Lecture 05 Accounting 1 MGT 130 Chapter 02

Lecture 05 Accounting 1 MGT 130

Chapter 02 Analyzing Transactions

Overview of Previous Lecture An account Ledger. Chart of accounts. T Account Rules of Debit and Credit Transactions and Balance Sheet Accounts Double Entry System to Analyze Transactions

Normal Balances of Accounts Increase (Normal Balances) Balance sheet accounts: Asset Debit Credit Liability Credit Debit Owner’s Equity: Capital Credit Debit Drawing Debit Credit Income statement accounts: Revenue Credit Debit Expense Debit Credit Decreases

Balancing the Accounts Javid Iqbal Drawings Cash Nov 01. Capital Nov 18 Fees Dec 1. Rent Dec 16. Fees Dec 21. A/R Dec 31. Fees 25000 7500 360 3100 650 2870 Nov 5 Land Nov. Exp Nov. 30 A/P Dec. 1 Pre Ins Dec. 1 Rent Dec. 6 Misc Dec. 11 A/P Dec. 13 wages Dec 20. A/P Dec 23. A/P Dec 27. wages Dec 31. utilities Dec 31. Drawings Balance total 39480 Total 20000 3650 950 2400 800 180 400 950 900 1450 1200 310 225 2000 Nov 30. Cash 2000 Dec 31. Cash 2000 Total 4000 Fees Earned Balance 16340 Total Nov 18. Cash Nov Dec 16. A/R Dec 31. Cash Dec 31. A/R 16340 Total 2065 39480 Balance 7500 3100 1750 2870 1120 16340 Account Receivable Dec 16. Fees Dec 31. Fees Total 1750 1120 Dec 21. Cash Balance 2870 total 650 2220 2870

Supplies Accounts Payable Nov. 30 Cash 950 Nov 10. Supplies 1350 Dec. 11 Cash 400 Dec 4. Furniture 1800 Dec. 20. Cash 900 Balance 900 Total 3150 Total Nov 10. A/P Dec 23. Cash 1350 1450 Nov 30. S. EXP 800 Balance 2000 Total 2800 3150 Utilities Wages Expense Nov. 30 Cash Dec. 13 Cash Dec 27. wages 2125 950 1200 Balance 4275 Total 4275 Nov 30. Cash Dec 31. Cash 450 310 225 Balance 985 Total 985 Furniture Misc Nov. Cash Dec 6. Cash Total 275 180 455 Balance 455 Total 455 Dec 4. A/P 1800 Balance Total 1800

Rent Expense Unearned Rent Balance 800 Total 800 Dec 1. Cash 800 Total 2400 Balance 2400 Total 20000 Nov 5 Cash 20000 Total 800 Nov 30. Supplies 800 Balance 800 Total Capital Land Balance 800 Supplies Expenses Prepaid Insurance Dec 1. Cash Balance 20000 Balance 25000 20000 Total 25000 Total Nov 1 Cash 25000

Trial Balance

Opportunities Inc. Trial Balance December 31, 2010 Cash 2 065 Accounts Receivable 2 220 Supplies 2 000 Prepaid Insurance 2 400 Land 20 000 Office Equipment 1 800 Accounts Payable Unearned Rent Javid Iqbal, Capital Javid Iqbal, Drawing 4 000 Fees Earned 16 340 Wages Expense 4 275 Rent Expense 1 600 Utilities Expense 985 Supplies Expense 800 Miscellaneous Expense 42 600 900 360 25 000 455

Opportunities Inc. Trial Balance December 31, 2010 Cash 2 065 Accounts Receivable 2 220 Supplies 2 000 Prepaid Insurance 2 400 Balance Land 20 000 Sheet Office Equipment 1 800 Items Accounts Payable 900 Unearned Rent 360 Javid Iqbal, Capital 25 000 Javid Iqbal, Drawing 4 000 Fees Earned 16 340 Wages Expense 4 275 Rent Expense 1 600 Utilities Expense 985 Supplies Expense 800 Miscellaneous Expense 455 42 600

Opportunities Inc. Trial Balance December 31, 2010 Cash 2 065 Accounts Receivable 2 220 Supplies 2 000 Prepaid Insurance 2 400 Land 20 000 Office Equipment 1 800 Accounts Payable 900 Unearned Rent 360 Javid Iqbal, Capital 25 000 Javid Iqbal, Drawing 4 000 Fees Earned 16 340 Statement Wages Expense 4 275 of Owner’s Rent Expense 1 600 Equity Utilities Expense 985 Supplies Expense 800 Item Miscellaneous Expense 455 42 600

Opportunities Inc. Trial Balance December 31, 2010 Cash 2 065 Accounts Receivable 2 220 Supplies 2 000 Prepaid Insurance 2 400 Land 20 000 Office Equipment 1 800 Accounts Payable 900 Unearned Rent 360 Javid Iqbal, Capital 25 000 Javid Iqbal, Drawing 4 000 Fees Earned 16 340 Wages Expense 4 275 Income Rent Expense 1 600 Statement Utilities Expense 985 Items Supplies Expense 800 Miscellaneous Expense 455 42 600

Errors that will not cause the trial balance to be unequal: 1. Failure to record a transaction or to post a transaction. 2. Recording the same erroneous amount for both the debit and the credit parts of a transaction. 3. Recording the same transaction more than once. 4. Posting a part of a transaction correctly as a debit or credit but to the wrong account.

Dec. 1 Opportunities Inc. receives Rs. 360 for three month’s rent beginning December 1.

Errors that will not cause the trial balance to be unequal: 1. Failure to record a transaction or to post a transaction. 2. Recording the same erroneous amount for both the debit and the credit parts of a transaction. 3. Recording the same transaction more than once. 4. Posting a part of a transaction correctly as a debit or credit but to the wrong account.

Dec. 1 Opportunities Inc. receives Rs. 360 for three month’s rent beginning December 1.

Errors that will not cause the trial balance to be unequal: 1. Failure to record a transaction or to post a transaction. 2. Recording the same erroneous amount for both the debit and the credit parts of a transaction. 3. Recording the same transaction more than once. 4. Posting a part of a transaction correctly as a debit or credit but to the wrong account.

Dec. 1 Opportunities Inc. receives Rs. 360 for three month’s rent beginning December 1

Errors that will not cause the trial balance to be unequal: 1. Failure to record a transaction or to post a transaction. 2. Recording the same erroneous amount for both the debit and the credit parts of a transaction. 3. Recording the same transaction more than once. 4. Posting a part of a transaction correctly as a debit or credit but to the wrong account.

Dec. 1 Opportunities Inc. receives Rs. 360 for three month’s rent beginning December 1

Correction of Errors Error 1. Journal entry is incorrect but not posted. Correction Procedure

Correction of Errors Error Correction Procedure 1. Journal entry is correct incorrect Draw a line through the 2. errorposted incorrectly. but not posted. and insert correct title or amount.

Correction of Errors Error Correction Procedure 3. Journal entry is incorrect Journalize and post a and posted correcting entry.

Correcting Errors – An Example On May 5, a purchase of office equipment on account was incorrectly journalized and posted as shown. Journal – As recorded and posted Date Description May 5 Supplies Accounts Payable 12, 500 Debit Credit 12, 500 What would be the necessary correcting entry?

Correcting Errors – An Example On May 5, a purchase of office equipment on account was incorrectly journalized and posted as shown. Journal – As recorded and posted Date Description May 5 Supplies Accounts Payable 12, 500 Date Description May 5 Office Equipment Supplies 12, 500 Debit Credit 12, 500 Debit 12, 500 Credit

Financial Analysis and Interpretation Comparing an item in a current statement with the same item in prior statements is called horizontal analysis.

J Holmes, Attorney-at-Law Income Statement For the Year Ended December 31, 2010 and 2011 Fees earned Rs. 187, 500 Operating expenses: Wages expense 33. 3% Rent expense 25. 0% Utilities expense Supplies expense Misc. expense 27. 8% Total operating 2010 Increase (Decrease) Amount Percent Rs. 150, 000 Rs. 37, 500 60, 000 15, 000 45, 000 12, 000 25. 0% 15, 000 3, 000 12, 500 9, 000 3, 500 38. 9% 2, 700 3, 000 (300) (10. 0)% 2, 300 1, 800 500

J Holmes, Attorney-at-Law Income Statement For the Year Ended December 31, 2010 and 2011 Fees earned Rs. 187, 500 Operating expenses: Wages expense 33. 3% Rent expense 25. 0% Utilities expense Supplies expense Misc. expense 27. 8% Total operating 2010 Increase (Decrease) Amount Percent Rs. 150, 000 Rs. 37, 500 60, 000 15, 000 45, 000 12, 000 25. 0% 15, 000 3, 000 12, 500 9, 000 3, 500 38. 9% 2, 700 3, 000 (300) (10. 0)% 2, 300 1, 800 500

Lecture Review Transactions Rules of Debit and Credit Journalizing Posting into Ledgers Balancing the Ledger Accounts Errors Correction of Errors horizontal Analysis

Chapter 2 The End