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Chapter 3 Beginning the Accounting Cycle © 2010 Prentice Hall Business Publishing, College Accounting: Chapter 3 Beginning the Accounting Cycle © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater

Learning Objective 1 Journalizing: analyzing and recording business transactions into a journal- Steps 1 Learning Objective 1 Journalizing: analyzing and recording business transactions into a journal- Steps 1 & 2 of the Accounting Cycle © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1

Accounting Cycle Normal accounting procedures that are performed over a period of time Takes Accounting Cycle Normal accounting procedures that are performed over a period of time Takes place over an accounting period © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1

Accounting Period of time covered by the income statement Monthly Quarterly Semi-annual Reports Annually Accounting Period of time covered by the income statement Monthly Quarterly Semi-annual Reports Annually ◦ Calendar year ◦ Fiscal year © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1

Accounting Period Calendar year - covers January 1 st December 31 st Fiscal year Accounting Period Calendar year - covers January 1 st December 31 st Fiscal year - Covers any 12 -month period Natural Business Year - A business’s fiscal year that ends at the same time as a slow seasonal period begins © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1

General Journal Book of original entry Simplest form of a journal Records information from General Journal Book of original entry Simplest form of a journal Records information from transactions in chronological order as they occur Information is then transferred to the ledger © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1

Journalizing A Transaction General Journal Page 1 Date Account Titles and Description PR Dr. Journalizing A Transaction General Journal Page 1 Date Account Titles and Description PR Dr. Cr. 200 x Jan 1 Cash 10, 000 J. Sims, Capital 10, 000 Initial investment by owner 1. Debits must equal credits in each entry. 2. The debit is always recorded first. 3. The credit is indented & below the debit portion. 4. The explanation follows after the credit. © 2010 Prentice Hall Business Publishing, 5. Skip a line between entries. College Accounting: A Practical Approach, 11 e by Slater LO-1

Problem 3 B-3 We will use Problem 3 B-3 to apply the concepts presented Problem 3 B-3 We will use Problem 3 B-3 to apply the concepts presented in the chapter. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1

The Chart of Accounts for A. French’s Placement Agency Balance Sheet Accounts Assets Liabilities The Chart of Accounts for A. French’s Placement Agency Balance Sheet Accounts Assets Liabilities 111 Cash 112 Accounts Receivable 211 Accounts Payable 131 Supplies 311 A. French, Capital 141 Equipment 312 A. French, Withdrawals Owner’s Equity Income Statement Accounts Revenue Expenses 411 Placement Fees 511 Wages Expense Earned 521 Telephone Expense 531 Advertising Expense © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater

June 1: A. French invested $6, 000 in the new placement agency. General Journal June 1: A. French invested $6, 000 in the new placement agency. General Journal Page 1 Date Account Titles and Description PR Dr. Cr. 200 x Jun 1 Cash 6, 000 A. French, Capital 6, 000 Initial investment of cash by owner © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1

June 2: Bought equipment for cash, $350. General Journal Page 1 Date Account Titles June 2: Bought equipment for cash, $350. General Journal Page 1 Date Account Titles and Description PR Dr. Cr. 200 x Jun 2 Equipment 350 Cash Purchased equipment © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1 350

June 3: Earned placement fee commission of $2, 100, but payment from Avon Co. June 3: Earned placement fee commission of $2, 100, but payment from Avon Co. will not be received until July. General Journal Page 1 Date Account Titles and Description PR Dr. Cr. 200 x Jun 3 Accounts Receivable 2100 Placement Fees Earned Billed Avon Co. for fees earned © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1 2100

June 5: Paid wages expense, $400. General Journal Page 1 Date Account Titles and June 5: Paid wages expense, $400. General Journal Page 1 Date Account Titles and Description PR Dr. Cr. 200 x Jun 5 Wages Expense 400 Cash Paid Wages © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1 400

June 7: A. French paid his home utility bill from the company checkbook, $69. June 7: A. French paid his home utility bill from the company checkbook, $69. General Journal Page 1 Date Account Titles and Description PR Dr. Cr. 200 x Jun 7 A. French, Withdrawals 69 Cash Paid owner’s personal bill © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1 69

June 9: Placed Jay Diamond on a national TV show, receiving $900 cash. General June 9: Placed Jay Diamond on a national TV show, receiving $900 cash. General Journal Page 1 Date Account Titles and Description PR Dr. Cr. 200 x Jun 9 Cash 900 Placement Fees Earned Placed J. Diamond © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1 900

June 15: Paid cash for supplies, $350. General Journal Page 1 Date Account Titles June 15: Paid cash for supplies, $350. General Journal Page 1 Date Account Titles and Description PR Dr. Cr. 200 x Jun 15 Supplies 350 Cash Purchased Supplies © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1 350

June 28: Telephone bill received but not paid, $185. General Journal Page 1 Date June 28: Telephone bill received but not paid, $185. General Journal Page 1 Date Account Titles and Description PR Dr. Cr. 200 x Jun 28 Telephone Expense 185 Accounts Payable Telephone bill in, but not paid © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1 185

June 29: Advertising bill received but not paid, $200. General Journal Page 1 Date June 29: Advertising bill received but not paid, $200. General Journal Page 1 Date Account Titles and Description PR Dr. Cr. 200 x Jun 29 Advertising Expense 200 Accounts Payable Advertising bill in, but not yet paid © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-1 200

Learning Objective 2 Posting: Transferring information from a journal to a ledger © 2010 Learning Objective 2 Posting: Transferring information from a journal to a ledger © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-2

Ledger Account Title Account # xx Balance Date Explanation PR Debit Credit 4 Column Ledger Account Title Account # xx Balance Date Explanation PR Debit Credit 4 Column Account- A running balance account that records debits and credits and has a column for an ending balance (debit and credit). © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-2

© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-2

Cross-Referencing Adding to the post reference column of the journal the account number of Cross-Referencing Adding to the post reference column of the journal the account number of the ledger account that was updated from the journal. Users can refer to journal and ledger transactions by referring to account numbers or general journal pages. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater

Ledger Account Cash Account # 111 Balance Date Explanation Jun 1 PR Debit Credit Ledger Account Cash Account # 111 Balance Date Explanation Jun 1 PR Debit Credit Debit GJ 1 6, 000 2 GJ 1 350 5, 650 5 GJ 1 400 5, 250 7 GJ 1 69 5, 181 9 GJ 1 15 GJ 1 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater 900 6, 081 350 5, 731 Credit

Sample Chart of Accounts Account Name Account Number Accounts Receivable 112 Supplies 131 Equipment Sample Chart of Accounts Account Name Account Number Accounts Receivable 112 Supplies 131 Equipment 141 Accounts Payable 211 A. French Capital 311 A. French Withdrawals 312 Placement Fees Earned 411 Wage Expense 511 Advertising Expense 531 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-2

Learning Objective 3 Preparing a trial balance © 2010 Prentice Hall Business Publishing, College Learning Objective 3 Preparing a trial balance © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-3

Trial Balance List of individual accounts with their balances Taken from the ledger Certain Trial Balance List of individual accounts with their balances Taken from the ledger Certain errors can come to light if total debits are not equal to total credits ◦ Computational errors ◦ Transposition or slide errors ◦ Posting errors © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-3

Trial Balance A. French’s Placement Agency Trial Balance June 30, 200 X Debit Credit Trial Balance A. French’s Placement Agency Trial Balance June 30, 200 X Debit Credit Cash 5, 731 Accounts Receivable 2, 100 Supplies 350 Equipment 350 Accounts Payable 385 A. French, Capital 6, 000 A. French, Withdrawals 69 Placement Fees Earned 3, 000 Wage Expense 400 Telephone Expense 185 Advertising Expense 200 9, 385 Totals © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater

Making Corrections Before Posting ◦ Draw a line through the incorrect entry ◦ Write Making Corrections Before Posting ◦ Draw a line through the incorrect entry ◦ Write correct information above the line ◦ Write your initials near the change After Posting ◦ Draw a line through the error and write correct figure above the line ◦ Change the running balance to reflect the corrected posting ◦ Initial both changes LO-3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater

Making Corrections Correcting an entry posted to the wrong account ◦ The journal must Making Corrections Correcting an entry posted to the wrong account ◦ The journal must include a correction accompanied by an explanation. ◦ The correct information must also be posted to the appropriate ledgers. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-3

Making Corrections 1. Wages expense was debited. Error was made on June 5. 2. Making Corrections 1. Wages expense was debited. Error was made on June 5. 2. The error was discovered and corrected on June 8. To correct error in which Wages Exp was debited for charges to Phone Co. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-3

Making Corrections 1. The wages expense ledger account is corrected. Correcting Entry 2. The Making Corrections 1. The wages expense ledger account is corrected. Correcting Entry 2. The telephone expense ledger account is corrected. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-2

First Steps in Accounting Cycle Business transactions occur Analyze and record transactions in journal First Steps in Accounting Cycle Business transactions occur Analyze and record transactions in journal Post information from journal to ledger Prepare a trial balance © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater LO-3

End of Chapter 3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical End of Chapter 3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11 e by Slater