Lecture 3 - Gimme a T.pptx

8/14/2019 Lecture 3 - Gimme a T.pptx

1/66

Lecture 3 - Gimme a T!!(How to use T-accounts to learn

accounting!)

Professor Irfan Safdar MBA 702


2/66

Todays AgendaQuick Review of Che alite ( ) "olution"elected Ho ework #$ercises Review

usiness Activity and the AccountingCycle

The %agic of T-Accounts!

Accrual Accounting&inancial "tate ent 're aration


3/66

Che a ite Case "tudy ( )How do you re are a cash flowstate ent*

"ee ne$t + slides,hat does Che a ites state ent

of cash flows tell us*


4/66


5/66


6/66

"u ary of the Accounting Cycle

1. Analyze business transactions

2. Journalize thetransactions

6. Prepare an adjustedtrial balance

7. Prepare financialstatements

8. Journalize and postclosing entries

. Prepare a post!closingtrial balance

". Prepare a trial balance

#. Post to ledgeraccounts

$. Journalize and postadjusting entries%

&eferrals'Accruals


7/66

Question: What kind of transactions areaccounting transactions?

ASK! oes it affect an thing in this

e"uation:

A . / #Can you remember the fundamental rule(s) ofrecording accounting transactions

Step 1: Identify accounting transactions


8/66

Records increases and decreases inan asset0 lia1ility0 e2uity0 revenue0or e$ ense ite due to financing0invest ent0 o erating0 and ayoutactivities,

3 ortant &eatures4 5ual #ntry4 There are always +

sides to every transaction!

Accountants 6#7#R use negative

nu 1ers when recordingtransactions!

hat do they use*

Account

The Language of Accounting


9/66

An Awesome Device: The T-Account!

Account Title


10/66

De it

Left"

Account Title

Always True a out T-Accounts!


11/66

De it #redit

Left" $ight"

Account Title

Always True a out T-Accounts!


12/66

ou#$e-entr syste 8

( #ach transaction ust affect two or ore accountsto kee the 1asic accounting e2uation in 1alance,

( Recording done 1y de1iting at least one account andcrediting another,

( %&L': Tota$ '()TS ALWA*S must e"ua$ Tota$+%' )TS ,

e#it and +redit ,rocedures

The Account


13/66

%u$e: )f e#its in an account are greaterthan +redits the account .i$$ ha/e a de#it#a$ance0

12 Transaction45

13

126

7Transaction43

(a$ance

Transaction42

De it and #redit %rocedures

Account Name

Debit / Dr. Credit / Cr.


14/66

12 Transaction45

13

(a$ance

Transaction42

12

7 Transaction43

%u$e: )f +redits are greater than e#its theaccount .i$$ ha/e a credit #a$ance0

De it and #redit %rocedures

Account Name



15/66

(a$ance Sheet )ncome Statement

. / -Asset Lia#i$it '"uit %e/enue

'89ense

e#it

+redit

$ule: Increases and Decreases


16/66

Assets - 5e1its shoulde$ceed credits,

Lia#i$ities 8 Creditsshould e$ceed de1its,

The norma$ #a$ance ison the increase side,

Dr&'#r& %rocedures for Assets and Lia ilities

Chapter3-23

AssetsAssetsDebit / Dr. Credit / Cr.

Normal BalanceNormal Balance

Chapter3-24

LiabilitiesLiabilitiesDebit / Dr. Credit / Cr.



17/66

.ner;s in/estments andre/enues increasestockholders e2uity (credit),

i/idends and e89enses

decrease stockholders e2uity(de1it),

Dr&'#r& %rocedures for Stoc(holders) *+uity

Chapter3-25



Common StockCommon Stock

Chapter3-23

DividendsDividendsDebit / Dr. Credit / Cr.


Chapter3-25



StockholdersStockholders EquityEquity

Chapter3-25



Retained EarningsRetained Earnings


18/66

The ur ose of earningre/enues is to 1enefit thestockholders,

The effect of de1its andcredits on revenueaccounts is the same as their effect onstockholders e2uity,

'89enses have the o ositeeffect4 e$ enses decreasestockholders e2uity,

Dr&'#r& %rocedures for $evenue and *,pense

Chapter3-27



ExpenseExpense

Chapter3-26



RevenueRevenue


19/66

hich is the normal alance.

1& #ash/& Accounts %aya le0& Accounts $eceiva le

& #apital Stoc(2& Service $evenue

3& Salaries *,pense4& 5uilding12& $ent *,pense13& Dividends

14& *+uipment16& 7otes %aya le18& $etained *arnings


20/66

Relationshi a ong the assets0 lia1ilities andstockholders e2uity of a 1usiness4

The e2uation ust 1e in 1alance after everytransaction, &or every e#it there ust 1e a+redit ,

)$$ustration 3-2

Summary of De it'#redit $ules


21/66

%ractice with De its and #redits!

Let)s return to your #hema-Lite case study and uild t-accounts!


22/66

"u ary of the Accounting Cycle

1. Analyze business transactions

2. Journalize thetransactions

6. Prepare an adjustedtrial balance

7. Prepare financialstatements

8. Journalize and postclosing entries

. Prepare a post!closingtrial balance

". Prepare a trial balance

#. Post to ledgeraccounts

$. Journalize and postadjusting entries%

&eferrals'Accruals


23/66

There is a pro lem with what we have done so far!

9ave all economic events een recorded y the endof the period.

hat hasn)t een recorded.

hat do we do.!


24/66

3llustration 9AA'relationshi s in revenueand e$ ense recognition

Ti ing 3ssues


25/66

+ash-(asis Accounting

( Revenues are recogni:ed only when cash isreceived,

( #$ enses are recogni:ed only when cash isaid,

Accrua$ /ersus +ash (asis ofAccounting

Ti ing 3ssues


26/66

Accrua$-(asis Accounting

( Transactions recorded in the eriods in whichthe events occur,

( %e/enues are recogni:ed when earned0 even ifcash was not received,

Accrua$ /ersus +ash (asis ofAccounting

Ti ing 3ssues


27/66

)$$ustration: "u ose that &resh Colors aints alarge 1uilding in +;


28/66

Ad usting entries - needed to ensurethat the revenue recognition and e$ enserecognition rinci les are followed,

Ad usting entries ake it ossi1le to

re ort correct a ounts on the #a$ancesheet and on the income statement ,

The asics of Ad usting #ntries


29/66

eferra$s are either4

're aid e$ enses

OR

Ty es of Ad usting #ntries


30/66

'ay ent of cash0 that is recorded as an asset 1ecause service or1enefit will 1e received in the future,

Ad usting #ntries for 're aid #$ ensesD

insurance

su liesadvertising

Cash 'ay ent #$ ense Recorded('@ %'

rent

e2ui ent1uildings

're ay ents often occur in regard to4


31/66

,re9aid '89enses

Costs that e$ ire either with the assageof ti e or through use,

Ad usting entry results in an increase (ade1it) to an e$ ense account and a decrease (acredit) to an asset account,

Ad usting #ntries for 're aid #$ ensesD


32/66

Ad usting entries for re aide$ enses

3ncreases (de1its) an e$ enseaccount and

5ecreases (credits) an asset

account,

3llustration @->

Ad usting #ntries for 're aid#$ ensesD


33/66

)$$ustration: "ierra Cor oration urchased su lies costing=+0>;; on Ecto1er >, "ierra recorded the urchase 1yincreasing (de1iting) the asset "u lies, This account showsa 1alance of =+0>;; in the Ecto1er F< trial 1alance, An

inventory count at the close of 1usiness on Ecto1er F

Documents

Lecture 3 - Gimme a T.pptx