1| Chapter 2 Analyzing Transactions
Chapter 2 Analyzing Transactions
From Chapter 1: The Accounting Equation
Assets = Liabilities + Owner's Equity
Assets = Liabilities + Capital – Drawing + Revenues - Expenses
Definitions for the Element
Assets are resources owned by the business.
Liabilities are debts owed to outsiders (creditors).
Owner’s equity is the owner’s right to the assets of the business after all
liabilities have been paid.
Drawings account represents the amount of withdrawals made by the
owner.
Revenues are increases in owner’s equity as a result of selling services or
products to customers.
Expenses The using up of assets or consuming services in the process of
generating revenues.
1
نورا الداوود.أ
Accounting Cycle
Transactions Journal Ledger
(Economic activities & (record transactions (Posting transactons
Business condition) in the journal) to ledger)
Unadjusted trail Adjusted Trail
Adjustment
balance Balance
(Journalizing &posting
(Prepare unadjusted adjusting entries) (Prepare adjusted
trail balance) trail balance)
Financial
Closing Entries
Statement
(Journalizing & posting
(Prepare 4 financial closing entries)
statements)
Rearranging the accounting equation
Drawing + Expenses + Assets = Liabilities + Capital + Revenues
Debit Accounts Credit Accounts
If Debit, and if Credit If Credit, and if Debit
Every business transaction to be
Double-Entry System recorded in at least two accounts
Journal
Date Description Post Ref. Debit Credit Total debit
Debit xxx =
Credit xxx
Total Credit
Journalizing
A transaction is initially entered in a record called a journal.
The process of recording a transaction in the journal is called
journalizing.
The entry in the journal is called a journal entry.
2
نورا الداوود.أ
Example Transaction
A. On November 1, Chris Clark opens a new business and deposits $25,000 in a
bank account in the name of Net Solutions.
B. On November 5, Net Solutions paid $20,000 for the purchase of land as
a future building site.
C. On November 10, Net Solutions purchased supplies on account for $1,350.
D. On November 18, Net Solutions received cash of $7,500 from customers
for services provided.
E. On November 30, Net Solutions incurred the following expenses: wages,
$2,125; rent, $800; utilities, $450; and miscellaneous, $275.
F. On November 30, Net Solutions paid creditors on account, $950.
G. Net Solutions purchased $1,350 of supplies on November 10. Chris
Clark determined that the cost of supplies on hand on November 30 was
$550.
H. On November 30, Chris Clark withdrew $2,000 from Net Solutions
for personal use.
I. On December 1, Net Solutions paid rent for December, $800. The company
from which Net Solutions is renting its store space now requires the payment
of rent on the first of each month, rather than at the end of the month.
J. On December 4, Net Solutions purchased office equipment on account from
Executive Supply Co. for $1,800.
K. On December 6, Net Solutions paid $180 for a newspaper advertisement.
L. On December 11, Net Solutions paid creditors $400.
M. On December 13, Net Solutions paid a receptionist and a part-time assistant
$950 for two weeks’ wages.
N. On December 16, Net Solutions received $3,100 from fees earned for
the first half of December.
O. Fees earned on account totaled $1,750 for the first half of December.
P. On December 20, Net Solutions paid $900 to Executive Supply Co. on the
$1,800 debt owed from the December 4 transaction.
Q. On December 21, Net Solutions received $650 from customers in payment
of their accounts.
R. On December 23, Net Solutions paid $1,450 for supplies.
S. On December 27, Net Solutions paid the receptionist and the part-time
assistant $1,200 for two weeks’ wages.
T. On December 31, Net Solutions paid its $310 telephone bill for the month.
U. On December 31, Net Solutions paid its $225 electric bill for the month.
3
نورا الداوود.أ
V. On December 31, Net Solutions received $2,870 from fees earned for the
second half of December.
W. On December 31, fees earned on account totaled $1,120 for the second
half of December.
X. On December 31, Chris Clark withdrew $2,000 for personal use.
Y. Instructions
1. Journalize
2. Prepare T account
3. Prepare an unadjusted trail balance
Date Description Post. Ref. Debit Credit
Cash 25,000
Nov.1
Chris Clark, Capital 25,000
Land 20,000
Nov. 5
Cash 20,000
Supplies 1,350
Nov.10
Account payable 1,350
Cash 7,500
Nov. 18
Fees earned 7,500
Wages expenses 2,125
Rent expenses 800
Nov. 30 Utilities expenses 450
Miscellaneous expenses 275
cash 3,650
Account payable 950
Nov. 30
cash 950
Supplies expenses 800
Nov. 30
supplies 800
Chris Clark, Drawing 2,000
Nov. 30
Cash 2,000
Rent expenses 800
Dec. 1
Cash 800
office equipment 1,800
Dec. 4
Account payable 1,800
Miscellaneous expenses 180
Dec. 6
cash 180
Account payable 400
Dec. 11
cash 400
4
نورا الداوود.أ
Wages expenses 950
Dec. 13
cash 950
Cash 3,100
Dec. 16
Fees earned 3,100
Account receivable 1,750
Dec. 16
Fees earned 1,750
Account payable 900
Dec. 20
cash 900
cash 650
Dec. 21
Account receivable 650
Supplies 1,450
Dec. 23
Cash 1,450
Wages expenses 1,200
Dec. 27
cash 1,200
Utilities expenses 310
Dec. 31
cash 310
Utilities expenses 225
Dec. 31
cash 225
Cash 2,870
Dec. 31
Fees earned 2,870
Account receivable 1,120
Dec. 31
Fees earned 1,120
Chris Clark, Drawing 2,000
Dec. 31
Cash 2,000
T Account
Title
Debit Credit
The left side of the account is called The right side of the account is called
the debit side. the credit side.
Using Accounts to Record Transactions
Accounting systems are designed to show the increases and decreases in
each accounting equation element as a separate record. This record is
called an account.
Ledger is a group of accounts for a business entity.
Chart of accounts is a list of the accounts in the ledger.
5
نورا الداوود.أ
Posting Journal Entries to Accounts is the process of transferring the
debits and credits from the journal entries to the accounts.
Trial Balance
The equality of debits and credits in the ledger should be proven at the
end of each accounting period by preparing a trial balance.
T ACCOUNTS
cash Chris Clark, Capital
25,000 20,000 25,000
7,500 3,650 25,000 Bal.
3,100 950
650 2,000 Fees earned
2,870 800 7,500
180 3,100
400 1,750
950 2,870
900 1,120
1,450 16,340 Bal.
1,200
310
225
2,000
39,120 35,015
Bal. 4,105
Supplies Account payable
1,350 800 950 1,350
1,450 400 1,800
Bal. 2,000 900
900 Bal.
Land Wages expenses
2,125
20,000
950
1,200
Bal. 20,000
Bal. 4,275
6
نورا الداوود.أ
Miscellaneous expenses Rent expenses
275 800
180 800
Bal. 455 Bal. 1,600
Supplies expenses Utilities expenses
800 450
310
Bal. 800 225
Bal. 985
Chris Clark, Drawing office equipment
2,000 1,800
2,000
Bal. 4,000 Bal. 1,800
Account receivables
1,750 650
1,120
Bal. 2,220
7
نورا الداوود.أ
Net solutions
Unadjusted trial balance
December 30, 2011
Debit balances Credit balances
Cash 4,105
Account receivable 2,220
Supplies 2,000
Land 20,000
office equipment 1,800
Account payable 900
Chris Clark, Capital 25,000
Chris Clark, Drawing 4,000
Fees earned 16,340
Wages expenses 4,275
Rent expenses Utilities 1,600
expenses Miscellaneous 985
expenses Supplies 455
expenses 800
42,240 42,240
Illustrative Problem Page 77 – 81
PR 2-2A – Page 91
PR 2-2B – Page 95
8
نورا الداوود.أ