GJ-1 30,000 30,000
April 3 GJ-1 20,000 10,000
April 7 GJ-1 300 9,700

53
Account: Shay Gillen, Withdrawals Account No. 302
Balance
April 8 GJ-1 2,000 2,000

Balance
April 2 GJ-1 30,000 30,000
April 3 GJ-1 20,000 10,000
April 7 GJ-1 300 9,700
April 8 GJ-1 2,000 7,700
54
OBJ 5 Prepare & use a trial balance.
Trial Balance
 What is a trial balance?
 It is an internal document.
 It is a listing of all the accounts with their
related balances.
 Before computers, it provided a check on
accuracy by showing whether total debits
equal total credits.
55
5 Prepare & use a trial balance.
OBJ
Gillen Travel
Trial Balance
As of _____ 20xx
Account Debit Credit
Cash 7, 700
Acct Rec 0
Supplies 500
Equip 0
Buildings 0
Land 20,000
Acct Payable 200
Notes Payable 0
Gillen, Capital 30,000
Gillen, Withdraw 2,000
Revenue 0
0
Expense
30,200 30,200
65
Locating Trial Balance Errors

 What if it doesn’t balance ?
 Is the addition correct?
 Are all accounts listed?
 Are the balances listed correctly?
DEBITS CREDITS
65
Locating Trial Balance Errors
 Divide the difference by two.

 Is there a debit/credit balance for this
amount posted in the wrong column?
 Check journal postings.
 Review accounts for reasonableness.
 Computerized accounting programs
usually prohibit out-of-balance entries.
54
OBJ
Date E2-7 Pg 76 PR Db Cr
5/2 Cash 20,000
Edwards, Capital 20,000
5/5 Cash 25,000

Notes Payable 25,000
5/9 Supplies 200

Accounts Payable 200
5/11 Accounts Receivable 2,600

Service Revenue 2,600
54
OBJ
Account: Acct Rec Account No. 120


54
OBJ
Account: Acct Payable Account No. 210
Account: Notes Payable Account No. 230

Account: Edwards, Capital Account No. 310

Account: Service Rev Account No. 410

54
2 Preparing A Trial Balance
OBJ
5/2 GJ1 20,000 20,000
5/5 GJ1 25,000 45,000
5/14 GJ1 3,200 41,800
5/22 GJ1 300 41,500
5/25 GJ1 400 41,100
5/27 GJ1 1,400 42,500
Account: Acct Rec Account No. 120
5/11 GJ1 2,600 2,600
5/11 GJ1 1,400 1,200
5/9 GJ1 200 200
54
OBJ
Account: Acct Payable Account No. 210
5/9 GJ1 200 200
5/22 GJ1 300 100
5/9 GJ1 100 0
Account: Notes Payable Account No. 230

5/5 GJ1 25,000 25,000
Account: Edwards, Capital Account No. 310

5/2 GJ1 20,000 20,000
54
OBJ
Account: Service Rev Account No. 410
5/11 GJ1 2,600 2,600
Account: Rent Expense Account No. 510

5/14 GJ1 3,200
3,200
Account: Adv Expense Account No. 520
5/11 GJ1 400 400
Account: Util Expense Account No. 530
5/11 GJ1 100 100
54
OBJ
E2- 7 #4 Pg 76
#1 Name:
#2 Statement:
#3 Date (Pt of Time): Account Db Cr
#4 List Assets Accts & Bal:
#5 List Liab Accts& Bal:
#6 List Capital Accts & Bal:

#7 List Revenue Accts & Bal:
#8 List Expense Accts & Bal:
#9 Total Debits & Credits:

CH 2: RECORDING BUS TRANSACTIONS
SUMMARY
1. New Terms 2. New Procedures
a. T Accounts a. Journalizing
b. Ledger b. Posting
c. Journal c. Preparing Trial
d. Debits & Credits Balance
e. Normal Balance
f. Trial Balance
17 Prepare And Use
Financial Statements.
Name of Business
Income Statement
For Period Ending xx/xx/20xx
Revenue:
Fees earned $8,500
Expenses:
Salary expense 1,200
Utilities & telephone expense 400
Equipment rental expense 400
Office rent expense 1,100
Total Expenses $3,100
Net income (Net Loss) $5,400
20 Prepare And Use
Name of Business
Statement of Owner’s Equity
Beginning Capital $ 0
Add: Contribution of capital 30,000
Net income $5,400
35,400
Less: Cash distributions (Withdraws) (2,100)
20 Prepare And Use
Name of Business
Balance Sheet
As of xx/xx/20xx
Assets Liabilities
Cash $ 20,000 Accounts payable $ 200
Accounts receivable 2,000 Notes payable $0
Supplies 500 S. Gillen, capital 33,300
Land 11,000
Total liabilities and
Total assets $ 33,500 owner’s equity $33,500

20 Prepare And Use
Name of Business
Statement Of Cash Flows
Cash flows from operating activities:
Cash in: receipts from services rendered $6,500
Cash out: expenses (3,400)
Net cash flows from Operating activities $3,100
Cash flows from investing activities
Cash in: Sale of land $9,000
Cash Out: Purchase of land ($20,000)
Net cash flows from Investing activities ($11,000)
Cash Flows from financing Activities:
Cash in: Owner’s Investment $30,000
Cash Out: Owner’s Withdraw ($2,100)
Net cash flows from Financing activities $27,900
NET INCREASE IN CASH $20,000
BEGINING CASH $0
ENDING CASH $20,000
Next Topic
CHAPTER 3
THE ADJUSTING
PROCESS

Agriculutural Technical Institute Bus Tec T101 Accounting: Recording Business Transactions

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AGRICULUTURAL TECHNICAL INSTITUTE

BUS TEC T101 ACCOUNTING

1. Define & Use Key Accounting Terms

Individual owner’s equity accounts

Typically for a small business

In Order by Liquidity: Time to Convert to Cash

LEFT SIDE RIGHT SIDE

One debit One credit

Total debits must equal total credits.

1. For any one transaction

4. For the Balance Sheet

-dollar signs are omitted

1. When should a transaction be recorded?

General Journal Page 1

3. BOUGHT OFFICE SUPPLIES FOR $500 ON ACCOUNT ON APR 6

First we’ll look at: Posting to T-accounts

Then we’ll look at: Posting to a 4 column ledger

April 8 Gillian, Withdraws 2,000

Assets Liabilities Capital

Supplies Land Withdraw Expenses

Now: Let’s look at the 4 column account

April 2 GJ 30,000 30,000

Why this format instead of T accounts?

Account: Cash Account No. 101

Account: Cash Account No. 101

Account: Cash Account No. 101

Account: Cash Account No. 101

Account: Cash Account No. 101

Account: Shay Gillen, Capital Account No. 301

April 8 Gillen, Withdrawals 2,000

Account: Cash Account No. 101

Account: Accounts Payable Account No. 201

April 7 GJ-1 300 200

Account: Cash Account No. 101

April 7 GJ-1 300 9,700

Account: Cash Account No. 101

Locating Trial Balance Errors

Locating Trial Balance Errors

 Divide the difference by two.

5/5 Cash 25,000

5/9 Supplies 200

5/11 Accounts Receivable 2,600

Account: Acct Rec Account No. 120

Account: Supplies Account No. 130

Account: Notes Payable Account No. 230

Account: Edwards, Capital Account No. 310

Account: Service Rev Account No. 410

Account: Notes Payable Account No. 230

Account: Edwards, Capital Account No. 310

Account: Rent Expense Account No. 510

#5 List Liab Accts& Bal:

#6 List Capital Accts & Bal:

#9 Total Debits & Credits:

Cash $ 20,000 Accounts payable $ 200

Accounts receivable 2,000 Notes payable $0

Supplies 500 S. Gillen, capital 33,300

Total assets $ 33,500 owner’s equity $33,500

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