4_transactions_journal entry.pdf

4_transactions_journal entry.pdf - Seda Oz September 21-23...

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Seda Oz September 21-23, 2015
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1. You place an order with a supplier for 1,000 units of product. 2. Another company debuts a similar product to yours at half the price. 3. You sign a contract to be an exclusive vendor to a major retain chain. 4. Your stock price drops 15%. No Transaction No Transaction No Transaction No Transaction
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Chart of Accounts Opening balances Transactions or events Transaction analysis Journal entries Posting Trial balance Adjusting entries Adjusted trial balance Preparation of financial statements Closing entries
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Transaction analysis determines impact on the accounting equation Assets = Liabilities + Shareholders’ Equity The accounting equation must always balance Therefore, each transaction has a dual (double-sided) effect on the equation >> DOUBLE-ENTRY ACCOUNTING Each transaction affects at least two accounts
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The left side is called the debit side (dr.) Debiting: Entering an amount on the left side The right side is called the credit side (cr.) Crediting: Entering an amount on the right side Every business transaction involves both a debit and a credit For each transaction, total debits must ALWAYS equal total credits Account Title Debit Credit
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Total the entries to each side. If the greater sum is on the left, the account has a debit balance
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Total the entries to each side. If the greater sum is on the right, the account has a credit balance
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Assets = Liabilities + Owners’ Equity I’m on the left hand side of this equation, I can’t have same set of rules with others! You’re a disgrace to the accounting world for creating hostility among us! But fine, we’ll have different rules!
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Owners’ Equity = Retained Earnings + Common Stock Retained Earnings= Revenues – Expenses - Dividends What about us?
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Assets= Liabilities+ Revenues – Expenses – Dividends + Common Stock Why do we have minus signs? We want positive signs. We’ll move in with assets! Assets= Liabilities + Retained Earnings + Common Stock
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Assets + Expenses + Dividends = Liabilities+ Revenues + Common Stock Great, now we all have the same rules! Those, who are on the left increase by debit Those, who are on the right increase by credit
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Beginning Accounts Receivable = 650 Credit Sales = 3,000 Ending Accounts Receivable = 420 Using a T-account, determine cash collections from customers Accounts Receivable 650 3,000 420 ? = 3,230 What do cash collections imply for the future of Accounts Receivables?
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Beginning land = 4,700 Land purchases = 8,000 Ending land = 6,250 Using a T-account, determine the original cost of the land that was sold Land 4,700 8,000 6,250 ? = 6,450 What does selling imply for the future of land account?
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A contra account Is an off-set to a companion asset, liability or equity account Always has a normal balance that is opposite that of the companion account Example : Accumulated Depreciation (contra-asset) 6/30/2008 6/30/2007 Total Property and Equipment, gross 120,000 120,000 Accumulated Depreciation (60,000) (50,000) Property and Equipment, net 60,000 70,000
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Accounting record where the transactions are recorded in chronological order
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