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					Module 3




Analysis and Recording
of Transactions
Learning Objectives


Explain and describe the accounting cycle.

Define types of accounts.

Define and explain debits versus credits.

Practice using T-accounts to analyze transactions.

Define and practice double entry accounting.

Record (journalize) and post transactions.

Prepare a trial balance.

Run an SAP demonstration.

Practice entering transactions in SAP.

 SAP 2007 / SAP University Alliances
                                               Introductory Accounting
The Accounting Cycle


                             1 Analyze          9 Prepare
                                                post-closing
                               transactions
                                                trial balance


                              2 Journalize
                                                8
                                                      Close

                              3
                                       Post

                                                7 Prepare
                             4 Prepare              statements
                               unadjusted
                               trial balance


                              5                 6 Prepare
                                       Adjust     adjusted
                                                trial balance

 SAP 2007 / SAP University Alliances
                                                    Introductory Accounting
The Accounting Equation




A detailed record of increases and decreases in a
specific asset, liability, or equity item.

 Assets                               =   Liabilities           +           Equity
Examples:
Cash                                      Accounts Payable              Owner, Capital
Accounts Receivable                       Notes Payable                 Owner, Withdrawals
Supplies                                  Unearned Revenues             Service Revenue
Furniture                                                               Rent Expense



SAP 2007 / SAP University Alliances
                                                              Introductory Accounting
The General Ledger




 A record containing all accounts
 used by a business.

 May be computerized or maintained
 manually.

 Each company has its own unique
 set of accounts.
 SAP 2007 / SAP University Alliances
                                       Introductory Accounting
The T-Account




Represents an account in the ledger.

Learning tool.

The difference between the debit side and credit side is the balance.




                                       Account Title
                 (Left side)/Debit             (Right side)/Credit

                    Debit balance               Credit balance

 SAP 2007 / SAP University Alliances
                                                   Introductory Accounting
Calculating the Account Balance


            Example:
                                           Cash
                 Cash from sale            1000        650 Paid utilities
                 Ow ner's investment 2000              600 Paid rent
                 Total debits          1   3000   2   1250 Total credits
                 balance               3   1750

Steps:
1. Add the amounts on the debit side.
2. Add the amounts on the credit side.
3. Calculate the difference between the
   debits and credits.
 SAP 2007 / SAP University Alliances
                                                           Introductory Accounting
Double-Entry Accounting




Transactions are recorded using debits and credits.


Every transaction affects at least two accounts.


Equal debits and credits will keep the accounting equation in
balance.


                         Debits = Credits
                                       Always!
 SAP 2007 / SAP University Alliances
                                                 Introductory Accounting
Double-Entry Accounting




  Assets                               =   Liabilities          +          Equity
             Assets                          Liabilities            Owner’s Equity




 Debit                 Credit              Debit    Credit            Debit        Credit
     +                      -                -       +                   -             +


 SAP 2007 / SAP University Alliances
                                                             Introductory Accounting
Double-Entry Accounting




                                       Equity Accounts
        Capital                         Withdrawals      Revenues             Expenses




 Debit Credit                           Debit Credit   Debit Credit        Debit Credit
       -                +                 +     -        -         +           +       -

 SAP 2007 / SAP University Alliances
                                                             Introductory Accounting
Normal Balances




   An account’s normal balance is the debit or
 credit side where increases are recorded.


   Assets                              = Liabilities                +         Equity
         Assets                                                          Owner's Capital
                                              Liabilities
Debit for            Credit for           Debit for   Credit for        Debit for        Credit for
increase             decrease             decrease    increase          decrease         increase
                                                         Normal
 Normal                                                                                   Normal
                                                        balance
 balance                                                                                 Balance


 SAP 2007 / SAP University Alliances
                                                               Introductory Accounting
Chart of Accounts



 A list of all accounts used in the
 ledger by a company.

 Unique for each company.


 Accounts are usually numbered.

 SAP 2007 / SAP University Alliances
                                       Introductory Accounting
Analyzing Transactions



Steps:


1. Determine which accounts are being affected.

2. Determine if account balances are increasing
or decreasing.

3. Apply rules of debits and credits.

 SAP 2007 / SAP University Alliances
                                       Introductory Accounting
Analyzing Transactions



Example 1:

   The owner invests $10,000 in the business.


              1      Accounts          2   Increase/       3   Debit/
                     affected              Decrease            Credit




 SAP 2007 / SAP University Alliances
                                                       Introductory Accounting
Analyzing Transactions



Example 1:

   The owner invests $10,000 in the business.


              1      Accounts          2   Increase/       3   Debit/
                     affected              Decrease            Credit
            Cash
            Owner, capital


 SAP 2007 / SAP University Alliances
                                                       Introductory Accounting
Analyzing Transactions



Example #1:

   The owner invests $10,000 in the business.


              1      Accounts          2   Increase/       3   Debit/
                     affected              Decrease            Credit
            Cash                           Increase
            Owner, capital                 Increase


 SAP 2007 / SAP University Alliances
                                                       Introductory Accounting
Analyzing Transactions



Example #1:

   The owner invests $10,000 in the business.


              1      Accounts          2   Increase/       3   Debit/
                     affected              Decrease            Credit
            Cash                           Increase            Debit
            Owner, capital                 Increase            Credit


 SAP 2007 / SAP University Alliances
                                                       Introductory Accounting
Analyzing Transactions



Example 1:

     The owner invests $10,000 in the business.
       Debit cash for $10,000
       Credit owner, capital for $10,000


                             Cash          Owner, Capital
               10,000                                 10,000




SAP 2007 / SAP University Alliances
                                               Introductory Accounting
Analyzing Transactions



Example 2:

       The company purchases supplies by paying
       $2,500 cash.

              1      Accounts          2   Increase/       3   Debit/
                     affected              Decrease            Credit




 SAP 2007 / SAP University Alliances
                                                       Introductory Accounting
Analyzing Transactions



Example 2:

       The company purchases supplies by paying
       $2,500 cash.

              1      Accounts          2   Increase/       3   Debit/
                     affected              Decrease            Credit
            Supplies
            Cash


 SAP 2007 / SAP University Alliances
                                                       Introductory Accounting
Analyzing Transactions



Example 2:

       The company purchases supplies by paying
       $2,500 cash.

              1      Accounts          2   Increase/       3   Debit/
                     affected              Decrease            Credit
            Supplies                       Increase
            Cash                           Decrease


 SAP 2007 / SAP University Alliances
                                                       Introductory Accounting
Analyzing Transactions



Example 2:

       The company purchases supplies by paying
       $2,500 cash.

              1      Accounts          2   Increase/       3   Debit/
                     affected              Decrease            Credit
            Supplies                       Increase            Debit
            Cash                           Decrease            Credit


 SAP 2007 / SAP University Alliances
                                                       Introductory Accounting
Analyzing Transactions



Example 2:

          The company purchases supplies by paying $2,500
          cash.
                  Debit supplies for $2,500
                  Credit cash for $2,500


                       Supplies               Cash
                 2,500                                2,500




SAP 2007 / SAP University Alliances
                                              Introductory Accounting
Analyzing Transactions



Example 3:

       The company purchases supplies for $1,100 on
       credit.

              1      Accounts          2   Increase/       3   Debit/
                     affected              Decrease            Credit




 SAP 2007 / SAP University Alliances
                                                       Introductory Accounting
Analyzing Transactions



Example 3:

       The company purchases supplies for $1,100 on
       credit.

              1      Accounts          2   Increase/       3   Debit/
                     affected              Decrease            Credit
            Supplies
            Accounts
            Payable

 SAP 2007 / SAP University Alliances
                                                       Introductory Accounting
Analyzing Transactions



Example 3:

       The company purchases supplies for $1,100 on
       credit.

              1      Accounts          2   Increase/       3   Debit/
                     affected              Decrease            Credit
            Supplies                       Increase
            Accounts                       Increase
            Payable

 SAP 2007 / SAP University Alliances
                                                       Introductory Accounting
Analyzing Transactions



Example 3:

       The company purchases supplies for $1,100 on
       credit.

              1      Accounts          2   Increase/       3   Debit/
                     affected              Decrease            Credit
            Supplies                       Increase            Debit
            Accounts                       Increase            Credit
            Payable

 SAP 2007 / SAP University Alliances
                                                       Introductory Accounting
Analyzing Transactions



Example 3:

The company purchases supplies for $1,100 on credit.
       Debit supplies for $1,100
       Credit accounts payable for $1,100



                       Supplies        Accounts Payable
                 1,100                              1,100




SAP 2007 / SAP University Alliances
                                            Introductory Accounting
The General Journal


      Entries are originally recorded in the General Journal.
      This process is called journalizing.

                                              GENERAL JOURNAL                    Page 1

         Date               Account Titles and Explanation   PR    Debit        Credit
      2005
      Jan.    1         Cash                                      10 000
                           John Sample, Capital                                10 000
                        To record investment by owner

      Jan.        5     Supplies                                  2 500
                           Cash                                                 2 500
                        Purchased supplies for cash

      Jan.        10 Supplies                                     1 100
                        Accounts Payable                                        1 100
                     Purchased supplies on credit



 SAP 2007 / SAP University Alliances
                                                                     Introductory Accounting
Posting Journal Entries




 General Journal information is
 transferred to the General Ledger.

 Account balances are updated.


 This process is called posting.

 SAP 2007 / SAP University Alliances
                                       Introductory Accounting
 The Posting Process                                                                                                           General journal
                                                 GENERAL JOURNAL                                            Page 1
                                                                                                                               information is
            Date           Account Titles and Explanation            PR          Debit                  Credit                 transferred to
        Jan.       1    Cash                                        101       10    000
                          John Sample, Capital                      301                                10     000              the general
                        Investment by owner
                                                                                                                               ledger

                                                   1                                       3

                  2                                                                                                       5
                                                                 GENERAL LEDGER
                                                                          Cash            5                         ACCOUNT NO. 101

                           DATE                    EXPLANATION                     PR         DEBIT           CREDIT      BALANCE

                         Jan. 1                                                    G1     10 0 0 0                       10 0 0 0
                                                                                                                                      4

Steps:
1. Identify the account.                                         John Sample, Capital                           ACCOUNT NO. 301

2. Enter date DATE
            Jan . 1
                                                   EXPLANATION                      PR

                                                                                   G1
                                                                                               DEBIT          CREDIT

                                                                                                            10 0 0 0
                                                                                                                          BALANCE

                                                                                                                         10 0 0 0

3. Enter amount
4. Calculate new account balance
5. Enter posting references
  SAP 2007 / SAP University Alliances
                                                                                                     Introductory Accounting
Trial Balance




 SAP 2007 / SAP University Alliances
                                       Introductory Accounting
Trial Balance



                                        Sample Company
                                          Trial Balance
                                        January 31, 2005
                                                           Debits       Credits
                       Cash                          $     8,070
                       Accounts receivable                      -
                       Prepaid insurance                   2,400
                       Supplies                            3,600
                       Equipment                           6,000
                       Accounts payable                             $      200
                       Unearned consulting revenue                       3,000
                       Notes payable                                     6,000
                       John Sample, Capital                             10,000
                       John Sample, Withdrawals              600
                       Consulting revenue                                3,800
                       Rental revenue                                      300
                       Rent expense                       1,000
                       Salaries expense                   1,400
                       Utilities expense                    230
                       Total                         $   23,300     $   23,300



 SAP 2007 / SAP University Alliances
                                                            Introductory Accounting

				
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