Docstoc

F10_Ind_Study_Accounting_3

Document Sample
F10_Ind_Study_Accounting_3 Powered By Docstoc
					                                    Independent Study:
                                    Financial Accounting


                          Session 3: Recording Transactions (the “Nuts
                                    and Bolts” of Accounting)


Schiller International University          Financial Accounting   Fall Term 2010   1
                                            Course Schedule
                                    Text                                   Subject
              Nov 2                 8-22        The Balance Sheet & Income Statement
              Nov 4                 23-45   Connections: Balance Sheet & Income Statement
              Nov 8                 46-73                  Recording Transactions
             Nov 11                               Adjustments; Owners’ Equity; Sales
             Nov 15                                                  Mid-Term Exam
             Nov 18                                Inventories this class
                                               Can we move& Cost of Goods Sold
             Nov 22                                  to Wednesday,
                                                Fixed Assets & Depreciation; Liabilities
                                                     November 10?
             Nov 25                                                 Bonds & Leases
             Nov 29                                                       Final Exam
Schiller International University                  Financial Accounting                Fall Term 2010   2
                     Assets Become Expenses

                                    Balance Sheet
                                       April 30, 20X2

   Assets                                      Liabilities
              (Various)                                Current
              Inventory                                Long-Term
                                                Depreciation
              Prepaid Rent
              Prepaid Insurance
                                               Owner’s Equity
              Buildings                                 Stock
                                                        Matching Period Costs
                                                        Retained Earnings
              Equipment
              Land                                           Cost of Goods Sold




 Income Statement: Revenues – Expenses                                  = Profit

Schiller International University                 ACG 2001                Fall 2008
                            Review: Ordonez Company
                                             Income Statement
                                        Assets                                      Liabilities           Owner’s Equity

                                             Month of July
                                    Merch.    Prepaid   Prepaid       Equip-      Note                                Ret’d.
   Cash                 A/R                                                                   A/P        Stock
                                    Inv’ry     Rent      Insur.       ment       Payable                             Income
      +240             Revenue              200                                                            +240
          These statements were prepared
         -60           Expenses
                          +60                                                                            by the
         -40
                             ACCRUAL 160
                        Cost of Goods Sold +60
                                     +100
         -24                    +24
                        Rent                   5
         -35       +35        method.
                        Depreciation           2
                  +190                           +190
         +30 +170
                        Insurance              1                                                                          +200
                  -160Profit                 32                                                                           -160
                              -5                                                                                            -5
                BALANCE SHEET at the end of the month:
                                         -2                                                                                 -2
                     Assets: 66+135+65+55+23+98=442
                                    -1                                                                                      -1
         +35 Liabilities + Owners’ Equity: 60+110+240+32=442
                -35
          -80                                                                                      -80
         +66              +135         +65       +55        +23            +98       +60          +110     +240            +32
Schiller International University                         Financial Accounting                           Fall Term 2010          4
         Review: Cash vs. Accrual Accounting
                                    Accrual                                   Cash
  Income Statement                                            Income Statement
  Month of July                                               Month of July


  Revenue             200                                     Revenue                             65
  Expenses                                                    Expenses
   Cost of Goods Sold 160                                      Cost of Inventory              225
   Rent                 5                                      Rent                            60
   Depreciation         2                                      Equipment                      100
   Insurance            1                                      Insurance                       24
  Profit               32                                     Loss                           -344

  Which method gives a more accurate picture?
Schiller International University             Financial Accounting               Fall Term 2010        5
   Review: Returning to the Balance Sheet

     • Classified balance sheet - a balance sheet that groups the
             accounts into subcategories to help readers quickly gain a
             perspective on the company’s financial position--
                •
                Assets are usually classified as current assets and long-
                term assets (sometimes, fixed assets).
                •
                Liabilities are usually classified as current liabilities and
                long-term liabilities.
     •       Current assets - include cash plus assets that are expected to
             be converted to cash, sold, or consumed during the next 12
             months or within the normal operating cycle if longer than a
             year.
     •       Current liabilities - include liabilities that fall due within the
             coming year or within the normal operating cycle if longer than
             a year.
Schiller International University     Financial Accounting       Fall Term 2010   6
                                    Review: Working Capital

       • Working capital = Current assets - Current liabilities
          • Reflects the ability of a company to conduct its business.
          • But too much may suggest lazy management.
       • Current ratio = Current Assets/Current Liabilities
          • A measure of a business’ solvency.
          • That is, the higher the current ratio, the more assurance
            creditors have that the business can pay its bills on time.
          • An old rule of thumb was that an acceptable current ratio
                        would be greater than 2.0, but today, a current ratio
                        above 1.0 is acceptable.
                 •      A better way of assessing a company’s current ratio is to
                        compare it to the average current ratio of the industry in
                        which the company operates.

Schiller International University           Financial Accounting       Fall Term 2010   7
                                                           New Subject:
                                                            Recording
                                                           Transactions

Schiller International University   Financial Accounting          Fall Term 2010   8
                                    The Recording Process

• The process starts with source documents, which are the
       supporting original records of any transaction.
          • Examples are sales slips or invoices, check stubs, purchase
                 orders, receiving reports, and cash receipt slips.




Schiller International University          Financial Accounting       Fall Term 2010   9
                                    Double-Entry Accounting

             • Some businesses enter into thousands of
               transactions daily or even hourly.
                • Accountants must carefully keep track
                              of and record these transactions in a
                              systematic manner.
             • As we have already seen, accountants
                     use a double-entry accounting system in
                     which at least two accounts are always
                     affected by each transaction.


Schiller International University           Financial Accounting   Fall Term 2010   10
                                    Double-Entry Accounting

             • Each transaction must be analyzed to determine
                     which accounts are involved, whether the accounts
                     increase or decrease, and how much the balance
                     will change.
             •       In class and in the homework, we have used the
                     balance sheet equation itself for this analysis, but
                     with many transactions, this becomes tedious.
             •       Long before computers, accountants developed a
                     quicker and quite ingenious method, using a journal,
                     ledgers and something called a trial balance.
             •       Let’s look at the journal and ledger first, then
                     demonstrate the trial balance.

Schiller International University          Financial Accounting   Fall Term 2010   11
                                    The Journal

      • The journal is like a diary, in which
              a chronological record of each
              successive transaction is stored,
              showing which accounts (each of
              which has its own ledger) must be
              debited* and which must be                      Journal
              credited* in order to properly
              account for the effect of that
              transaction on the economics of
              the business.

               * We’ll explain these terms shortly.

Schiller International University      Financial Accounting   Fall Term 2010   12
                                       Journalizing Transactions

• The conventional form for recording in the general
       journal:
                    Entry                                                          Post.
Date                No.             Accounts and Explanations                      Ref     Debit        Credit
2001
12/31                  1            Cash                                           100     400,000
                                      Paid-in capital                              300                  400,000


12/31                  2            Cash                                           100     100,000
                                      Note payable                                 202                  100,000
2002
1/2                    3            Merchandise inventory                          130     150,000
                                      Cash                                         100                  150,000




Schiller International University                           Financial Accounting               Fall Term 2010     13
                                    Journalizing Transactions

             •       Journalizing - the process of entering transactions into the
                     journal
             •       Journal entry - an analysis of the effects of a transaction on the
                     accounts, usually accompanied by an explanation of the
                     transaction
                       • This analysis identifies the accounts to be debited and credited.
             •       The conventional form for journal entries includes the following:
                       • The date and identification number of the entry
                       • The accounts affected and an explanation of the transaction
                       • The posting reference, which is the number assigned to each
                         account affected by the transaction
                       • The amounts that the accounts are to be debited and credited
             •       Once journalized, the journal entries are transferred one-by-one
                     to the Ledger.
Schiller International University               Financial Accounting            Fall Term 2010   14
                                    The Ledger

• To keep track of transactions, accoun-
  tants use ledgers.
• Ledger - a group of related accounts
       kept current in a systematic manner
          • Think of a ledger as a book with one page
            for each account.
          • The ledger is a company’s “books.”
                                                             Ledger



• General ledger - the collection of
       accounts that accumulates the amounts
       reported in the major financial state-
       ments.

Schiller International University   Financial Accounting   Fall Term 2010   15
                                              Ledger Accounts

              •       A simplified version of a ledger account is called the T-
                      account.
                                                Account Title

                                             Left Side            Right Side


                         • Ledger accounts allow us to capture the essence of the
                                accounting process without having to worry about too many
                                details.
                         •      Ledger accounts are divided into two sides for recording
                                increases and decreases in the accounts.
                         •      The role of left and right sides depend upon the type of
                                account.



Schiller International University                   Financial Accounting          Fall Term 2010   16
                                               Ledger Accounts

             • T-accounts and the balance sheet equation:
                       Assets              =     Liabilities + Owners’ Equity

                        Assets                    Liabilities                Owners’ Equity
           Increases                Decreases Decreases      Increases       Decreases   Increases




Schiller International University                     Financial Accounting                 Fall Term 2010   17
                                        Debits and Credits

              • Debit (dr.) - an entry or balance on the left side of
                an account
              • Credit (cr.) - an entry or balance on the right side of
                      an account

              • Remember:
                         • Debit is always the left side!
                         • Credit is always the right side!



Schiller International University              Financial Accounting   Fall Term 2010   18
                            Debits, Credits and Accounts

        •       When we debit an asset account, we are increasing the balance.
        •       When we credit an asset account, we are decreasing its balance.


        •       When we debit a liability account, we are decreasing the
                balance.
        •       When we credit a liability account, we are increasing the
                balance.


        •       When we debit an owner’s equity account, we are decreasing it.
        •        Assets                Liabilities          Owners’ Equity
                When we credit an owner’s equity account, we are increasing it.
            DEBIT                   CREDIT       DEBIT            CREDIT       DEBIT       CREDIT
           Increases                Decreases   Decreases         Increases   Decreases    Increases


Schiller International University                  Financial Accounting               Fall Term 2010   19
                      Revenue and Expense Transactions
• Revenue and expense accounts feed Retained Earnings.
• Thus, they are treated the same way as Owner’s Equity.
• T-Accounts for Expenses show debits as increases that
  will decrease retained income.
• T-Accounts for Revenues show credits as increases that
       will increase Retained Earnings.

                                                 Retained Income
                                               Decrease              Increase

                                          Expense                              Revenue
                                    Increase   Decrease                    Decrease Increase


Schiller International University                   Financial Accounting                       Fall Term 2010   20
                         Posting Transactions to the Ledger

             • Posting - transferring of amounts from the journal to
                     the appropriate accounts in the ledger
                       • Dates, explanations, and journal references are provided in
                              detail on paper formatted with special columns.




Schiller International University                Financial Accounting           Fall Term 2010   21
                 Posting Transactions to the Ledger

          • Cross-referencing - the process of numbering
                  or otherwise specifically identifying each
                  journal entry and each posting
                    •Transactions are often posted to several
                     different accounts, but cross-referencing
                     allows users to find all components of a
                     transaction in the ledger no matter where
                     they start.
                    •Cross-referencing also allows auditors to
                     find and correct errors.

Schiller International University   Financial Accounting   Fall Term 2010   22
                                            The Recording Process

• The sequence of steps in recording transactions:

                                    Transactions        Journal           Ledger




                                                      Financial            Trial
                                                     Statements           Balance



Schiller International University                  Financial Accounting        Fall Term 2010   23
                                    An Illustration

              • Let’s work through the transactions
                      of the Ordonez Company once
                      again.
              •       This time, we shall handle them as
                      an accountant would, not by
                      analyzing each in terms of the
                      balance sheet equation, but by the
                      journal  ledger  trial balance
                      method we have been describing.
Schiller International University    Financial Accounting   Fall Term 2010   29
Ordonez’s stockholders contributed $240,000 in
            Ordonez Company
  cash in exchange for their common stock.
                                        Assets                                     Liabilities      Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-      Note                           Ret’d.
   Cash                 A/R                                                                  A/P   Stock
                                    Inv’ry    Rent      Insur.       ment       Payable                        Income




Schiller International University                        Financial Accounting                      Fall Term 2010        30
                                         Ordonez Company
                                        Assets                                     Liabilities      Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-      Note                           Ret’d.
   Cash                 A/R                                                                  A/P   Stock
                                    Inv’ry    Rent      Insur.       ment       Payable                        Income
      +240                                                                                           +240




Schiller International University                        Financial Accounting                      Fall Term 2010        31
                                           Journal Entry

                Date                     Accounts                       Debit      Credit

             1.1.08 Cash                                                240,000

                                    Owners’ Equity                                   240,000




Schiller International University                Financial Accounting             Fall Term 2010   32
                                            Journal Entry

                Date                       Accounts                      Debit      Credit

             1.1.08 Cash                                                 240,000

                                     Owners’ Equity                                   240,000



                                             Ledger Entry
                                    Cash                                  Owners’ Equity

                       240,000                                                        240,000




Schiller International University                 Financial Accounting             Fall Term 2010   33
    On July 31, Ordonez signed 1-year lease on a warehouse,
                  Ordonez Company
    paying $60,000 cash in advance for 12 months occupancy.
                                        Assets                                     Liabilities      Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-      Note                           Ret’d.
   Cash                 A/R                                                                  A/P   Stock
                                    Inv’ry    Rent      Insur.       ment       Payable                        Income
      +240                                                                                           +240




Schiller International University                        Financial Accounting                      Fall Term 2010        34
                                         Ordonez Company
                                        Assets                                     Liabilities      Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-      Note                           Ret’d.
   Cash                 A/R                                                                  A/P   Stock
                                    Inv’ry    Rent      Insur.       ment       Payable                        Income
      +240                                                                                           +240
          -60                                    +60




Schiller International University                        Financial Accounting                      Fall Term 2010        35
                                            Journal Entry

                Date                       Accounts                     Debit      Credit

             1.1.08 Prepaid Rent                                         60,000

                                    Cash                                               60,000




Schiller International University                Financial Accounting             Fall Term 2010   36
                                             Journal Entry

                Date                        Accounts                        Debit      Credit

             1.1.08 Prepaid Rent                                             60,000

                                     Cash                                                  60,000



                                             Ledger Entry
                                    Cash                                      Prepaid Rent

                                            60,000                           60,000




Schiller International University                    Financial Accounting             Fall Term 2010   37
       On July 1, acquired warehouse equipment for $100,000.
                     Ordonez Company
              Paid $40,000 down with note for balance.
                                        Assets                                     Liabilities      Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-      Note                           Ret’d.
   Cash                 A/R                                                                  A/P   Stock
                                    Inv’ry    Rent      Insur.       ment       Payable                        Income
      +240                                                                                           +240
          -60                                    +60




Schiller International University                        Financial Accounting                      Fall Term 2010        38
                                         Ordonez Company
                                        Assets                                     Liabilities      Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-      Note                           Ret’d.
   Cash                 A/R                                                                  A/P   Stock
                                    Inv’ry    Rent      Insur.       ment       Payable                        Income
      +240                                                                                           +240
          -60                                    +60
          -40                                                           +100        +60




Schiller International University                        Financial Accounting                      Fall Term 2010        39
                                            Journal Entry

                Date                       Accounts                       Debit      Credit
             1.1.08 Equipment                                             100,000
                                    Cash                                                 40,000
                                    Note Payable                                         60,000




Schiller International University                  Financial Accounting             Fall Term 2010   40
                                             Journal Entry

                Date                        Accounts                        Debit      Credit
             1.1.08 Equipment                                               100,000
                                     Cash                                                  40,000
                                     Note Payable                                          60,000


                                             Ledger Entry
                                    Cash                                       Equipment

                                            40,000                          100,000

                            Note Payable

                                            60,000

Schiller International University                    Financial Accounting             Fall Term 2010   41
            On July 1, Ordonez paid $24,000 cash for a 2-year
                       Ordonez Company
         insurance policy, covering fire, casualty and related risks.
                                        Assets                                     Liabilities      Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-      Note                           Ret’d.
   Cash                 A/R                                                                  A/P   Stock
                                    Inv’ry    Rent      Insur.       ment       Payable                        Income
      +240                                                                                           +240
          -60                                    +60
          -40                                                           +100        +60




Schiller International University                        Financial Accounting                      Fall Term 2010        42
                                         Ordonez Company
                                        Assets                                     Liabilities      Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-      Note                           Ret’d.
   Cash                 A/R                                                                  A/P   Stock
                                    Inv’ry    Rent      Insur.       ment       Payable                        Income
      +240                                                                                           +240
          -60                                    +60
          -40                                                           +100        +60
          -24                                              +24




Schiller International University                        Financial Accounting                      Fall Term 2010        43
                                            Journal Entry

                Date                       Accounts                     Debit      Credit

             1.1.08 Prepaid Insurance                                    24,000

                                    Cash                                               24,000




Schiller International University                Financial Accounting             Fall Term 2010   44
                                             Journal Entry

                Date                        Accounts                        Debit       Credit

             1.1.08 Prepaid Insurance                                        24,000

                                     Cash                                                   24,000



                                             Ledger Entry
                                    Cash                                    Prepaid insurance

                                            24,000                           24,000




Schiller International University                    Financial Accounting              Fall Term 2010   45
     Ordonez acquired assorted merchandise for
              Ordonez Company
                  $35,000 cash.
                                        Assets                                     Liabilities      Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-      Note                           Ret’d.
   Cash                 A/R                                                                  A/P   Stock
                                    Inv’ry    Rent      Insur.       ment       Payable                        Income
      +240                                                                                           +240
          -60                                    +60
          -40                                                           +100        +60
          -24                                              +24




Schiller International University                        Financial Accounting                      Fall Term 2010        46
                                         Ordonez Company
                                        Assets                                     Liabilities      Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-      Note                           Ret’d.
   Cash                 A/R                                                                  A/P   Stock
                                    Inv’ry    Rent      Insur.       ment       Payable                        Income
      +240                                                                                           +240
          -60                                    +60
          -40                                                           +100        +60
          -24                                              +24
          -35                          +35




Schiller International University                        Financial Accounting                      Fall Term 2010        47
                                            Journal Entry

                Date                       Accounts                     Debit      Credit

             1.1.08 Merchandise Inventory                                35,000

                                    Cash                                               35,000




Schiller International University                Financial Accounting             Fall Term 2010   48
                                             Journal Entry

                Date                        Accounts                          Debit      Credit

             1.1.08 Merchandise Inventory                                      35,000

                                     Cash                                                    35,000



                                             Ledger Entry
                                    Cash                                    Merchandise Inventory

                                            35,000                             35,000




Schiller International University                    Financial Accounting               Fall Term 2010   49
     Total sales were $200,000, of which $30,000
                 Ordonez Company
                     was for cash.
                                        Assets                                     Liabilities           Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-      Note                                Ret’d.
   Cash                 A/R                                                                  A/P        Stock
                                    Inv’ry    Rent      Insur.       ment       Payable                             Income
      +240                                                                                                +240
          -60                                    +60
          -40                                                           +100        +60
          -24                                              +24
          -35                          +35
                                      +190                                                       +190




Schiller International University                        Financial Accounting                           Fall Term 2010        50
                                         Ordonez Company
                                        Assets                                     Liabilities           Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-      Note                                Ret’d.
   Cash                 A/R                                                                  A/P        Stock
                                    Inv’ry    Rent      Insur.       ment       Payable                             Income
      +240                                                                                                +240
          -60                                    +60
          -40                                                           +100        +60
          -24                                              +24
          -35                          +35
                                      +190                                                       +190
         +30              +170                                                                                           +200




Schiller International University                        Financial Accounting                           Fall Term 2010          51
                                              Journal Entry

                Date                         Accounts                      Debit      Credit

             1.1.08 Cash                                                    30,000

                                    Accounts Receivable                    170,000

                                       Revenue                                          200,000




Schiller International University                   Financial Accounting             Fall Term 2010   52
                                              Journal Entry

                Date                         Accounts                      Debit      Credit
             1.1.08 Cash                                                    30,000
                                    Accounts Receivable                    170,000
                                       Revenue                                          200,000


                                               Ledger Entry
                                     Cash                                      Revenue

                           30,000                                                       200,000
                Accounts Receivable
                       170,000


Schiller International University                   Financial Accounting             Fall Term 2010   53
                             inventory Company
                     Cost of Ordonez sold was $160,000.
                                        Assets                                     Liabilities           Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-      Note                                Ret’d.
   Cash                 A/R                                                                  A/P        Stock
                                    Inv’ry    Rent      Insur.       ment       Payable                             Income
      +240                                                                                                +240
          -60                                    +60
          -40                                                           +100        +60
          -24                                              +24
          -35                          +35
                                      +190                                                       +190
         +30              +170                                                                                           +200




Schiller International University                        Financial Accounting                           Fall Term 2010          54
                                         Ordonez Company
                                        Assets                                     Liabilities           Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-      Note                                Ret’d.
   Cash                 A/R                                                                  A/P        Stock
                                    Inv’ry    Rent      Insur.       ment       Payable                             Income
      +240                                                                                                +240
          -60                                    +60
          -40                                                           +100        +60
          -24                                              +24
          -35                          +35
                                      +190                                                       +190
         +30              +170                                                                                           +200
                                      -160                                                                               -160




Schiller International University                        Financial Accounting                           Fall Term 2010          55
                                           Journal Entry

                Date                     Accounts                       Debit      Credit

             1.1.08 Cost of Goods Sold                                  160,000

                                    Merchandise Inventory                            160,000




Schiller International University                Financial Accounting             Fall Term 2010   56
                                           Journal Entry

                Date                     Accounts                         Debit      Credit

             1.1.08 Cost of Goods Sold                                    160,000

                                    Merchandise Inventory                              160,000



                                           Ledger Entry
                    Cost of Goods Sold                                  Merchandise Inventory

                       160,000                                                         160,000




Schiller International University                Financial Accounting               Fall Term 2010   57
   Rent expense was recognized for the month
             Ordonez Company
                   of July.
                                        Assets                                     Liabilities           Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-      Note                                Ret’d.
   Cash                 A/R                                                                  A/P        Stock
                                    Inv’ry    Rent      Insur.       ment       Payable                             Income
      +240                                                                                                +240
          -60                                    +60
          -40                                                           +100        +60
          -24                                              +24
          -35                          +35
                                      +190                                                       +190
         +30              +170                                                                                           +200
                                      -160                                                                               -160




Schiller International University                        Financial Accounting                           Fall Term 2010          58
                                         Ordonez Company
                                        Assets                                     Liabilities           Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-      Note                                Ret’d.
   Cash                 A/R                                                                  A/P        Stock
                                    Inv’ry    Rent      Insur.       ment       Payable                             Income
      +240                                                                                                +240
          -60                                    +60
          -40                                                           +100        +60
          -24                                              +24
          -35                          +35
                                      +190                                                       +190
         +30              +170                                                                                           +200
                                      -160                                                                               -160
                                                  -5                                                                       -5




Schiller International University                        Financial Accounting                           Fall Term 2010          59
                                           Journal Entry

                Date                     Accounts                         Debit      Credit

             1.1.08 Rent Expense                                            5,000

                                    Prepaid Rent                                           5,000




Schiller International University                  Financial Accounting             Fall Term 2010   60
                                           Journal Entry

                Date                     Accounts                         Debit      Credit

             1.1.08 Rent Expense                                            5,000

                                    Prepaid Rent                                           5,000



                                           Ledger Entry
                           Rent Expense                                     Prepaid Rent

                              5,000                                                        5,000




Schiller International University                  Financial Accounting             Fall Term 2010   61
                      Depreciation expense of $2,000 was
                            Ordonez Company
                          recognized for the month.
                                        Assets                                     Liabilities           Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-      Note                                Ret’d.
   Cash                 A/R                                                                  A/P        Stock
                                    Inv’ry    Rent      Insur.       ment       Payable                             Income
      +240                                                                                                +240
          -60                                    +60
          -40                                                           +100        +60
          -24                                              +24
          -35                          +35
                                      +190                                                       +190
         +30              +170                                                                                           +200
                                      -160                                                                               -160
                                                  -5                                                                       -5




Schiller International University                        Financial Accounting                           Fall Term 2010          62
                                         Ordonez Company
                                        Assets                                          Liabilities           Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-           Note                                Ret’d.
   Cash                 A/R                                                                       A/P        Stock
                                    Inv’ry    Rent      Insur.       ment            Payable                             Income
      +240                                                                                                     +240
          -60                                    +60
          -40                                                           +100             +60
          -24                                              +24
          -35                          +35
                                      +190                                                            +190
         +30              +170                                                                                                +200
                                      -160                                                                                    -160
                                                  -5                                                                            -5
                                                                                -2                                              -2




Schiller International University                        Financial Accounting                                Fall Term 2010          63
                                            Journal Entry

                Date                      Accounts                       Debit      Credit

             1.1.08 Depreciation Expense                                   2,000

                                    Accumulated Depreciation                              2,000




Schiller International University                 Financial Accounting             Fall Term 2010   64
                    A Note on Accumulated Depreciation

        • Why use accumulated depreciation? Why not
          just reduce the asset account as it expires?
           • Accountants want the acquisition cost to
                          remain on the books, so the asset must be
                          “reduced” in some manner.
                   •      Also, the acquisition cost of the asset is a
                          reliable and objective number, whereas
                          accumulated depreciation is an estimate of
                          the allocation of the cost of that asset over
                          the period that it benefits.

Schiller International University         Financial Accounting   Fall Term 2010   65
                                            Journal Entry

                Date                      Accounts                       Debit      Credit

             1.1.08 Depreciation Expense                                   2,000

                                    Accumulated Depreciation                              2,000



                                            Ledger Entry
                                                                   Accumulated Depreciation
              Depreciation Expense
                                                                        (Equipment)
                              2,000                                                       2,000



Schiller International University                 Financial Accounting             Fall Term 2010   66
                   expense Company
          InsuranceOrdonezwas recognized for the
                         month.
                                        Assets                                          Liabilities           Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-           Note                                Ret’d.
   Cash                 A/R                                                                       A/P        Stock
                                    Inv’ry    Rent      Insur.       ment            Payable                             Income
      +240                                                                                                     +240
          -60                                    +60
          -40                                                           +100             +60
          -24                                              +24
          -35                          +35
                                      +190                                                            +190
         +30              +170                                                                                                +200
                                      -160                                                                                    -160
                                                  -5                                                                            -5
                                                                                -2                                              -2




Schiller International University                        Financial Accounting                                Fall Term 2010          67
                                         Ordonez Company
                                        Assets                                          Liabilities           Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-           Note                                Ret’d.
   Cash                 A/R                                                                       A/P        Stock
                                    Inv’ry    Rent      Insur.       ment            Payable                             Income
      +240                                                                                                     +240
          -60                                    +60
          -40                                                           +100             +60
          -24                                              +24
          -35                          +35
                                      +190                                                            +190
         +30              +170                                                                                                +200
                                      -160                                                                                    -160
                                                  -5                                                                            -5
                                                                                -2                                              -2
                                                              -1                                                                -1




Schiller International University                        Financial Accounting                                Fall Term 2010          68
                                           Journal Entry

                Date                     Accounts                       Debit      Credit

             1.1.08 Insurance Expense                                     1,000

                                    Prepaid Insurance                                    1,000




Schiller International University                Financial Accounting             Fall Term 2010   69
                                           Journal Entry

                Date                     Accounts                       Debit       Credit

             1.1.08 Insurance Expense                                     1,000

                                    Prepaid Insurance                                     1,000



                                            Ledger Entry
                    Insurance Expense                                   Prepaid Insurance

                              1,000                                                       1,000




Schiller International University                Financial Accounting              Fall Term 2010   70
         Collected $35,000 from credit customers.
                   Ordonez Company
                                        Assets                                          Liabilities           Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-           Note                                Ret’d.
   Cash                 A/R                                                                       A/P        Stock
                                    Inv’ry    Rent      Insur.       ment            Payable                             Income
      +240                                                                                                     +240
          -60                                    +60
          -40                                                           +100             +60
          -24                                              +24
          -35                          +35
                                      +190                                                            +190
         +30              +170                                                                                                +200
                                      -160                                                                                    -160
                                                  -5                                                                            -5
                                                                                -2                                              -2
                                                              -1                                                                -1




Schiller International University                        Financial Accounting                                Fall Term 2010          71
                                         Ordonez Company
                                        Assets                                          Liabilities           Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-           Note                                Ret’d.
   Cash                 A/R                                                                       A/P        Stock
                                    Inv’ry    Rent      Insur.       ment            Payable                             Income
      +240                                                                                                     +240
          -60                                    +60
          -40                                                           +100             +60
          -24                                              +24
          -35                          +35
                                      +190                                                            +190
         +30              +170                                                                                                +200
                                      -160                                                                                    -160
                                                  -5                                                                            -5
                                                                                -2                                              -2
                                                              -1                                                                -1
         +35                 -35




Schiller International University                        Financial Accounting                                Fall Term 2010          72
                                           Journal Entry

                Date                     Accounts                       Debit      Credit

             1.1.08 Cash                                                 35,000

                                    Accounts Receivable                                35,000




Schiller International University                Financial Accounting             Fall Term 2010   73
                                            Journal Entry

                Date                       Accounts                        Debit      Credit

             1.1.08 Cash                                                    35,000

                                     Accounts Receivable                                  35,000



                                            Ledger Entry
                                    Cash                                 Accounts Receivable

                           35,000                                                         35,000




Schiller International University                 Financial Accounting               Fall Term 2010   74
                  Disbursed $80,000 to trade creditors.
                         Ordonez Company
                                        Assets                                          Liabilities           Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-           Note                                Ret’d.
   Cash                 A/R                                                                       A/P        Stock
                                    Inv’ry    Rent      Insur.       ment            Payable                             Income
      +240                                                                                                     +240
          -60                                    +60
          -40                                                           +100             +60
          -24                                              +24
          -35                          +35
                                      +190                                                            +190
         +30              +170                                                                                                +200
                                      -160                                                                                    -160
                                                  -5                                                                            -5
                                                                                -2                                              -2
                                                              -1                                                                -1
         +35                 -35




Schiller International University                        Financial Accounting                                Fall Term 2010          75
                                         Ordonez Company
                                        Assets                                          Liabilities           Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-           Note                                Ret’d.
   Cash                 A/R                                                                       A/P        Stock
                                    Inv’ry    Rent      Insur.       ment            Payable                             Income
      +240                                                                                                     +240
          -60                                    +60
          -40                                                           +100             +60
          -24                                              +24
          -35                          +35
                                      +190                                                            +190
         +30              +170                                                                                                +200
                                      -160                                                                                    -160
                                                  -5                                                                            -5
                                                                                -2                                              -2
                                                              -1                                                                -1
         +35                 -35
          -80                                                                                          -80


Schiller International University                        Financial Accounting                                Fall Term 2010          76
                                            Journal Entry

                Date                       Accounts                     Debit      Credit

             1.1.08 Accounts Payable                                     80,000

                                    Cash                                               80,000




Schiller International University                Financial Accounting             Fall Term 2010   77
                                             Journal Entry

                Date                        Accounts                        Debit       Credit

             1.1.08 Accounts Payable                                          80,000

                                     Cash                                                   80,000



                                             Ledger Entry
                                    Cash                                    Accounts Payable

                                            80,000                            80,000




Schiller International University                    Financial Accounting              Fall Term 2010   78
                                         Ordonez Company
                                        Assets                                          Liabilities           Owner’s Equity

                                    Merch.   Prepaid   Prepaid       Equip-           Note                                Ret’d.
   Cash                 A/R                                                                       A/P        Stock
                                    Inv’ry    Rent      Insur.       ment            Payable                             Income
      +240                                                                                                     +240
          -60                                    +60
          -40                                                           +100             +60
          -24                                              +24
          -35                          +35
                                      +190                                                            +190
         +30              +170                                                                                                +200
                                      -160                                                                                    -160
                                                  -5                                                                            -5
                                                                                -2                                              -2
                                                              -1                                                                -1
         +35                 -35
          -80                                                                                          -80
         +66              +135         +65       +55       +23            +98            +60          +110     +240            +32
Schiller International University                        Financial Accounting                                Fall Term 2010          79
                                     Ordonez Company

             Date                   Cash                           Date   Accounts Receivable

                                    240                                         170
                                           60                                                      35
                                           40                                   135
                                           24
                                           35                      Date Merchandise Inventory
                                    30                                           35
                                    35                                          190
                                           80                                                    160
                                    66                                           65


Schiller International University           Financial Accounting                      Fall Term 2010    80
                                          Ordonez Company

             Date                     Prepaid Rent                             Date      Equipment

                                     60,000                                           100,000
                                                5,000                                 100,000
                                     55,000


                                    Prepaid Insurance                                   Accumulated
                                                                                        Depreciation
                                     24,000                                             (Equipment
                                                1,000                                                  2,000
                                     23,000                                                            2,000



Schiller International University                       Financial Accounting                    Fall Term 2010   81
                                          Ordonez Company

             Date                     Note Payable                            Date   Revenue
                                               60,000                                     200,000
                                                                                          200,000
                                               60,000


             Date                   Accounts Payable
                                              190,000
                                     80,000
                                              110,000



Schiller International University                      Financial Accounting             Fall Term 2010   82
       Transactions in the Journal and Ledger

            • Some details to remember:
              •Do not use dollar signs in either the
                journal or the ledger.
              •Do not use negative numbers, i.e.
                             minus signs. The effect on the
                             account is conveyed by the side (debit
                             or credit) on which the number
                             appears.

Schiller International University        Financial Accounting   Fall Term 2010   83
                                    The Trial Balance

      • The fourth step includes the
              preparation of the trial balance,
              which is a simple listing of all
              accounts in the general ledger with
              their Debit or Credit balances.
                •The trial balance checks to insure
                 that all the debits are equal to all
                 the credits.
                •If the trial balance checks, we can
                 move on with more confidence to
                 prepare the financial statements.


Schiller International University          ACG 2001                            73
Schiller International University      Financial Accounting   Fall Term 2010        84
                                            The Recording Process




                                    Transactions        Journal           Ledger




                                                                           Trial
                                                                          Balance



Schiller International University                  Financial Accounting        Fall Term 2010   85
                  Trial Balance: Ordonez Company
                                                                                           BALANCE
                                           Account Title
                                                                                  DEBIT              CREDIT

                           Cash                                                      $ 66,000
                           Accounts Receivable                                        135,000
                           Merchandise Inventory                                          65,000
                           Prepaid Rent                                                   55,000
                           Prepaid Insurance                                              23,000
                           Equipment                                                  100,000
                           Note Payable                                                                  $ 60,000
                           Accounts Payable                                                              110,000
                           Owner’s Equity                                                                240,000
                           Sales Revenue                                                                 200,000
                           Cost of Goods Sold                                         160,000
                           Rent Expense                                                    5,000
                           Insurance Expense                                               1,000
                           Depreciation Expense                                            2,000
                           Accumulated Depreciation, Equipment                                                2,000

                           TOTAL                                                     $612,000           $612,000
Schiller International University                              ACG 2001                                                  74
Schiller International University                          Financial Accounting                         Fall Term 2010        86
                                    Preparing the Trial Balance
       • The purposes of the trial balance:
          • To help check on accuracy of posting by
                         proving whether the total debits equal the total
                         credits
                  •      To establish a convenient summary of
                         balances in all accounts for the preparation of
                         formal financial statements




Schiller International University               ACG 2001                            75
Schiller International University           Financial Accounting   Fall Term 2010        87
              Preparing the Financial Statements

• Revenue and expense accounts are
  temporary accounts.
• By that we mean that their balance has to
       be reset to zero at the end of each
       accounting period.
•      We do this by transferring their balances
       to another temporary account called the
       Income Summary.



Schiller International University       ACG 2001                            77
Schiller International University   Financial Accounting   Fall Term 2010        88
                                            The Recording Process

• The sequence of steps in recording transactions:

                                    Transactions        Journal           Ledger




                                                      Financial            Trial
                                                     Statements           Balance



Schiller International University                  Financial Accounting        Fall Term 2010   89
                                         Ordonez Company

             Date                   Income Summary                          Date




Schiller International University                        ACG 2001                                   78
Schiller International University                    Financial Accounting          Fall Term 2010        90
                                          Ordonez Company

             Date                     Note Payable                            Date   Revenue
                                               60,000                                     200,000


                                               60,000


             Date                   Accounts Payable
                                              190,000
                                     80,000
                                              110,000



Schiller International University                          ACG 2001                                      79
Schiller International University                      Financial Accounting             Fall Term 2010        91
                                          Ordonez Company

             Date                     Note Payable                            Date      Revenue
                                               60,000                                            200,000
                                                                                     200,000
                                               60,000                                                           0


             Date                   Accounts Payable
                                              190,000
                                     80,000
                                              110,000



Schiller International University                          ACG 2001                                             79
Schiller International University                      Financial Accounting                    Fall Term 2010        92
                                         Ordonez Company

             Date                   Income Summary                          Date

                                            200,000




Schiller International University                        ACG 2001                                   80
Schiller International University                    Financial Accounting          Fall Term 2010        93
                                         Ordonez Company

             Date Cost of Goods Sold                                       Date    Depreciation Expense

                                    160,000                                           2,000




             Date                    Rent Expense
                                      5,000                                 Date    Insurance Expense
                                                                                      1,000




Schiller International University                       ACG 2001                                               81
Schiller International University                   Financial Accounting                      Fall Term 2010        94
                                         Ordonez Company

             Date Cost of Goods Sold                                       Date    Depreciation Expense

                                    160,000                                           2,000
                                              160,000
                                         0


             Date                    Rent Expense
                                      5,000                                 Date    Insurance Expense
                                                                                      1,000




Schiller International University                       ACG 2001                                               81
Schiller International University                   Financial Accounting                      Fall Term 2010        95
                                         Ordonez Company

             Date                   Income Summary                          Date

                                              200,000

                                    160,000




Schiller International University                        ACG 2001                                   82
Schiller International University                    Financial Accounting          Fall Term 2010        96
                                         Ordonez Company

             Date Cost of Goods Sold                                       Date    Depreciation Expense

                                    160,000                                           2,000
                                              160,000
                                         0


             Date                    Rent Expense
                                      5,000                                 Date    Insurance Expense
                                                                                      1,000




Schiller International University                       ACG 2001                                               83
Schiller International University                   Financial Accounting                      Fall Term 2010        97
                                         Ordonez Company

             Date Cost of Goods Sold                                       Date    Depreciation Expense

                                    160,000                                           2,000
                                              160,000
                                         0


             Date                    Rent Expense
                                      5,000                                 Date    Insurance Expense
                                                5,000                                 1,000
                                         0



Schiller International University                       ACG 2001                                               83
Schiller International University                   Financial Accounting                      Fall Term 2010        98
                                         Ordonez Company

             Date                   Income Summary                          Date

                                              200,000

                                    160,000

                                      5,000




Schiller International University                        ACG 2001                                   84
Schiller International University                    Financial Accounting          Fall Term 2010        99
                                         Ordonez Company

             Date Cost of Goods Sold                                       Date    Depreciation Expense

                                    160,000                                           2,000
                                              160,000
                                         0


             Date                    Rent Expense
                                      5,000                                 Date    Insurance Expense
                                                5,000                                 1,000
                                         0



Schiller International University                       ACG 2001                                               85
Schiller International University                   Financial Accounting                      Fall Term 2010        100
                                         Ordonez Company

             Date Cost of Goods Sold                                       Date    Depreciation Expense

                                    160,000                                           2,000
                                              160,000                                                  2,000
                                         0                                                 0


             Date                    Rent Expense
                                      5,000                                 Date    Insurance Expense
                                                5,000                                 1,000
                                         0



Schiller International University                       ACG 2001                                                85
Schiller International University                   Financial Accounting                       Fall Term 2010        101
                                         Ordonez Company

             Date                   Income Summary                          Date

                                              200,000

                                    160,000

                                      5,000

                                      2,000




Schiller International University                        ACG 2001                                   86
Schiller International University                    Financial Accounting          Fall Term 2010        102
                                         Ordonez Company

             Date Cost of Goods Sold                                       Date    Depreciation Expense

                                    160,000                                           2,000
                                              160,000                                                  2,000
                                         0                                                 0


             Date                    Rent Expense
                                      5,000                                 Date    Insurance Expense
                                                5,000                                 1,000
                                         0



Schiller International University                       ACG 2001                                                87
Schiller International University                   Financial Accounting                       Fall Term 2010        103
                                         Ordonez Company

             Date Cost of Goods Sold                                       Date    Depreciation Expense

                                    160,000                                           2,000
                                              160,000                                                  2,000
                                         0                                                 0


             Date                    Rent Expense
                                      5,000                                 Date    Insurance Expense
                                                5,000                                 1,000
                                         0                                                             1,000
                                                                                           0

Schiller International University                       ACG 2001                                                87
Schiller International University                   Financial Accounting                       Fall Term 2010        104
                                         Ordonez Company

             Date                   Income Summary                          Date

                                              200,000

                                    160,000

                                      5,000

                                      2,000

                                      1,000




Schiller International University                        ACG 2001                                   88
Schiller International University                    Financial Accounting          Fall Term 2010        105
                                         Ordonez Company

             Date                   Income Summary                          Date
                                              200,000
                                    160,000
                                      5,000
                                      2,000
                                      1,000
                                               32,000




Schiller International University                        ACG 2001                                   91
Schiller International University                    Financial Accounting          Fall Term 2010        106
                                         Ordonez Company

             Date                   Income Summary                          Date   Retained Income

                                              200,000
                                    160,000
                                      5,000
                                      2,000
                                      1,000
                                               32,000




Schiller International University                        ACG 2001                                          91
Schiller International University                    Financial Accounting                 Fall Term 2010        107
                                         Ordonez Company

             Date                   Income Summary                          Date   Retained Income

                                              200,000                                          32,000
                                    160,000
                                      5,000
                                      2,000
                                      1,000
                                               32,000
                                     32,000



Schiller International University                        ACG 2001                                          91
Schiller International University                    Financial Accounting                 Fall Term 2010        108
                                         Ordonez Company

             Date                   Income Summary                          Date   Retained Income

                                              200,000                                          32,000
                                    160,000                                                    32,000
                                      5,000
                                      2,000
                                      1,000
                                               32,000
                                     32,000
                                                     0


Schiller International University                        ACG 2001                                          91
Schiller International University                    Financial Accounting                 Fall Term 2010        109
                                    The Recording Process

     • In the final step, the financial statements are prepared.
               • Financial statements are prepared each quarter of the year for
                 publicly traded companies.
               • Some companies prepare financial statements at other intervals
                      (especially, monthly) to meet the needs of their users, inside or
                      outside the business.
                                                                    December 2002




Schiller International University                ACG 2001                                     92
Schiller International University            Financial Accounting            Fall Term 2010        110
                                         Ordonez Company

             Date                       Cash                               Date   Accounts Receivable

                                    240,000                                        170,000
                                               60,000                                             35,000
                                               40,000                              135,000
                                               24,000
                                               35,000                      Date Merchandise Inventory
                                     30,000                                         35,000
                                     35,000                                        190,000
                                               80,000                                          160,000
                                     66,000                                         65,000

Schiller International University                       ACG 2001                                              93
Schiller International University                   Financial Accounting                     Fall Term 2010        111
                                          Ordonez Company

             Date                     Prepaid Rent                             Date      Equipment

                                     60,000                                           100,000
                                                5,000                                 100,000
                                     55,000


                                    Prepaid Insurance                                   Accumulated
                                                                                        Depreciation
                                     24,000                                             (Equipment
                                                1,000                                                  2,000
                                     23,000                                                            2,000



Schiller International University                           ACG 2001                                             94
Schiller International University                       Financial Accounting                    Fall Term 2010        112
                                     Ordonez Company
                                             BALANCE SHEET
                                             December 31, 200X
                                    Assets                                Liabilities
             Cash                                 66,000
             Accounts Receivable                 135,000
             Merchandise Inventory                65,000
             Prepaid Rent                         55,000
             Prepaid Insurance                   123,000                Owners’ Equity
             Equipment                 100,000
             - Depreciation              2,000    98,000




Schiller International University                    ACG 2001                                            95
Schiller International University                Financial Accounting                   Fall Term 2010        113
                                    Contra Accounts
              • An accounts such as Accumulated
                      Depreciation is called a contra account, which
                      is a separate but related account that offsets or
                      is a deduction from a companion account. We
                      shall return to a discussion of contra accounts
                      shortly.
              •       Book value - the balance of an account, net of
                      any contra accounts (a.k.a net book value,
                      carrying amount, or carrying value)
                        •The book value of an asset is its acquisition
                         cost minus accumulated depreciation.
Schiller International University            ACG 2001                            96
Schiller International University        Financial Accounting   Fall Term 2010        114
                                     Ordonez Company
                                             BALANCE SHEET
                                             December 31, 200X
                                    Assets                                Liabilities
             Cash                                 66,000
             Accounts Receivable                 135,000
             Merchandise Inventory                65,000
             Prepaid Rent                         55,000
             Prepaid Insurance                   123,000                Owners’ Equity
             Equipment                 100,000
             - Depreciation              2,000    98,000




Schiller International University                    ACG 2001                                            97
Schiller International University                Financial Accounting                   Fall Term 2010        115
                                          Ordonez Company

             Date                     Note Payable                            Date   Retained Income
                                               60,000                                            32,000


                                               60,000


             Date                   Accounts Payable
                                              190,000                         Date    Capital Stock
                                     80,000                                                   240,000
                                              110,000



Schiller International University                          ACG 2001                                          98
Schiller International University                      Financial Accounting                 Fall Term 2010        116
                                     Ordonez Company
                                             BALANCE SHEET
                                             December 31, 200X
                                    Assets                                    Liabilities
             Cash                                 66,000 Note Payable                              60,000

             Accounts Receivable                 135,000 Accounts Payable                        110,000

             Merchandise Inventory                65,000            Total Liabilities           170,000

             Prepaid Insurance                   123,000                  Owners’ Equity
             Equipment                 100,000                  Capital Stock                   240,000

             - Depreciation              2,000    98,000 Retained Income                           32,000

                                                                    Total Owners’ Equity        272,000
                                                                Total Liabilities &
             Total Assets                        442,000                                        442,000
                                                                Owners’ Equity
Schiller International University                    ACG 2001                                                99
Schiller International University                Financial Accounting                       Fall Term 2010        117
                                        Ordonez Company
                                              Income Statement
                                    for the period ending December 31, 200X


             Sales Revenue                                                            200,000
             Expenses
                           Cost of Goods Sold                            160,000
                           Rent                                            5,000
                           Insurance                                       1,000
                           Depreciation                                    2,000      168,000
             Net Income                                                                 32,000

        • We’ll talk more about income statements later
                inthe course.
Schiller International University                 Financial Accounting
                                                                                                    100
                                                                                   Fall Term 2010         118
                                            The Recording Process

• The sequence of steps in recording transactions:

                                    Transactions        Journal           Ledger




                                                      Financial            Trial
                                                     Statements           Balance



Schiller International University                      ACG 2001                                 102
Schiller International University                  Financial Accounting        Fall Term 2010         119
       Transactions in the Journal and Ledger

              • Some details to remember:
                 • Do not use dollar signs in either the journal
                   or the ledger.
                 • Do not use negative numbers. The effect on
                               the account is conveyed by the side (debit or
                               credit) on which the number appears.
                        •      For ledgers that do not have a running
                               balance (such as T-accounts), the balances
                               may be updated from time to time.


Schiller International University            Financial Accounting   Fall Term 2010   120
                                      Effects of Errors

                • When a journal entry contains an error, it can
                        be erased or crossed out only if the error is
                        detected before the entry is posted to the
                        ledgers.
                •       If the error is detected after posting, a
                        correcting entry must be made.
                           •The correcting entry counteracts the
                            incorrect entry and assures that the correct
                            account is debited or credited for the proper
                            amount.


Schiller International University         Financial Accounting   Fall Term 2010   121
                                    Closing the Accounts


                      • Once the financial statements are prepared, the
                              ledger accounts must be prepared to record the
                              next period’s transactions. This process is
                              called closing the books.
                                •The balances in all “temporary” stockholders’
                                 equity accounts are transferred to a
                                 “permanent” stockholders’ equity account.
                                •The revenue and expense accounts are
                                 “reset” to zero and the current net income is
                                 transferred to Retained Income.
                                •We’ll talk about this in our next class.
Schiller International University             Financial Accounting   Fall Term 2010   122
                               Data Processing and Computers

• Data processing - the procedures used to record,
  analyze, store, and report on chosen activities
   • An accounting system is one type of data
     processing system.
           •Accounting systems are now likely to
                                    be computerized, but regardless of
                                    format, information still must be
                                    entered.



Schiller International University            Financial Accounting   Fall Term 2010   123
                                    Assignment
                      Due Monday, October 6
           Complete prior assignments if you haven’t
                        already done them.
                Reading Assignment: pages 46-67.
                            Problems:
          Page 67-68: Do you know the basics?: 1 c-j, 2 a-f
                  Pages 68-73: Problems 1, 2, 7
         Don’t forget: there will be a quiz based on this lecture and
            the homework assignment above at our next class.

         Don’t forget #2: “Capital” in the text means the same as
                            “Owners’ Equity”.

Schiller International University     Financial Accounting   Fall Term 2010   124
                                    End of Session #3



        That’s it
           for
         today!

Schiller International University        Financial Accounting   Fall Term 2010   125

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:13
posted:6/2/2011
language:English
pages:120