Accounting & Financial Analysis 11 Lecture 1 B Introduction to Accounting - Revision.
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Transcript of Accounting & Financial Analysis 11 Lecture 1 B Introduction to Accounting - Revision.
Accounting & Financial Analysis 11Lecture 1 B
Accounting & Financial Analysis 11Lecture 1 B
Introduction to Accounting - RevisionIntroduction to Accounting - Revision
CHAPTER 2
Chapter 2 Mugan-Akman 2007 3-52
CASH BASIS OF ACCOUNTING
ACCRUAL BASIS OF ACCOUNTING
VS
Accounting Methods for Measuring PerformanceAccounting Methods for Measuring Performance
Chapter 2 Mugan-Akman 2007 4-52
Accounting Methods for Measuring PerformanceAccounting Methods for Measuring Performance
(a) Cash basis of accounting Revenues are recognized when cash is received and
expenses are recognized when cash is paid
(b) Accrual basis of accounting Revenues and expenses are recognized on an
economic basis regardless of when cash is paid or received
(a) Cash basis of accounting Revenues are recognized when cash is received and
expenses are recognized when cash is paid
(b) Accrual basis of accounting Revenues and expenses are recognized on an
economic basis regardless of when cash is paid or received
Chapter 2 Mugan-Akman 2007 5-52
Success Service Corporation - Dry Cleaning Company
TL 3.000 bank loan in January 2007- loan due 30 June 2007- monthly interest expense of TL 100.
Paid two months rent on 1 January 2007 – total TL 200 Paid insurance premium of TL 120 to cover the whole
year from January 1 to December 31 Purchased supplies of TL 90 to be used for 3 months
and paid TL 75 of it; agreed to pay the rest in February In January-provided TL 750 worth of services and
collected cash of TL 500 from customers; the rest would be collected next month
Paid salaries of TL 500 at the end of January
Success Service Corporation - Dry Cleaning Company
TL 3.000 bank loan in January 2007- loan due 30 June 2007- monthly interest expense of TL 100.
Paid two months rent on 1 January 2007 – total TL 200 Paid insurance premium of TL 120 to cover the whole
year from January 1 to December 31 Purchased supplies of TL 90 to be used for 3 months
and paid TL 75 of it; agreed to pay the rest in February In January-provided TL 750 worth of services and
collected cash of TL 500 from customers; the rest would be collected next month
Paid salaries of TL 500 at the end of January
Chapter 2 Mugan-Akman 2007 6-52
Cash Receipts from ServicesRendered TL 500
Less: Cash Expenditures for Supplies 75 Salaries 500 Rent 200 Insurance 120 Total Cash Expenditures 895
Excess of Cash Expenditures over Cash Receipts TL -395
SUCCESS SERVICE CORPORATIONMeasurement of Performance on Cash Basis
For the Period Ending 31 January 2007
Chapter 2 Mugan-Akman 2007 7-52
Accounting Methods for Measuring PerformanceAccounting Methods for Measuring Performance
(a) Cash basis of accounting Revenues are recognized when cash is received and
expenses are recognized when cash is paid
(b) Accrual basis of accounting Revenues and expenses are recognized on an
economic basis regardless of when cash is paid or received
(a) Cash basis of accounting Revenues are recognized when cash is received and
expenses are recognized when cash is paid
(b) Accrual basis of accounting Revenues and expenses are recognized on an
economic basis regardless of when cash is paid or received
Chapter 2 Mugan-Akman 2007 8-52
Revenues:750
Expenses: Salaries 500 Interest 100 Rent Expense 100
3010
740
TL 10
Supplies Insurance Expenses Total Expenses
Net Income Before Taxes
SUCCESS SERVICE Income Statement
For the Month Ended 31 January
Dry Cleaning Fees
Chapter 2 Mugan-Akman 2007 9-52
Recognition of RevenuesRecognition of Revenues
Receipt of thecomputer6 May
Receipt of thebill7 May
Sales order3 May
Shipment of the goods5 May
Payment of the bill20 May
MILLENIUM CO.
CUSTOMER
Chapter 2 Mugan-Akman 2007 10-52
Recognition of Service Revenues
Recognition of Service Revenues
Accrual basis of accounting generally requires that revenues be recognized when both of the following conditions are met:
A company has performed all (or the major part of) the services, or has delivered the goods; i.e., when there is little or no uncertainty regarding the exchange of goods or services, and
The price of the services or goods has been accepted by both seller and buyer, and seller has received either cash or some other form of asset, enabling reasonable determination of the time of payment (such as accounts receivable, which is the buyer’s promise to pay)
Accrual basis of accounting generally requires that revenues be recognized when both of the following conditions are met:
A company has performed all (or the major part of) the services, or has delivered the goods; i.e., when there is little or no uncertainty regarding the exchange of goods or services, and
The price of the services or goods has been accepted by both seller and buyer, and seller has received either cash or some other form of asset, enabling reasonable determination of the time of payment (such as accounts receivable, which is the buyer’s promise to pay)
Chapter 2 Mugan-Akman 2007 11-52
Recognition of ExpensesRecognition of Expenses
Expenses are recognized when they are incurred and helped to produce revenue, regardless of the cash payment date
Expenses are recognized when they are incurred and helped to produce revenue, regardless of the cash payment date
Chapter 2 Mugan-Akman 2007 12-52
Generally Accepted Accounting Principles and Concepts
Generally Accepted Accounting Principles and Concepts
Entity - Every entity is a separate economic unit and should be kept distinct from the activities of its owners and other companies
Monetary Unit - only economic events that have monetary transactions will be reported in the financial statements
Cost Principle - assets are presented at their original (historical) cost
Going Concern - companies are established with the goal that they will operate for an indefinitely long period of time
Periodicity - economic activities of any firm can be divided into discrete time periods for reporting purposes
Matching Principle -all revenues must be recorded in the accounting period in which the goods are sold or services are rendered and all expenses must be recorded in the accounting period in which they are incurred to produce such revenues
Entity - Every entity is a separate economic unit and should be kept distinct from the activities of its owners and other companies
Monetary Unit - only economic events that have monetary transactions will be reported in the financial statements
Cost Principle - assets are presented at their original (historical) cost
Going Concern - companies are established with the goal that they will operate for an indefinitely long period of time
Periodicity - economic activities of any firm can be divided into discrete time periods for reporting purposes
Matching Principle -all revenues must be recorded in the accounting period in which the goods are sold or services are rendered and all expenses must be recorded in the accounting period in which they are incurred to produce such revenues
Chapter 2 Mugan-Akman 2007 13-52
Accounting CycleAccounting Cycle
Analyze and record the transactions
Post the transactions and prepare trial balance
Adjust the accounts and prepare trial balance
Close the accounts and prepare trial balance
Prepare the financial statements
Chapter 2 Mugan-Akman 2007 14-52
Analysis and Recording Business TransactionsAnalysis and Recording Business Transactions
Business transaction is an economic event that causes a change in the financial position
Financial Position: What we own How we own
Business transaction is an economic event that causes a change in the financial position
Financial Position: What we own How we own
Chapter 2 Mugan-Akman 2007 15-52
Fundamental Accounting EquationFundamental Accounting Equation
ASSETS = EQUITIES
ASSETS = LIABILITIES + OWNERS' EQUITY
Chapter 2 Mugan-Akman 2007 16-52
How do we use the “balance sheet” equation?
How do we use the “balance sheet” equation?
Recall the Balance Sheet Equation: Assets = Liabilities + Shareholders’
Equity Implications: If assets increase : either Liabilities
and/or Shareholders’ should also increase and vice versa
For example: borrow cash, cash (asset) will increase and Liabilities will increase
when it is paid back: cash (asset) will decrease and liabilities will decrease
Recall the Balance Sheet Equation: Assets = Liabilities + Shareholders’
Equity Implications: If assets increase : either Liabilities
and/or Shareholders’ should also increase and vice versa
For example: borrow cash, cash (asset) will increase and Liabilities will increase
when it is paid back: cash (asset) will decrease and liabilities will decrease
Chapter 2 Mugan-Akman 2007 17-52
How do we record?How do we record? an ACCOUNT: accounting report of a
specific asset, liability or owners’ equity item
Has 3 elements: title, debit side and credit side (also called the “T-Account”)
Changes in the accounts are entered manually into a book called a ledger
computerized Basic forms of book ledgers: the two-
column account format, and the four-column account format
Chart of accounts
an ACCOUNT: accounting report of a specific asset, liability or owners’ equity item
Has 3 elements: title, debit side and credit side (also called the “T-Account”)
Changes in the accounts are entered manually into a book called a ledger
computerized Basic forms of book ledgers: the two-
column account format, and the four-column account format
Chart of accounts
Chapter 2 Mugan-Akman 2007 18-52
Forms of LedgersForms of Ledgers
Date Item Post. Ref. * Debit Date ItemPosting Reference Credit
Account No:Account
Left-hand or Right-hand or
Debit Side Credit Side
Account Name Account No:
Two-Column Account
T-Account form that depicts the two-column account:
Chapter 2 Mugan-Akman 2007 19-52
How do accounts behave?How do accounts behave?
Assets = Liabilities + Shareholders’ Equity
+ + +
So Assets increase on the left hand or debit side then they decrease on the credit side
Assets
+ -
debit credit
Assets = Liabilities + Shareholders’ Equity
+ + +
So Assets increase on the left hand or debit side then they decrease on the credit side
Assets
+ -
debit credit
Chapter 2 Mugan-Akman 2007 20-52
Behavior of AccountsBehavior of Accounts
Liabilities and Owners’ Equity accounts increase on the credit side, decrease on the debit side
Liabilities or Owners’ Equity Accounts
- +
debit credit
Liabilities and Owners’ Equity accounts increase on the credit side, decrease on the debit side
Liabilities or Owners’ Equity Accounts
- +
debit credit
Chapter 2 Mugan-Akman 2007 21-52
Transaction Analysis and The Duality Concept
Transaction Analysis and The Duality Concept
if an asset account increases, because of duality concept there must be a corresponding
1. increase in a specific liability account
2. or a decrease in a another asset account
3. or an increase in owners' equity account.
if an asset account increases, because of duality concept there must be a corresponding
1. increase in a specific liability account
2. or a decrease in a another asset account
3. or an increase in owners' equity account.
Chapter 2 Mugan-Akman 2007 22-52
Illustration of Express Travel Agency
Illustration of Express Travel Agency
1. Ms. Fodor invested TL100.000 at the inception1. Ms. Fodor invested TL100.000 at the inception
Event No
Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000Total 100.000 0 100.000
GENERAL JOURNAL Page 1Date Account Title and Description Acct.No. Debit Credit
1 Jan 2004Cash 100 100.000
Capital 500 100.000
Investment by the shareholders
Chapter 2 Mugan-Akman 2007 23-52
2. On 1 January employed a full time secretary and a sales representative.2. On 1 January employed a full time secretary and a sales representative.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No changeTotal 100.000 0 100.000
Chapter 2 Mugan-Akman 2007 24-52
3. On 1 January rented an office building and paid 3 months rent of TL 600.
3. On 1 January rented an office building and paid 3 months rent of TL 600.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change3 +600 No change No change
-600 No change No changeTotal 100.000 0 100.000
GENERAL JOURNAL Page 1Date Account Title and Description Acct.No. Debit Credit
1 Jan 2004Prepaid Rent 180 600
Cash 100 600
Payment of 3 months of rent in advance
Chapter 2 Mugan-Akman 2007 25-52
4. On 2 January office furniture and equipment is purchased for TL 15.000 , for which TL 5.000 is paid in cash and the rest would be paid later in January and February 2007.
4. On 2 January office furniture and equipment is purchased for TL 15.000 , for which TL 5.000 is paid in cash and the rest would be paid later in January and February 2007.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change3 +600 No change No change
-600 No change No change4 +15.000 +10.000 No change
-5.000Total 110.000 10.000 100.000
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No Debit Credit
2 Jan 2004Furniture and Equipment 255 15.000
Cash 100 5.000 Accounts Payable 320 10000Purchase of furniture and equipment
Chapter 2 Mugan-Akman 2007 26-52
5. On 3 January insured the office building and the equipment effective from 1 January to 31 December 2004 and paid TL 120 for the whole period.
5. On 3 January insured the office building and the equipment effective from 1 January to 31 December 2004 and paid TL 120 for the whole period.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change3 +600 No change No change
-600 No change No change4 +15.000 +10.000 No change
-5.0005 +120 No change No change
-120Total 110.000 10.000 100.000
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No. Debit Credit
3 Jan 2004Prepaid Insurance 180 120
Cash 100 120Purchase of insurance policy
Chapter 2 Mugan-Akman 2007 27-52
6. On 5 January the company agreed with Turkish Airlines to sell airline tickets of THY and receive commissions in return.
6. On 5 January the company agreed with Turkish Airlines to sell airline tickets of THY and receive commissions in return.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change3 +600 No change No change
-600 No change No change4 +15.000 +10.000 No change
-5.0005 +120 No change No change
-1206 No change No change No change
Total 110.000 10.000 100.000
Chapter 2 Mugan-Akman 2007 28-52
7. On 10 January Express Travel Agency borrowed TL 15.000 from the bank at an annual interest rate of 24% for six months. The principal and the interest of the loan will be paid together on 10 July 2007.
7. On 10 January Express Travel Agency borrowed TL 15.000 from the bank at an annual interest rate of 24% for six months. The principal and the interest of the loan will be paid together on 10 July 2007.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change3 +600 No change No change
-600 No change No change4 +15.000 +10.000 No change
-5.0005 +120 No change No change
-1206 No change No change No change7 +15.000 +15.000 No change
Total 125.000 25.000 100.000
Chapter 2 Mugan-Akman 2007 29-52
7. On 10 January Express Travel Agency borrowed TL 15.000 from the bank at an annual interest rate of 24% for six months. The principal and the interest of the loan will be paid together on 10 July 2004.
7. On 10 January Express Travel Agency borrowed TL 15.000 from the bank at an annual interest rate of 24% for six months. The principal and the interest of the loan will be paid together on 10 July 2004.
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No. Debit Credit
10 Jan 2004Cash 100 15.000
Bank Loan 300 15.000Borrowing from the bank
Chapter 2 Mugan-Akman 2007 30-52
8. On 10 January purchased office supplies for TL 2.500 in cash.8. On 10 January purchased office supplies for TL 2.500 in cash.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change3 +600 No change No change
-600 No change No change4 +15.000 +10.000 No change
-5.0005 +120 No change No change
-1206 No change No change No change7 +15.000 +15.000 No change8 +2.500 No change No change
-2.500Total 125.000 25.000 100.000
Chapter 2 Mugan-Akman 2007 31-52
8. On 10 January purchased office supplies for TL 2.500 in cash.8. On 10 January purchased office supplies for TL 2.500 in cash.
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No. Debit Credit
10 Jan 2004Office Supplies 136 2.500
Cash 100 2.500Purchase of office supplies
Chapter 2 Mugan-Akman 2007 32-52
9. During the first half of January the agency sold tickets to various customers and on 16 January issued a commission invoice to THY amounting to TL 5.000 that will be collected later in January 2007.
9. During the first half of January the agency sold tickets to various customers and on 16 January issued a commission invoice to THY amounting to TL 5.000 that will be collected later in January 2007.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change3 +600 No change No change
-600 No change No change4 +15.000 +10.000 No change
-5.0005 +120 No change No change
-1206 No change No change No change7 +15.000 +15.000 No change8 +2.500 No change No change
-2.5009 +5.000 No change +5.000
Total 130.000 25.000 105.000
Chapter 2 Mugan-Akman 2007 33-52
9. During the first half of January the agency sold tickets to various customers and on 16 January issued a commission invoice to THY amounting to TL 5.000 that will be collected later in January 2004.
9. During the first half of January the agency sold tickets to various customers and on 16 January issued a commission invoice to THY amounting to TL 5.000 that will be collected later in January 2004.
Left or Debit Side Right or Credit SideDecrease Increase
Revenue Accounts
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No. Debit Credit
16 Jan 2004Accounts Receivable 120 5.000
Commission Revenue 600 5.000Recognition of commission on ticket sales
Chapter 2 Mugan-Akman 2007 34-52
10. On 20 January the company paid TL 5.000 for the furniture and equipment that were purchased on 2 January.
10. On 20 January the company paid TL 5.000 for the furniture and equipment that were purchased on 2 January.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change3 +600 No change No change
-600 No change No change4 +15.000 +10.000 No change
-5.0005 +120 No change No change
-1206 No change No change No change7 +15.000 +15.000 No change8 +2.500 No change No change
-2.5009 +5.000 No change +5.000
10 -5000 -5000 No changeTotal 125.000 20.000 105.000
Chapter 2 Mugan-Akman 2007 35-52
10. On 20 January the company paid TL 5.000 for the furniture and equipment that were purchased on 2 January.
10. On 20 January the company paid TL 5.000 for the furniture and equipment that were purchased on 2 January.
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No. Debit Credit
20 Jan 2004Accounts Payable 320 5.000
Cash 100 5.000Payment for an accounts payable
Chapter 2 Mugan-Akman 2007 36-52
11. On 22 January received TL 7.500 from a customer for organizing the accounting conference that will be held on February 2, 2004.
11. On 22 January received TL 7.500 from a customer for organizing the accounting conference that will be held on February 2, 2004.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change3 +600 No change No change
-600 No change No change4 +15.000 +10.000 No change
-5.0005 +120 No change No change
-1206 No change No change No change7 +15.000 +15.000 No change8 +2.500 No change No change
-2.5009 +5.000 No change +5.000
10 -5.000 -5.000 No change11 +7.500 +7.500 No change
Total 132.500 27.500 105.000
Chapter 2 Mugan-Akman 2007 37-52
11. On 22 January the company received TL 7.500 from a customer for organizing the accounting conference that will be held on 2 February 2007.
11. On 22 January the company received TL 7.500 from a customer for organizing the accounting conference that will be held on 2 February 2007.
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No. Debit Credit
22 Jan 2004Cash 100 7.500
Unearned Revenues 340 7.500Receipt of advance payment from a customer
Chapter 2 Mugan-Akman 2007 38-52
12. The company received the full payment of commission charged to THY of TL 5.000 on 23 January.
12. The company received the full payment of commission charged to THY of TL 5.000 on 23 January.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change3 +600 No change No change
-600 No change No change4 +15.000 +10.000 No change
-5.0005 +120 No change No change
-1206 No change No change No change7 +15.000 +15.000 No change8 +2.500 No change No change
-2.5009 +5.000 No change +5.000
10 -5.000 -5.000 No change11 +7.500 +7.500 No change12 +5.000 No change No change
-5.000Total 132.500 27.500 105.000
Chapter 2 Mugan-Akman 2007 39-52
12. The company received the full payment of commission charged to THY of TL 5.000 on 23 January.
12. The company received the full payment of commission charged to THY of TL 5.000 on 23 January.
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No. Debit Credit
23 Jan 2004Cash 100 5.000
Accounts Receivable 120 5.000Receipt of payment from a customer
Chapter 2 Mugan-Akman 2007 40-52
13. On 24 January paid salaries of TL 9.000 employees in cash.13. On 24 January paid salaries of TL 9.000 employees in cash.
Event No Assets Liabilities Owners’ Equity
7 +15.000 +15.000 No change8 +2.500 No change No change
-2.5009 +5.000 No change +5.000
10 -5.000 -5.000 No change11 +7.500 +7.500 No change12 +5.000 No change No change
-5.00013 -9.000 No change -9.000
Total 123.500 27.500 96.000
Chapter 2 Mugan-Akman 2007 41-52
13. On 24 January paid salaries of TL 9.000 employees in cash.13. On 24 January paid salaries of TL 9.000 employees in cash.
Left or Debit Side Right or Credit SideIncrease Decrease
Expense Accounts
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No. Debit Credit
24 Jan 2004Salary Expense 770 9.000
Cash 100 9.000Payment of salaries
Chapter 2 Mugan-Akman 2007 42-52
14. During the second half of January the agency sold tickets to various customers and on 31 January issued a commission invoice to THY amounting to TL 7.500 which will be collected in February 2004.
14. During the second half of January the agency sold tickets to various customers and on 31 January issued a commission invoice to THY amounting to TL 7.500 which will be collected in February 2004.
Event No Assets Liabilities Owners’ Equity
8 +2.500 No change No change-2.500
9 +5.000 No change +5.00010 -5.000 -5.000 No change11 +7.500 +7.500 No change12 +5.000 No change No change
-5.00013 -9.000 No change -9.00014 +7.500 No change +7.500
Total 131.000 27.500 103.500
Chapter 2 Mugan-Akman 2007 43-52
14. During the second half of January the agency sold tickets to various customers and on 31 January issued a commission invoice to THY amounting to TL 7.500 which will be collected in February 2007.
14. During the second half of January the agency sold tickets to various customers and on 31 January issued a commission invoice to THY amounting to TL 7.500 which will be collected in February 2007.
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No. Debit Credit
31 Jan 2004Accounts Receivable 120 7.500
Commission Revenues 600 7.500Recognition of commission on ticket sales
Chapter 2 Mugan-Akman 2007 44-52
15. Ms. Fodor withdrew TL 3.000 on 31 January for personal use.
15. Ms. Fodor withdrew TL 3.000 on 31 January for personal use.
Event No Assets Liabilities Owners’ Equity
7 +15.000 +15.000 No change8 +2.500 No change No change
-2.5009 +5.000 No change +5.000
10 -5.000 -5.000 No change11 +7.500 +7.500 No change12 +5.000 No change No change
-5.00013 -9.000 No change -9.00014 +7.500 No change +7.50015 -3.000 No change -3.000
Total 128.000 27.500 100.500
Chapter 2 Mugan-Akman 2007 45-52
15. Ms. Fodor withdrew TL 3.000 on 31 January for personal use.
15. Ms. Fodor withdrew TL 3.000 on 31 January for personal use.
Left or Debit Side Right or Credit SideIncrease Decrease
Owners' Withdrawals or Dividends
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No. Debit Credit
31 Jan 2004Withdrawals XXX 3.000
Cash 600 3.000Withdrawal by the owner
Chapter 2 Mugan-Akman 2007 46-52
SummarySummary
1. determine the effects of transactions on three components of the accounting equation,
2. determine which specific accounts are affected, and
3. assure that total of the increases should be equal to either increases on the other side of the equation or to decreases on the same side, or a combination there of.
1. determine the effects of transactions on three components of the accounting equation,
2. determine which specific accounts are affected, and
3. assure that total of the increases should be equal to either increases on the other side of the equation or to decreases on the same side, or a combination there of.
Chapter 2 Mugan-Akman 2007 47-52
Behavior SummaryBehavior SummaryAssets = Liabilities + Owners’ Equity + - - + - +Dr Cr Dr Cr Dr Cr Expense Revenue + - - + Dr Cr Dr Cr
Withdrawals/Dividends + - Dr Cr
Assets = Liabilities + Owners’ Equity + - - + - +Dr Cr Dr Cr Dr Cr Expense Revenue + - - + Dr Cr Dr Cr
Withdrawals/Dividends + - Dr Cr
Chapter 2 Mugan-Akman 2007 48-52
Accounting CycleAccounting Cycle
Analyze and record the transactions
Post the transactions and prepare trial balance
Adjust the accounts and prepare trial balance
Close the accounts and prepare trial balance
Prepare the financial statements
Chapter 2 Mugan-Akman 2007 49-52
Posting to The LedgerPosting to The LedgerGENERAL JOURNAL Page 1Date Account Title and Description Acct.No. Debit Credit
1 Jan 2004Cash 100 100.000
Capital 500 100.000
Investment by the shareholders
LEDGER - Cash Acc. No. 100
Date Description Ref Debit Credit Debit Balance
Credit Balance
1 Jan 2004Investment by the shareholders P 1 100.000 100.000
LEDGER - Capital Acc. No. 500
Date Description Ref Debit Credit Debit Balance
Credit Balance
1 Jan 2004Investment by the shareholders P 1 100.000 100.000
Chapter 2 Mugan-Akman 2007 50-52
LEDGER - Cash Acc. No. 100
Date Description Ref Debit Credit Debit Balance
1 Jan Investment by the shareholders P 1 100.000 100.0001 Jan Payment of office rent P 1 600 99.4002 Jan Purchase of office furniture and equipment P 1 5.000 94.4003 Jan Payment of insurance P 1 120 94.28010 Jan Borrowing from the bank P 1 15.000 109.28010 Jan Purchase of office supplies P 1 2.500 106.78020 Jan Payment for an accounts payable P 1 5.000 101.78022 Jan Receipt of advance payment from a customer P 1 7.500 109.28023 Jan Receipt of payment from a customer P 1 5.000 114.28024 Jan Payment of salaries P 1 9.000 105.28031 Jan Withdrawal by the owner P 1 3.000 102.280
Chapter 2 Mugan-Akman 2007 51-52
Trial BalanceTrial Balance
Accounts Debit CreditCash 102.280Accounts Receivable 7.500Office Supplies 2.500Prepaid Rent 600Prepaid Insurance 120Office Furniture and Equipment 15.000Bank Loan 15.000Accounts Payable 5.000Unearned Revenues 7.500Capital 100.000Withdrawal 3.000Commission Revenues 12.500Salary Expenses 9.000Total 140.000 140.000
Express Travel AgencyTrial Balance
31 January 2004in TL
Chapter 2 Mugan-Akman 2007 52-52
Category of the Account Increase Recorded By
Normal Balance
Assets Debits Debit
Liabilities Credits Credit
Shareholders’ Equity
Capital Credits Credit
Dividends or Withdrawals Debits Debit
Revenues Credits Credit
Expenses Debits Debit
Normal Balances of AccountsNormal Balances of Accounts