I. Transaction Analysis
A. Identify Business Transactions
1. Journalize Transactions
a) Identify the impact of the transaction on the accounting equation
(1) What are T accounts and how do they work
(a) Prepare a trial balance
II. Recognize Transactions
A. Measure Transactions
1. Record Transactions
a) Report over time
III. Journal Entry - Concept
A. Get something you have to give something
B. Great employment prospects and good grades
1. Must give up leisure activities and sleep
IV. Journal Entry - Rules
A. Entry is created every time a business transaction occurs
B. Has 2 parts
1. A Debit
2. A Credit
C. Amounts credited must equal the amounts debited
D. First line is always Debit (Dr.)
E. Second line is always indented
F. Third line should contain a narrative regarding the entries
G. Complex journal entry
1. Can have multiple debits or multiple credits, any combination of them
2. Totals of the debits MUST equal totals of the Credits in a single journal
entry
H. Account (a/c)
1. Category in which we receive transactions
V. ACCOUNTING EQUATION
A. Assets = Liabilities + Shareholders Equity
1. Shareholders Equity = Contributed Capital + Retained Earnings
a) Retained Earnings = Revenues + (Expenses) + (Dividends)
VI. Journal Entries - How To?
A. Assets increase with debits and decrease with credits
1. Cash walks in the door = you would debit cash
B. Purchase Inventory of $1000 paying Cash
Dr. Inventory $1000
Cr. Cash $1000
(Purchase of Inventory)
C. Liabilities and Shareholders Equity
1. Increase with credits and decrease with debits
a) Except Expenses and Dividends
D. Take out a bank loan of $5000
Dr. Cash $5000
Cr. Bank Loan $5000
(Loan From Bank)
1. Cash - Asset - increases with a debit
2. Loan - Liability - increases with a credit
3. Assets will increase by $5000 and liabilities will increase by $5000 -
accounting equation is in balance
E. Issued Shares for $20,000 cash
Dr. Cash $20,000
Cr. Common stock $20,000
(Issuance of shares)
1. Cash - Asset - increases with a debit
2. Common Stock - Equity - increases with a credit
3. Assets increase by $20,000; equity increases by $20,000 - accounting
equation is in balance
F. Relationship between Assets and Expenses
1. Expense = consuming the product/asset
a) Until consumption the purchase is an asset
G. Journal Entry - Assets
1. Purchase equipment for $20,000 cash
a) Get Equipment (Asset)
b) Give Cash (Asset)
2. Two accounts impacted:
a) Cash account
b) Equipment Account
3. Journal Entry
Dr. Equipment $20,000
Cr. Cash $20,000
4. Impact on Accounting Equation
a) All Assets, no liability or Shareholders Equity
VII. Journal Entry - Liabilities
A. B Corp purchased equipment with a loan of $20,000 on Aug 2
Dr. Equipment (+A) $20,000
Cr. Loan (+L) $20,000
Purchased building with loan
B. Impact on Accounting Equation
1. Assets go up
2. Liabilities go up
3. Equation is in balance
VIII. Journal Entry - Shareholders Equity
A. A shareholder gave equipment worth $20,000 to B Corp on Aug 2
Dr. Equipment (+A) 20,000
Cr. Common Stock (+SHE) 20,000
Received $20,000 equipment from Shareholder
1. Impact on Accounting Equation
a) Assets go Up
b) Shareholders Equity go Up
c) Equation is in Balance
IX. Journal Entry - Revenues
A. B Corp sells merchandise to a customer for $30,000 on Aug 2
Dr. Cash (+A) 30,000
Cr. Sale (+Rev) 30,000
Sold merchandise to customer for cash
1. Impact on Accounting Equation
a) Assets go Up
b) Revenues go Up (SHE)
c) Equation in balance
X. Journal Entry - Expenses
A. B Corp pays utility bill of $1,000 on Aug 2
Dr. Utility Expense (+E) 1,000
Cr. Cash (-A) 1,000
Paid utility expense in cash
1. Impact on Equation
a) Assets go down
b) SHE go down
c) Balanced
d) Expenses are negative on right hand side of equation
XI. Journal Entry - Summary of Rules
A. Asset
1. Increase with Dr. decrease with Cr.
B. Liability
1. Decrease with Dr. Increase with Cr.
C. Shareholders Equity
1. Decrease with Dr. Increase with Cr.
D. Expense
1. Increase with Dr. decrease with Cr.
E. Revenues
1. Decrease with Dr. Increase with Cr.
F. Dividends
