Recording Business Transactions: A Comprehensive Guide to Accounting Principles, Summaries of Accounting

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Chapter 2

Recording business transactions

Learning objectives

• Explain accounts, journals and ledgers as they relate to recording transactions, and describe common accounts
• Define debits, credits and normal account balances, and use double-entry accounting and T-accounts
• List the steps of the transaction recording process
• Post transactions from the journal to the ledger
• Prepare the trial balance from the T-accounts

2.1. The account, the ledger and

the journal

Collect source of documents Record transactions in the journal Copy (post) to the ledger Prepare the trial balance

Assets

An asset is a resource controlled by an entity as a result of past events that is expected to provide future economic benefits to the entity in the future

2.1. The account, the ledger and the

journal

• Cash
• Accounts receivable
• Bills receivable
• Inventories
  • Prepaid expenses
  • Land
  • Buildings
  • Plant and equipment

Owners’ equity

The financial estimate of owners’ claims to the value in a business is called owners’ equity. It is the residual interest in the assets of an entity after deducting all liabilities

• Capital
• Drawings
• Income
• Service revenue/ sale revenue
• Expenses

2.1. The account, the ledger and the

journal

Chart of accounts

2.1. The account, the ledger and the

journal

• The account category determines how increases and decreases in the account are recorded as debits and credits
• The pattern of recording debits and credits is based on the accounting equation

2.2. Debits, credits and double-entry

accounting

Minigame

2.3. Recording transactions in the journal

Eg: The Smart Touch business received of Sheena Bright’s $30,000 cash investment in the business.

1. The source documents: ___(1)_________
2. The accounts affected: ____(2)_____________
3. The accounts increased/decreased: ____(3)_________
4. Date Accounts & Explanations Debit (Dr.) Credit (Cr.)

Copying information (posting) from the journal

to the ledger

2.4. Transactions analysis, journalizing

and posting to the accounts

Summarise: Flow of accounting information

2.4. Transactions analysis, journalizing

and posting to the accounts

Eg: Practice journalizing and posting with specific examples: Details of transactions occurred at Smart Touch business on May 20X (1) Sheena Bright invested $30,000 cash in the business. (2) Paid $20,000 cash for land. (3) Bought $500 of office supplies on credit. (4) Received $5,500 cash from clients for service revenue earned. (5) Performed training service for clients on credit, $3,000. (6) Paid cash expenses: computer lease, $600; office rent, $1,100; employee salary, $1,200; electricity and gas, $400.

2.4. Transactions analysis, journalizing

and posting to the accounts

Record to the JOURNAL No. Accounts & Explanation Debit Credit (1) Dr. Cash Cr. Capital, Sheena Recorded the cash investment $30, $30, (2) Dr. Land Cr. Cash Purchased land by cash $20, $20, (3) Dr. Office Supplies Cr. Accounts Payable Purchased office supplies on credit $ $ (4) Dr. Cash Cr. Service Revenue Received $5,500 cash from clients for service revenue earned $5, $5, Smart Touch Learning May 20X Journal

Record to the JOURNAL (Cont.) No. Accounts & Explanation Debit Credit (5) Dr. Accounts Receivable Cr. Service Revenue Provided service on credit $3, $3, (6) Dr. Lease expense Dr. Rent expense Dr. Salary expense Dr. Electricity and gas expense Cr. Cash Paid for expenses $ $1, $1, $ $3, (7) Dr. Accounts payable Cr. Cash Paid on account $ $ (8) None (9) Dr. Cash Cr. Accounts Receivable Collected on account $1, $1,