CHAPTER 2 PROCESSING ACCOUNTING INFORMATION

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CHAPTER 2PROCESSING ACCOUNTING INFORMATION

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Introduction

• Your stuff- Assets and liabilities
• Firms stuff Assets and Sources (L OE)
• Keep track
• Problem Transactions
• Car example

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Accounting for Business Transactions

• Business transactions- exchanges - are events
  which impact
• Assets, Liabilities, and Owners Equity of a firm.
• Monetary value
• To analyze ask, is it a transaction? If so,
  which A, L, and/or OE are impacted? How is each
  impacted ( or -) and by how much in ?

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The Account

• A summary device. A place to store financial
  data (impact) for transactions of similar nature
• - Monthly expense sheet
• Set one up for each type of asset, liability and
  owners equity that the firm has (can add more
  later or delete any).
• Used as storage space, bucket, or parking space
  for the effect of many transactions on that
  particular asset, liability or owners equity.

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Transaction Analysis

• Accounting equation helps analyze impact of
  transactions on financial position
• ASSETS LIABILITIES OWNERS EQUITY
• Many examples in book, pp. 59-63. Study them!

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• BUT USING THE ACCOUNTING EQUATION TO RECORD
  BUSINESS TRANSACTIONS BECOMES UNWIELDY WITH LARGE
  NUMBERS OF TRANSACTIONS. So

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The Double-Entry System

• Method for recording business transactions
• Record impact in T accounts
• Every transaction affects company in at least two
  ways
• Example company buys machinery by financing it
  at the dealer
• Machinery (asset) increases
• Loan Payable (liability ) increases.
• New accounts Revenue and Expense

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How Does the Double-Entry System Work?

• Two rules associated with double-entry accounting
  system
• 1. Each transaction affects two or more company
  accounts
• 2. Total debits must always equal total credits.
  Debits and credits

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What are Debits and Credits?

• Debit refers to the left side of an account

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What are Debits and Credits?

• Credit refers to the right side of an account

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Rules of Dr and Cr

• Must know them.
• Study Exhibits 2-3, p. 63 and 2-7, p. 65.
• Increases and Decreases
• Dead elephants....

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Rules of debit and credit
All Dead Elephants
Love Crushed Raisins
Mr. Desai 2021
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The Journal

• Provides chronological record of companys
  transactions
• Includes detail not available with T-accounts

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The Journal Entry Process

• Verify transaction data from source document
• Identify account
• Transaction increases or decreases the account
• Apply rules of Dr and Cr
• Record transaction entry in the journal

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Posting Journal Entries

• The ledger is a collection of all company
  accounts and their balances
• The posting process transfers information from
  journal to ledger
• See page 34

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The Trial Balance

• List of all company accounts and balances as
  taken from ledger
• Presented in account number order assets,
  liabilities, equities
• Ensures total debits posted to ledger equals
  total credits posted

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Chart of Accounts

• List of all company account numbers/account
  titles
• Referred to when posting journal entries
• Or coding transactions for data entry
• As company engages in new transactions,
  additional accounts added

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Using Accounting Information

• Allows you to ...
• Make business decisions faster
• Save time
• Reduce operating costs

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Processing Accounting Information

• End of the lecture on Chapter 2!