C1: Explain the steps in processing transactions.
C2: Describe an account and its use in recording transactions.
C3: Describe a ledger and a chart of accounts.
C4: Define debits and credits and explain double-entry accounting.
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Financial and Managerial AccountingWild, Shaw, and Chiappetta Fourth Edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter 2Analyzing and Recording TransactionsConceptual Learning ObjectivesC1: Explain the steps in processing transactions.C2: Describe an account and its use in recording transactions.C3: Describe a ledger and a chart of accounts.C4: Define debits and credits and explain double-entry accounting.2-*Analytical Learning ObjectivesA1: Analyze the impact of transactions on accounts and financial statements.A2: Compute the debt ratio and describe its use in analyzing financial condition.2-*Procedural Learning ObjectivesP1: Record transactions in a journal and post entries to a ledger.P2: Prepare and explain the use of a trial balance.P3: Prepare financial statements from business transactions.2-*Analyze each transaction and event from source documentsAnalyzing and Recording ProcessRecord relevant transactions and events in a journalPost journal information to ledger accountsPrepare and analyze the trial balanceC 12-*Ledger and Chart of AccountsThe ledger is a collection of all accounts for an information system. A company’s size anddiversity of operations affect the numberof accounts needed.The chart of accounts is a list of all accounts andincludes an identifying number for each account.C 32-* A T-account represents a ledger account and is a tool used to understand the effects of one or more transactions. Debits and CreditsC42-*LiabilitiesEquityAssets=+Double-Entry AccountingDebit CreditDebit CreditDebit CreditASSETS + -LIABILITIES - +EQUITIES - +C42-*RevenuesExpensesCommonStockDividends_+_Debit CreditStock - +Debit CreditDividends + -Debit CreditExpenses + -Debit Credit Revenues - +Double-Entry AccountingEquityC 42-*Journalizing and Posting TransactionsStep 1: Analyze transactions and source documents.LiabilitiesEquityAssets=+Step 2: Apply double-entry accountingStep 4: Post entry to ledgerStep 3: Record journal entryP12-*After processing its remaining transactions for December, FastForward’s trial balance is prepared.DebitsCreditsCash4,350$ Accounts receivable- Supplies9,720 Prepaid Insurance2,400 Equipment26,000 Accounts payable6,200$ Unearned consulting revenue3,000 Common stock30,000 Dividends200 Consulting revenue5,800 Rental revenue300 Salaries expense1,400 Rent expense1,000 Utilities expense230 Total45,300$ 45,300$ FastForwardDecember 31, 2011The trial balance lists all account balances in the general ledger. If the books are in balance, the total debits will equal the total credits.P22-*Trial BalanceTrial BalanceSix Steps for Searching for and Correcting ErrorsIf the trial balance does not balance, the error(s) must be found and corrected.Verify that the trial balance columns are correctly added.Verify that account balances are correctly entered from the ledger.See whether a debit (or credit) balance is mistakenly listed as a credit (or debit). Recompute each account balance in the ledger.Verify that each journal entry is properly posted.Verify that each original journal entry has equal debits and credits.P22-*Using a Trial Balance to Prepare Financial StatementsStatement of Cash FlowsIncome StatementStatement of Retained EarningsBeginning Balance SheetEnding Balance SheetPeriod of TimePoint inTimePoint inTimeP32-*End of Chapter 22-*