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CH_2_ACCOUNTING_BUSINESS_TRANSACTIONS

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					HFT 2401


   Chapter 2
   Accounting for Business Transactions
Basics of Double Entry Accounting

   T- Accounts
   Debits and Credits
   Posting
   Trial Balance
Business Events of an Economic
Nature are Identified

These economic events are reflected in
accounts
Account

   The basic storage unit for accounting data
   Accounts must be established for each
    separate classification
       Cash
       Revenue
       Expenses
       Assets
       Liabilities
       Equity
T- Account

   Has three basic parts
       Title
       Left Side
       Right Side
       Increases are recorded on one side of an account,
        while decreases are recorded on the opposite
       Which side depends on what type of account it is
Sample T- Account

   Debits – Left Side            Credits – Right Side
       Increase or Decrease          Increase or Decrease
Types of Accounts

   Asset Accounts – Normal Balance = Debit
   Liability Accounts – Normal Balance = Credit
   Equity Accounts
       Permanent Equity – Normal Balance – Credit
       Temporary Owners Equity
           Revenue – Normal Balance = Credit
           Expense – Normal Balance = Debit
Asset Accounts

   Cash
   Receivables
   Inventories
   Prepaid Expenses
   Investments
   Property, Plant & Equipment (Fixed Assets)
Liabilities
   Payables
   Accrued Expenses
   Unearned Income
   Guest Prepaid (Advance Deposits)
   Mortgage Payable
Equity

   Capital Account – Permanent Equity
   Temporary Owners Equity – Revenues &
    expenses
       Retained Earnings
Debits and Credits

   Debit – the left side of any account (dr)

   Credit – the right side of any account (cr)

   The difference between debits and credits is called
    the account balance

   An account may have either a debit or a credit
    balance
Double Entry Accounting

   Uses T-Accounts
   Basic Rules
       Asset accounts-increased by debits and decreased by
        credits
       Liability accounts are increased by credits and decreased
        by debits
       Permanent Equity – Increased by credits and decreased by
        debits
       Revenue – Increased by credits and decreased by debits
       Expenses – Increased by debits and decreased by credits
Normal Balances of Accounts

   Asset           Debit
   Liability       Credit
   Owners Equity
       Capital     Credit
       Revenue     Credit
       Expense     Debit
       Draw        Debit
Ledger / General Ledger

   Ledger-A group of accounts
   General Ledger – A group of general accounts
    including accounts for assets, liabilities, owners
    equity, revenues, expenses and owner draw
   Chart of accounts – a complete listing of all
    accounts
       Samples
           Assets         100-199
           Liabilities    200-299
           Equity         300-399
           Revenue        400-499
           Expenses       500-599
Journals & Journalizing

   Where daily transactions are recorded
       Income journal
       Payables journal
       Expense journal
       Payroll journal
Journals

   Includes
       Date of transaction
       Titles of accounts used
       Account number
       Explanation
       Page number / posting reference number
       Debit and credit amounts
Posting

   Transferring amounts from the individual
    journals to the general journal
   Can be done daily, but must be done at least
    once every accounting cycle
Trial Balance

   A listing of all accounts and their respective
    debit and credit balances
   Sum of all debits must equal sum of all
    credits
Preparing the Trial Balance

   Determine the balance of each account in the
    ledger
   List the accounts and show balances – debits
    in the left column and credits in the right
    column
   Add the debits
   Add the credit
   Total must balance
Homework Assignment

   Problem 1
   Problem 4
   Problem 5
   Problem 9
   Handout Problem

				
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