2 - 1PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPACopyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.Analyzing and Recording TransactionsChapter 22 - 2C 1Analyzing and Posting ProcessThe accounting process identifies business transactions and events, analyzes and records their effects, and summarizes and presents information in reports and financial statements. These reports and statements are used for making investing, lending, and other business decisions. 2 - 3Sales TicketsBank StatementsPurchase OrdersChecksSource DocumentsBills from SuppliersEmployee Earnings RecordsC 12 - 4An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.The Account and Its AnalysisThe general ledger is a record containing all accounts used by the company. C 22 - 5The Account and its AnalysisOwner, Capital Owner, WithdrawalsC 22 - 6LandEquipmentBuildingsCashNotes ReceivableSuppliesPrepaid AccountsAccounts ReceivableAsset AccountsAsset AccountsC 22 - 7Accrued LiabilitiesUnearned RevenueNotes PayableAccounts PayableLiability AccountsLiability AccountsC 22 - 8Equity AccountsRevenuesOwners CapitalOwners WithdrawalsExpensesEquity AccountsC 22 - 9The Account and its AnalysisC 2Revenues and owners contributions increase equity.Expenses and owners withdrawals decrease equity.2 - 10Ledger and Chart of AccountsThe ledger is a collection of all accounts for an information system. A companys size and diversity of operations affect the number of accounts needed.The chart of accounts is a list of all accounts and includes an identifying number for each account.C 32 - 11Debits and CreditsA T-account represents a ledger account A T-account represents a ledger account and is a tool used to understand the and is a tool used to understand the effects of one or more transactions. effects of one or more transactions. C 42 - 12LiabilitiesEquityAssets=+Double-Entry AccountingC 42 - 13Double-Entry AccountingC 4Here is the expanded accounting equation showing the equity section. 2 - 14Double-Entry AccountingAn account balance is the difference between the increases and decreases in an account. Notice the T-Account.C 42 - 15 Journalizing and Posting TransactionsP 12 - 16c.Dollar amount of debits and creditsJournalizing Transactionsa.Transaction Dated.Transaction explanationb.Titles of Affected AccountsP 12 - 17Balance Account ColumnT-accounts are useful illustrations, but balance column ledger accounts are used in practice.P 12 - 18Posting Journal EntriesP 112 - 19Analyzing TransactionsA 1Double-entry accounting is useful in analyzing and processing transactions. Analysis of each transaction follows these four steps.2 - 20Analyzing TransactionsA 12 - 21Analyzing TransactionsA 12 - 22Analyzing TransactionsA 12 - 23Analyzing TransactionsA 12 - 24Analyzing TransactionsA 12 - 25After processing its remaining transactions for December, FastForwards Trial Balance is prepared.P 22 - 26 Preparing the Trial BalancePreparing a trial balance involves three steps: 1. List each account title and its amount (from ledger) in the trial balance. If an account has a zero balance, list it with a zero in the normal balance column (or omit it entirely). 2. Compute the total of debit balances and the total of credit balances. 3. Verify (prove) total debit balances equal total credit balances.P 22 - 27 Searching for and Correcting ErrorsIf the trial balance does not balance, the error(s) must be found and corrected.Make sure the trial balance columns are correctly added.Make sure account balances are correctly entered from the ledger.See if debit or credit accounts are mistakenly placed on the trial balance.Re-compute each account balance in the ledger.Verify that each journal entry is posted correctly.Verify that each original journal entry has equal debits and credits.P 22 - 28 Using a Trial Balance to Prepare Financial StatementsP 32 - 29 Income StatementP 32 - 30 Statement of Owners EquityP 32 - 31 Balance SheetP 3Net income from income statement2 - 32 Presentation Issues1. Dollar signs are not used in journals and ledgers. 2. Dollar signs appear in financial statements and other reports such as trial balances. The usual practice is to put dollar signs beside only the first and last numbers in a column. 3. When amounts are entered in the journal, ledger, or trial balance, commas are optional to indicate thousands, millions, and so forth. 4. Commas are always used in financial statements. 5. Companies commonly round amounts in reports to the nearest dollar, or even to a higher level.P 32 - 33Global ViewBoth U.S. GAAP and IFRS prepare the same four basic financial statements. A few differences are found within each statement, but over time these differences are likely to be eliminated. Here is a typical IF