acc 499 unit 02 seminar presented by: dr. stanley w. self agenda – opening questions. –...

ACC 499 Unit 02 Seminar

• Presented by: Dr. Stanley W. Self

• Agenda– Opening questions.– Lecture/Review– Q & A

1

Preliminary Comments

• Tonight will be a basic review of some familiar accounting principles.

• My intention is to get through the review as quickly as possible, then concentrate on your questions.

• I would like to expand the scope of our seminars beyond the boundaries set in the assignments and include real world and practical applications that will be of interest to you.

• The material covered in this seminar will relate directly to the first template homework assignment, so you might be able to resolve any homework related issues tonight..

2

Homework Templates• The homework must be submitted using the templates

provided in the Doc Sharing area.• The templates are not necessarily formatted correctly.

You will have to correctly format all of your homework. For example:– When creating a journal entry, all Debit description

lines must be left justified & Credit lines indented. – All Journal Entries must have an explanation for the

entry.– At least one General Ledger Account is not included in

the template, so you will have to copy & paste to create that General Ledger Account.

3

4

The T account has a title.

The T Account

A graphical reflection of journal entries

Title

1

5

The T Account

The left side of the account is

called the debit side.

Title

Debit

1

6

The T Account

Title

DebitThe right side of

the account is called the credit

side.

Credit

1

7

A group of accounts for a business entity is called a ledger.

1

Chart of Accounts

8

A list of the accounts in a ledger is called a chart of accounts.

1

Chart of Accounts

9

Assets are resources owned by the business entity.

• Cash• Supplies• Accounts receivable• Prepaid expenses• Buildings

1

Chart of Accounts

10

Liabilities are debts owed to outsiders (creditors).

• Accounts payable• Notes payable• Wages payable

1

Chart of Accounts

11

Owner’s equity is the owner’s right to the assets of the business. A drawing account represents the amount of withdrawals by the owner.

1

Chart of Accounts – The below represents what type of business?

12

Revenues are increases in owner’s equity as a result of selling services or products to customers.

• Fees earned• Commission revenue• Rent revenue

1

Chart of Accounts

13

The using up of assets or consuming services in the process of generating revenues results in expenses.

• Wages expense• Rent expense• Miscellaneous expense

1

Chart of Accounts

14

Credit for increases (+)

Debit for decreases (–)

Owner’s Equity Accounts

Credit for decreases (–)

Debit for increases (+)

Asset Accounts

Credit for increases (+)

Debit for decreases (–)

Liability Accounts

Rules of Debit and Credit Normal Balances of Accounts

2

Balance Balance

Balance

15

Credit for increases

(+)

Debit for decreases

(–)

Revenue Accounts

Credit for decreases

(–)

Debit for increases (+)

Expense Accounts

Income Statement Accounts

2

16

Credit for decreases

(–)

Debit for increases

(+)

Drawing Account

Owner’s Withdrawals

2

17

Increase(Normal Bal.) Decreases

Balance sheet accounts:AssetDebit CreditLiability Credit DebitOwner’s Equity:

Capital Credit DebitDrawing Debit

CreditIncome statement accounts:

Revenue Credit DebitExpense DebitCredit

Normal Balances

2

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A transaction is initially entered in a record called a journal. The process of recording a transaction in the journal is called journalizing.

2

Journalizing

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Journalizing requires the following steps:

1. The date of the transaction is entered in the Date column.

(continued)

2. The title of the account to be debited is recorded at the left-hand margin under the Description column, and the amount to be debited is entered in the Debit column.

2

Journalizing

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3. The title of the account to be credited is listed below and to the right of the debited account title, and the amount to be credited is entered in the Credit column.

4. A brief description may be entered below the credited account.

5. The Post. Ref. (Posting Reference) column is left blank when the journal entry is initially recorded.

2

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On November 1, Chris Clark opens a new business and deposits $25,000 in a bank account.

Transaction A

2

22

Date Description Debit Credit

Nov. 12009

Cash 25,000

Chris Clark, Capital 25,000

Invested cash

P.R.

JOURNAL Page 1

2

23

The effect of this entry is shown in the accounts as follows:

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

Chris Clark, Capital

2

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The process of transferring the debits and credits from the journal entries to the accounts is called posting.

3

Posting Journal Entries to Accounts

25

Dec. 1 Paid a premium of $2,400 for an insurance policy for liability, theft and fire. The policy covers a one-year period.

3

26

3

to Cash

Step 1

ep 3

Step 1

Step 2

Step 2

ep 3

(continued)

Exhibit 4 Diagram of the Recording and Posting of a Debit and a Credit

27

3

Step 1

ep 3

Step 2

Step 1

ep 4

Step 3

Step 3

Exhibit 4 Diagram of the Recording and Posting of a Debit and a Credit (continued)

28

Dec. 31 Paid $225 for electric usage for the month.

3

29

Dec. 31 Earned $1,120 on account for the second half of December.

3

30

3

Ledger NetSolutions

Exhibit 5 Ledger

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3Exhibit 5 Ledger (continued)

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3

Exhibit 5 Ledger (continued)

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The equality of debits and credits in the ledger should be proven at the end of each accounting period by preparing a trial balance.

4

Trial Balance Preparation

34

The steps in preparing a trial balance are as follows:1. List the name of the company, the title of the trial

balance, and the date the trial balance is prepared.

2. List the accounts from the ledger and enter their debit or credit balance in the Debit or Credit column of the trial balance.

3. Total the Debit and Credit columns of the trial balance.

4. Verify that the total of the Debit column equals the total of the Credit column.

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35

4

Exhibit 6 Trial Balance

36

A transposition occurs when the order of the digits is changed mistakenly, such as writing $542 as $452 or $524.

In a slide, the entire number is mistakenly moved one or more spaces to the right or the left, such as writing $542.00 as $54.20 or $97.50 as $975.00.

4

Errors

37

If an error has already been journalized and posted to the ledger, a correcting journal entry is normally prepared.

4

38

Another type of error is a posting error. Assume that on May 5 a $12,500 purchase of office equipment on account was incorrectly journalized and posted as a debit to Supplies and a credit to Accounts Payable for $12,500.

Errors Not Affecting the Trial Balance

4

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Posted Correcting Entry

4

Q & A

•?

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