BUS 2101

Decision Making

Financial Information Business Activities

Financial Statement Analysis

Financial Statements

GAAP

Operating

Investing

Financing

Income Statement

Users

External

Internal

Statement of Cash Flow

Balance Sheet

Annual Reports

Management Discussion

Notes

Auditor’s Report

Statement of Retained Earnings

Ratios

Liquidity

Profitability

Solvency

Market

Preparation

The Big Picture…

Accounting Information System

• Debits and credits• General Journal • Ledger• Chart of accounts• Posting• Trial balance

Debits and credits

Accounting Equation

Assets = Liabilities + Equity

Dr. + Cr. - Dr. - Cr. +ExpensesDividends

Revenue

Dr. - Cr. +

General Journal

Dr. Cr.

1/28/2003 Cash 100,000.00

Common stock 100,000.00

1/29/2003 Office Equipment 5,000.00

Cash 1,000.00

Notes Payable 4,000.00

Explanation needed?

Chart of accounts

• List of all accounts• See page 118.

Post to Ledger

2-Jan 4,359 6-Jan 5,000 7-Jan 21,334 9-Jan

12-Jan 47,539 16-Jan24-Jan 28,659 24-Jan

101,891 5,000

96,891

Office Equipment

Trial Balance

Dr. Cr.Cash 15,200 Supplies 2,500 Office equipment 5,600 Notes payable 5,000 Accounts payable 2,500 Common stock 11,200 Dividends 500 Service revenue 10,000 Salaries expense 4,000 Rent expense 900 -

28,700 28,700

Chucktown Chops

Trial balance

• Just because it’s in balance can’t tell if– All transactions recorded– All journal entries posted– Journal entry posted more than once– Incorrect accounts used in journal

entries and posting

Trial balance

• If it does not balance– Check your work in the reverse order of

preparation• Check addition of trial balance• Determine amount of difference

– Look for this amount» Fail to post a credit, for example.

– Divide difference by 2. Look for this.» Record debit as a credit, for example.

– Divide difference by 9. If result is a whole number» Transposition error. Record 81 as 18, for example.