.,1,RecordingBusinessTransactions,LearningObjectives:Understandthedual-entryrecordingframeworkandDiscusstheaccrualbasisofaccounting,DiscussionSection#2FinancialReportingEWMBA-202LopoMartinez,.,2,ACCOUNTINGPROCESS,EVENTS,TRANSACTIONS,FINANCIALSTATEMENTS,JOURNAL,LEDGER,DOCUMENTATION,Journalizing,Posting,FINANCIALSTATEMENTS,TheAccuracySummary,TRIALBALANCE,1.Journalizing2.Posting3.Preparingatrialbalance4.Recordingadjustingentries5.Preparingfinancialstatements,.,3,DebitsandCredits,AccountTitle,Debit,Credit,(Dr.),(Cr.),LeftSide,RightSide,Debit(dr.)-anentryorbalanceontheleftsideofanaccountCredit(cr.)-anentryorbalanceontherightsideofanaccount,Onedebit,Onecredit,Eachtransactionisrecordedwithatleast:,Totaldebitsmustequaltotalcredits.,and,DR,CR,.,4,DebitsandCreditsintheAccounts,=,NetIncome,.,5,MechanicsofDoubleEntryAccounting,Canyouidentifythetypeoftransactionbelow?,+,-,+,+,+,-,+,-,1,2,3,4,Noticethatineachofthetransactions,theequationbalances(+and-)Noticealsothatthedebitsandcreditsareequalineachtransaction,=,+,Assets,Liabilities,OwnersEquity,DebitforIncreases,CreditforDecreases,Debitfordecreases,Debitfordecreases,CreditforIncreases,CreditforIncreases,5,+,-,.,6,JournalEntries,Accountantsrecordatransactionbymakingajournalentry.AjournalentryshowsbothsidesofthetransactionwiththenameoftheACCOUNTSandtheirrespectivedebitorcredit.,OnJan2,thefirmissues10,000sharesofcommonstockfor$100,000cashOnJan5,itpays$60,000cashtopurchaseequipment,.,7,ToyExample,ToystransactionsforJanuary2002areasfollows:1)Jan2-Thefirmissues10,000sharesofcommonstocksfor$100,000cash.2)Jan5-Pays$60,000cashtopurchaseequipment.3)Jan15-Purchasesmerchandiseinventorycosting$15,000fromsupplieronaccount.4)Jan21-Payssupplierin(3)$8,000oftheamountdue.5)Jan28-Thefirmborrows$30,000fromabank.6)Jan31-Thefirmsreceives$3,000fromacustomerforagoodtobedeliveredinMarch.,.,8,100,000(1),(1)100,000,Transaction1Assets=Liabs.+OE+100,000(cash)=+100,000(commonstock),LedgerPostingProcedure-UsingT-Accounts,JournalEntries,T-Accounts,.,9,(2)60,000,(1)100,00060,000(2),Transaction2Assets=Liabs.+OE-60,000(cash)+60,000(equipment)=,LedgerPostingProcedure-UsingT-Accounts,JournalEntries,T-Accounts,.,10,15,000(3),(3)15,000,Transaction3Assets=Liabs.+OE+15,000(inventory)=+15,000(acc.payable),LedgerPostingProcedure-UsingT-Accounts,JournalEntries,T-Accounts,.,11,(4)8,00015,000(3),(1)100,00060,000(2)8,000(4),Transaction4Assets=Liabs.+OE-8,000(cash)=-8,000(acc.payable),LedgerPostingProcedure-UsingT-Accounts,JournalEntries,T-Accounts,.,12,30,000(5),(1)100,00060,000(2)(5)30,0008,000(4),Transaction5Assets=Liabs.+OE+30,000(cash)=+30,000(loanpayable),LedgerPostingProcedure-UsingT-Accounts,JournalEntries,T-Accounts,.,13,3,000(6),(1)100,00060,000(2)(5)30,0008,000(4)(6)3,000,Transaction6Assets=Liabs.+OE+3,000(cash)=+3,000(adv.customers),LedgerPostingProcedure-UsingT-Accounts,JournalEntries,T-Accounts,.,14,T-AccountsandBalanceSheetasatJan31,2002,(1)100,00060,000(2)(5)30,0008,000(4)(6)3,000Bal.65,000,3,000(6)3,000Bal.,30,000(5)30,000Bal.,(3)15,000Bal.15,000,(2)60,000Bal.60,000,100,000(1)100,000Bal.,(4)8,00015,000(3)7,000Bal.,BalanceSheetASSETSCurrentsAssetsCash65,000Inventory15,000PPEEquipment60,000TotalAssets140,000LIABILITIESANDOECurrentLiabilitiesAccountsPayable7,000AdvfromCustomers3,000Long-termLiabilitiesLoanPayable30,000TotalLiabilities40,000OWNERSEQUITYCommonStock100,000TotalLiabilitiesandOE140,000,.,15,THETRIALBALANCE,Alistingofallaccountswiththeirrelatedbalances.Ittestswhetherdebitsandcreditsareequal.,CASH(A)65,000INVENTORY(A)15,000EQUIPMENT(A)60,000ACCOUNTSPAYABLE(L)7,000ADVANCESFROMCUSTOMERS(L)3,000LOANPAYABLE(L)30,000COMMONSTOCK(OE)100,000TOTAL140,000140,000,BALANCEACCOUNTTITLESDEBITCREDIT,TRIALBALANCETOYCORPORATIONASATJAN31,2002,.,16,AccrualBasisVs.CashBasis,AccrualBasisRevenuesarerecognizedwhenearnedandexpensesarerecognizedwhenincurred.,CashBasisRevenuesarerecognizedwhencashisreceivedandexpensesrecordedwhencashispaid.,Intuitiveandeasy.ProvidesinformationontheliquiditySubjecttomanipulation,forexample,thefirmcandelayhavingtorecognizeanexpensebypostponingcashpayment.,Moredifficultconceptually.Providesinformationonlong-termprofitability.Subjecttomanipulationbythechoiceofrecognitionrules,.,17,RealizationPrinciple,MatchingPrinciple,FundamentalPrinciplesforIncomeMeasurement,TellsuswhentorecognizeRevenues,TellsuswhentorecognizeExpenses,Differenceisnetincome,IncomeMeasurement,Revenuesarerecognizedintheperiodwhentheyarerealized.,Expensesincurredtogainrevenuesarematchedagainstrevenuesinthesameperiodthatrevenuesarerecognized,.,18,RevenuesRecognition,Whendoestheaccountantrecognizerevenue?Revenuesarerecognizedwhensomecriticaleventoccurs.Textbook(SW)-Whenbothofthefollowingaremet:1.Thefirmhasperformedallormostoftheservicesorithasdeliveredthegoods,thatis,ithasearnedtherevenue.2.Thefirmhasreceivedagood,serviceorrightinexchangeandcanreasonablymeasurethevalueofthegood,serviceorright.Apromisetopay(suchasareceivable)isaright.,PurchaseofMerchandise,CollectionofCash,DeliveryofMerchandise,SaleofMerchandise,OperatingProcessforaFirmsAcquisitionandSaleofMerchandise,.,19,MatchingPrinciple,MatchingCosts(Expenses)AgainstRevenue,FundamentalPrinciplesforIncomeMeasurement,RationalandSystematicDepreciationAmortizationofgoodwill,CauseandEffectCostofgoodssoldInsuranceInterestExpense,ImmediateRecognitionResearch&developmentAdvertisingLosses,.,20,Anadjustingentryisrecordedtobringanassetorliabilityaccountbalancetoitsproperamount.,Transac