The Double-Entry System презентация

Company A
Records sale of building at sales price (exchange price) of $110,000 and profit or loss is recognized

Company B
Records purchase of building at cost (exchange price) of $110,000

Company A
Records purchase of building at original cost (exchange price) of $80,000

Company A sells building to Company B for $110,000

Only amounts involved in business transactions (exchanges of value) are recorded in the company books

2–

Double-Entry System

Based on principle of duality
Every economic event has two aspects that balance, or offset, each other
The two aspects represent
Effort and reward
Sacrifice and benefit
Source and use

Debit
(left) side

A right side, called the credit side

Credit
(right) side

A title that describes the account

Cash

Cash Receipts
(+)

Cash Payments
(–)

Purchased a lot for $10,000 and a small building on a lot for $25,000

Paid $200 of the $500 owed for supplies

Earned and received a commission of $1,500 in cash

50,000

(2) 35,000

(5) 1,500

Transaction 3 does not affect the Cash account

Purchased office supplies for $500 on credit

(4) 200

(5) 1,500

(4) 200

Shannon Realty (cont’d)

Received $1,000 from client for commission earned earlier in the month

Paid $1,000 to rent equipment for office

Paid $400 in wages to part-time helper

Owner withdrew $600 in cash for personal use

(7) 1,000

Transaction 6 does not affect the Cash account

A $2,000 commission is earned, to be received later

Transaction 10 does not affect the Cash account

Liability of $300 for utilities expense is recorded

(8) 1,000

(9) 400

(11) 600

(5) 1,500

(7) 1,000

(2) 35,000

(4) 200

(8) 1,000

(9) 400

(11) 600

52,500

37,200

Bal. 15,300

Total the debit side of the T account

Total the credit side of the T account

Assets = Liabilities + Owner's Equity

Increase both sides of equal sign by same amount

Decrease both sides of equal sign by same amount

Increase and decrease one side of equal sign by same amount

Debit
for
Increases
(+)

Assets increase with debits

Liabilities and owner's equity increase with credits

Assets decrease with credits

Credit
for
Decreases
(–)

Liabilities and owner's equity decrease with debits

a credit must increase
liabilities or owner's equity

for the accounting equation to remain in balance

1,000

1,500 = 500 + 1,000

Owner's
Assets = Liabilities + Equity

500

500

1,000

1,000

Accounts and the Accounting Equation (cont’d)

If a credit increases liabilities

a debit must decrease
liabilities or owner's equity

for the accounting equation to remain in balance

750

750

250

250

1,500 = 1,250 + 250

Withdrawals and expenses decrease owner's equity
Transactions that increase withdrawals or expenses decrease owner's equity

+ Revenues

Revenues increase owner's equity
Transactions that increase revenues increase owner's equity

Assets = Liabilities + Owner's Equity

Now that the components of owner's equity have been identified

The accounting equation can be expanded to include these components

And their effects on owner's equity are understood

Expanding the Accounting Equation

Capital – Withdrawals + Revenues – Expenses

Because Withdrawals and Expenses are deductions from owner's equity, move them to the left side of the equation

Assets + Withdrawals + Expenses = Liabilities + Capital + Revenues

Accounts increased by debits

Accounts increased by credits

=

Credit account and credit amount recorded on next line, indented

Assets = Liabilities + Capital – Withdrawals + Revenues – Expenses

Withdrawals and expenses are deductions from owner’s equity

Transactions that increase withdrawals and expenses decrease owner's equity

Owner's equity is decreased by debits

Increase in assets
Increase in owner’s equity

Debits increase assets (Cash)
Credits increase owner’s equity (Joan Miller, Capital)

Increase in assets
Decrease in assets

Debits increase assets (Prepaid Rent)
Credits decrease assets (Cash)

Increase in assets
Decrease in assets

Debits increase assets (Art Equipment)
Credits decrease assets (Cash)

No entry because transaction has not occurred

Increase in assets
Decrease in assets
Increase in liabilities

Debits increase assets (Office Equipment)
Credits decrease assets (Cash)
Credits increase liabilities (Accounts Payable)

Increase in assets
Increase in liabilities

Debits increase assets (Art Supplies and Office Supplies)
Credits increase liabilities (Accounts Payable)

Increase in assets
Decrease in assets

Debits increase assets (Prepaid Insurance)
Credits decrease assets (Cash)

Decrease in liabilities
Decrease in assets

Debits decrease liabilities (Accts. Payable)
Credits decrease assets (Cash)

Increase in assets
Increase in owner’s equity

Debits increase assets (Cash)
Credits increase owner’s equity (Advertising Fees Earned)

Decrease in owner’s equity (increase in expenses)
Decrease in assets

Debits decrease owner’s equity (increase Wages Expense)
Credits decrease assets (Cash)

Increase in assets
Increase in liabilities

Debits increase assets (Cash)
Credits increase liabilities (Unearned Art Fees)

Increase in assets
Increase in owner's equity (revenues)

Debits increase assets (Accounts Receivable)
Credits increase owner's equity (Advertising Fees Earned)

Decrease in owner's equity (increase in expenses)
Decrease in assets

Debits decrease owner's equity (increase Wages Expense)
Credits decrease assets (Cash)

Decrease in owner's equity (increase in expenses)
Decrease in assets

Debits decrease owner's equity (increase Utilities Expense)
Credits decrease assets (Cash)

Decrease in owner's equity (increase in expenses)
Increase in liabilities

Debits decrease owner's equity (increase Telephone Expense)
Credits increase liabilities (Accts. Payable)

Decrease in owner's equity
Decrease in assets

Debits decrease owner's equity (increase Joan Miller, Withdrawals)
Credits decrease assets (Cash)

Debit
Joan Miller,
Withdrawals 1,400

Credit
Cash 1,400

Debit Credit
(+) (–)

Assets = Liabilities + Owner's Equity

Recall the basic accounting equation:

Assets are increased by debits

Liabilities and owner's equity are increased by credits

Normal Account Balances and the Accounting Equation

However, when the basic accounting equation is expanded to include all the components of owner's equity,

We see that Withdrawals and expense accounts reduce owner's equity

Assets + Withdrawals + Expenses = Liabilities + Capital + Revenues

Withdrawals and expenses can be moved to the left side of the equation so that

Accounts with a
normal debit balance

Accounts with a
normal credit balance

Determine account balances

Joan Miller Advertising Agency

The trial balance proves the ledger is in balance

Total debits = Total credits

Add each column

Discussion

Names of accounts credited (indented) and dollar amounts on same lines in credit column

Explanation of transaction

Account identification numbers, if appropriate

Record in
Journal

Skip a line between each entry

Ledger Account Form

Account title and number appear at top of account form

The date appears in the first two columns (as in the journal)

Item column is rarely used because explanations already appear in the journal

Post. Ref. column used to note journal page where the original entry for the transaction can be found

Dollar amount of entry is entered in appropriate debit or credit column

New account balance computed in final two columns after each entry

Locate debit account in the ledger

Enter date of transaction

Enter journal page number in Post. Ref. column

Enter in Debit column amount of debit from journal

Calculate account balance and enter in appropriate Balance column

In journal Post. Ref. column enter account number to which amount was posted

Repeat for credit entry

In journal Post. Ref. column enter account number to which amount was posted

Enter in Credit column amount of credit from journal

Enter journal page number in Post. Ref. column

Locate credit account in the ledger

Enter date of transaction

Calculate account balance and enter in appropriate Balance column

A double line appears under a final total that has been verified