Kế toán, kiểm toán - Chapter 2: Analyzing transactions
Now we know how to journalize transactions in the
general journal and post them to the ledger, we can
look at how to record specific transactions
▪The general steps for recording all transactions are:
– Recognize the transaction to be recorded
– Analyze the transaction using the accounting equation
– Determine which accounts are to be debited and credited
– Journalize the transaction
– Post the transaction to the ledger
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Chapter 2
Analyzing transactions
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1. Explain the steps in the accounting cycle and
each step’s supporting documentation
2. Explain the purpose of source documents
3. Describe an account and its purpose
4. Describe a chart of accounts
5. Define debits, credits and account balance
6. Explain the rules of debits and credits in double-
entry accounting and the normal balance of an
account
Learning objectives
3
7. Transaction analysis – debits and credits
8. Prepare a trial balance and explain its purpose in
the accounting cycle
9. Prepare financial statements from the trial
balance
Learning objectives
4
Explain the steps in the
accounting cycle and each step’s
supporting documentation
Learning objective 1
5
▪Steps and procedures that accountants follow when
recording accounting information
▪Performing the same steps each cycle helps
minimize errors when recording transactions
The accounting cycle
6
Step in the accounting cycle Documentation
1. Analyze transactions Source documents
2. Journalize transactions General journal
3. Post transactions from the journal to the ledger General ledger
4. Prepare a trial balance Trial balance
5. Prepare the financial statements Financial statements
Explain the purpose of
source documents
Learning objective 2
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Source documents
– Invoice
– Purchase order
– Checks
– Bank statement
– Cash register tape
– Employee records
▪Step one in the accounting cycle is to analyze
transactions from source documents
▪A source document is a record that provides
written evidence that a transaction has occurred
▪Used to record the transaction
Examples:
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Describe an account
and its purpose
Learning objective 3
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▪After analyzing the transaction from the source
document we record it in the accounting records
▪But what are these accounting records?
▪Accounts!
The account
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▪An account is a record that documents increases
and decreases in specific items
▪These items are classified as:
– Assets
– Liabilities
– Equity
– Revenues
– Expenses
▪Accounts are used because they are an efficient
way to record information
The account
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The account
– Cash
– Accounts Receivable
– Accounts Payable
– Capital
▪Chapter 1 introduced us to some specific accounts:
12
▪New accounts introduced in this chapter:
– Prepaid Expenses
(Asset account)
– Unearned Revenue
(Liability account)
Describe a
chart of accounts
Learning objective 4
13
▪How do we know what accounts are used by a
business?
Chart of accounts:
– List of all of the accounts used by the business
– Displays account name and account number for each
account
– Used to keep track of the accounts held by the business
▪What does a chart of accounts look like?
Chart of accounts
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Chart of accounts - example
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Account No. Account Name
100 Cash
110 Accounts Receivable
130 Supplies
160 Equipment
210 Accounts Payable
230 Unearned Revenue
250 Loan Payable
300 Capital
350 Withdrawals
400 Revenues
541 Advertising Expense
Define debits, credits
and account balance
Learning objective 5
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▪We know that transactions are recorded in accounts
▪But how they are recorded in the accounts?
▪Transactions are recorded using debits and credits
▪But what does debit and credit mean?
Debits and credits
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Debit = Left
Credit = Right
▪Debits and credits do not mean:
– Good or bad
– Favorable or unfavorable
– Increase or decrease
• Whether debits or credits refer to an increase or decrease depends
on the classification of each account
Debits and credits
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▪We can see debits and credits using the T-account:
▪ To debit an account is to record an entry on the left
▪ To credit an account is to record an entry on the right
T-account
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Account Title
Debit Credit
Dr Cr
Left side Right side
▪As well as a debit and a credit side, an account has
an account balance
▪An account balance is the difference between total
debits and total credits recorded in that account
– Debit balance: Dr > Cr
– Credit balance: Dr < Cr
▪How do we calculate the account balance?
Account balance
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Example using a simple T-account:
▪The Cash account has a debit balance of $7,000
▪There are other formats an account may take
Calculating an account balance
21
Cash No. 100
(debits) 3,000 (credits) 1,000
5,000
Balance 7,000
An example of a more detailed T-account:
Account formats: T-account
22
Cash No.100
Dec. 1 Capital 2,000 Dec. 2 Supplies 700
5 Loan Payable 5,000 4 Accounts Payable 600
6 Revenues 3,300 9 Expenses 150
8 Accounts Receivable 800 10 Withdrawals 250
Balance 9,400
The same account - running balance format:
Account formats: Running balance format
23
Cash No. 100
Date Description Ref. Debit Credit Balance
2011
Dec. 1 Balance 0
1 Cash investment by owner 2,000 2,000 Dr
2 Purchase stationery with cash 700 1,300 Dr
4 Partial payment for credit purchase 600 700 Dr
5 Received bank loan 5,000 5,700 Dr
6 Performed services for cash 3,300 9,000 Dr
8 Received cash from Accounts Receivable 800 9,800 Dr
9 Paid expense with cash 150 9,650 Dr
10 Owner withdrawal of cash 250 9,400 Dr
Explain the rules of debits and
credits in double-entry accounting
and the
normal balance of an account
Learning objective 6
24
▪We use debits and credits in double-entry
accounting to record transactions
▪The rules of double-entry accounting are:
– Each transaction affects at least two accounts
– Each transaction has at least one debit and one credit
– Total debits must equal total credits
– The accounting equation must always remain in balance
Assets = Liabilities + Equity
Double-entry accounting
25
▪This leads us to the general rules of debits and
credits used in double-entry accounting
– Assets are increased by debits (decreased by credits)
– Liabilities and equity are increased by credits (decreased
by debits)
Rules of debits and credits
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▪These general rules are extended to the
components of the expanded accounting equation:
– Capital is increased by credits (decreased by debits)
– Withdrawals is increased by debits (decreased by credits)
– Revenues are increased by credits (decreased by debits)
– Expenses are increased by debits (decreased by credits)
Rules of debits and credits
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▪To help us remember the rules of debits and credits,
we can think of the normal balance of an account:
– the debit or credit side of the account to which increases
are recorded
Normal balance of an account
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Account classification: Normal balance:
Asset Debit
Liabilities Credit
Capital Credit
Withdrawals Debit
Revenues Credit
Expenses Debit
Transaction analysis –
debits and credits
Learning objective 7
29
▪Recall the first step in the accounting cycle was to
analyze transactions from source documents
▪We can now use debits and credits to perform the
second step, journalize transactions
▪But what does journalize transactions mean?
Transaction analysis - debits and credits
30
Step in the accounting cycle Documentation
1. Analyze transactions Source documents
2. Journalize transactions General journal
Journalizing:
▪ the process of recording a transaction in a journal
Journal:
▪A record in which the transactions of the business
are entered (or journalized)
– Like a diary that records the transactions in chronological
order
▪Once a transaction has been journalized, the
individual transaction is known as a journal entry
Journalizing transactions
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▪Transactions are recorded in the general journal:
▪For each transaction, we record the:
– Date
– Accounts debited and credited
– Value of the transaction
– Short explanation of the transaction
General journal
General journal GJ-1
Date Account and explanation PostRef. Debit Credit
2011
Dec. 1 Cash 2,000
Capital 2,000
(Cash investment by owner.)
▪Once transactions have been journalized, the next
step in the accounting cycle is to post them to the
general ledger
Posting to the ledger
33
Step in the accounting cycle Documentation
1. Analyze transactions Source documents
2. Journalize transactions General journal
3. Post transactions from the journal to the ledger General ledger
General ledger:
▪A record that contains all accounts of the business
Posting:
▪The process of transferring information from
journals to ledger accounts
▪Let’s look at an illustration of how this is done
Posting to the ledger
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Posting from the journal to the ledger
35
▪Now we know how to journalize transactions in the
general journal and post them to the ledger, we can
look at how to record specific transactions
▪The general steps for recording all transactions are:
– Recognize the transaction to be recorded
– Analyze the transaction using the accounting equation
– Determine which accounts are to be debited and credited
– Journalize the transaction
– Post the transaction to the ledger
Illustration of transaction analysis
A. Owner invests $2,000 cash into the business
Journal entry:
Ledger posting (T-accounts):
A. Cash investment by owner
Cash No. 100
(A) 2,000
Capital No. 300
(A) 2,000
Date Account and explanation PostRef. Debit Credit
2011
Dec. 1 Cash 100 2,000
Capital 300 2,000
(Cash investment by owner.)
B. Purchased supplies for $700 cash
Journal entry:
Ledger posting (T-accounts):
B. Purchased an asset with cash
Cash No. 100
(B) 700
Supplies No. 130
(B) 700
Date Account and explanation PostRef. Debit Credit
2011
Dec. 2 Supplies 130 700
Cash 100 700
(Purchased supplies with cash.)
C. Purchased a laptop computer on credit for $2,400
Journal entry:
Ledger posting (T-accounts):
C. Purchased an asset on credit
Equipment No. 160
(C) 2,400
Accounts Payable No. 210
(C) 2,400
Date Account and explanation PostRef. Debit Credit
2011
Dec. 3 Equipment 160 2,400
Accounts Payable 210 2,400
(Purchased computer on credit.)
D. Paid $600 cash toward previous credit purchase
Journal entry:
Ledger posting (T-accounts):
D. Paid for an asset purchased on credit
Cash No. 100
(D) 600
Accounts Payable No. 210
(D) 600
Date Account and explanation PostRef. Debit Credit
2011
Dec. 4 Accounts Payable 210 600
Cash 100 600
(Partial payment for asset purchased on credit.)
E. Received a loan of $5,000 from the bank
Journal entry:
Ledger posting (T-accounts):
E. Received loan
Cash No. 100
(E) 5,000
Loan Payable No. 250
(E) 5,000
Date Account and explanation PostRef. Debit Credit
2011
Dec. 5 Cash 100 5,000
Loan Payable 250 5,000
(Received cash loan from bank.)
F. Performed tutoring services for $3,300 cash
Journal entry:
Ledger posting (T-accounts):
F. Performed services for cash
Cash No. 100
(F) 3,300
Revenues No. 400
(F) 3,300
Date Account and explanation PostRef. Debit Credit
2011
Dec. 6 Cash 100 3,300
Revenues 400 3,300
(Received cash for services performed.)
G. Performed $4,400 worth of services on credit
Journal entry:
Ledger posting (T-accounts):
G. Performed services on credit
Accounts Receivable No. 110
(G) 4,400
Revenues No. 400
(G) 4,400
Date Account and explanation PostRef. Debit Credit
2011
Dec. 7 Accounts Receivable 110 4,400
Revenues 400 4,400
(Performed services on credit.)
H. Received $800 cash from credit customers
Journal entry:
Ledger posting (T-accounts):
H. Received cash from Accounts Receivable
Cash No. 100
(H) 800
Accounts Receivable No. 110
(H) 800
Date Account and explanation PostRef. Debit Credit
2011
Dec. 8 Cash 100 800
Accounts Receivable 110 800
(Received cash from credit customers.)
I. Paid $150 cash for advertising campaign
Journal entry:
Ledger posting (T-accounts):
I. Paid expense with cash
Cash No. 100
(I) 150
Advertising Expense No. 541
(I) 150
Date Account and explanation PostRef. Debit Credit
2011
Dec. 9 Advertising Expense 541 150
Cash 100 150
(Paid cash for advertising expense.)
J. Owner withdraws $250 cash from the business
Journal entry:
Ledger posting (T-accounts):
J. Owner withdraws cash from business
Cash No. 100
(J) 250
Withdrawals No. 350
(J) 250
Date Account and explanation PostRef. Debit Credit
2011
Dec. 10 Withdrawals 350 250
Cash 100 250
(Cash withdrawal by owner.)
K. Signing an employment agreement
Journal entry:
▪ No journal entry required because there is no change to the
value of the assets, liabilities, equity, revenues or expenses
of the business
K. Non business transaction
L. Paid $360 for a 3 year insurance premium
Journal entry:
Ledger posting (T-accounts):
L. Prepaid expense
Cash No. 100
(L) 360
Prepaid Insurance No. 142
(L) 360
Date Account and explanation PostRef. Debit Credit
2011
Dec. 12 Prepaid Insurance 142 360
Cash 100 360
(Paid for 36 month insurance policy for the computer.)
M. Made a loan repayment of $500
Journal entry:
Ledger posting (T-accounts):
M. Repayment of loan
Cash No. 100
(M) 500
Loan Payable No. 250
(M) 500
Date Account and explanation PostRef. Debit Credit
2011
Dec. 13 Loan Payable 250 500
Cash 100 500
(Repaid part of the principal of the bank loan.)
N. Received $900 cash in advance for tutoring
Journal entry:
Ledger posting (T-accounts):
N. Unearned revenue
Cash No. 100
(N) 900
Unearned Revenue No. 230
(N) 900
Date Account and explanation PostRef. Debit Credit
2011
Dec. 14 Cash 100 900
Unearned Revenue 230 900
(Received revenue in advance.)
O. Performed $2,000 worth of tutoring services.
$450 was received in cash with the remaining
$1,550 to be received on credit
Journal entry:
▪Post to each of the 3 accounts in this journal entry
O. Compound journal entry
Date Account and explanation PostRef. Debit Credit
2011
Dec. 15 Cash 100 450
Accounts Receivable 110 1,550
Revenues 400 2,000
(Performed services for cash and credit.)
Prepare a trial balance and
explain its purpose in the
accounting cycle
Learning objective 8
52
▪After journalizing transactions and posting them to
the ledger, the next stage in the accounting cycle is
to prepare a trial balance
Trial balance
53
Step in the accounting cycle Documentation
1. Analyze transactions Source documents
2. Journalize transactions General journal
3. Post transactions from the journal to the ledger General ledger
4. Prepare a trial balance Trial balance
▪The trial balance is a list of all general ledger
accounts held by the business and their balances at
a specific point in time
▪Purpose is to verify that total debits equals total
credits in the accounts
Trial balance
54
Trial balance - example
55
Running Latte
Trial Balance
December 31, 2011
No. Account Debit$
Credit
$
100 Cash 9,890
110 Accounts Receivable 5,150
130 Supplies 700
142 Prepaid Insurance 360
160 Equipment 2,400
210 Accounts Payable 1,800
230 Unearned Revenue 900
250 Loan Payable 4,500
300 Capital 2,000
350 Withdrawals 250
400 Revenues 9,700
541 Advertising Expense 150
Totals 18,900 18,900
▪Use the general ledger to construct the trial balance
– List account numbers and account names
– Transfer debit and credit balances into corresponding
column
– Calculate total debits and credits
– Verify total debits equals total credits
▪The trial balance is said to be balanced when total
debits equals total credits
▪But what if the trial balance does not balance?
Preparing a trial balance
56
▪Add up the columns again and check:
▪ Is an account missing?
– Look for difference between debits and credits in the ledger
▪Debits or credits recorded in wrong column?
– Difference ÷ 2
▪Transposition or slide error?
– Difference ÷ 9
Trial balance errors
57
▪There are 2 main ways to correct an error in the
accounts
▪Rule a line through the entry and enter the correct
information for:
– Incorrect journal entry that has not been posted
– Posting an incorrect amount to the correct ledger account
▪ Journalize a correcting entry for:
– Incorrect journal entry that has been posted
– Journal entry posted to the wrong account
Correcting errors in the accounts
58
▪A balanced trial balance can not guarantee the
accounts are free from errors
▪The following errors may still exist in the accounts:
– Missing transactions that were not journalized or posted
– Duplicate transactions where journal entries were
recorded or posted more than once
– Incorrect accounts that have been used in journalizing or
posting
– Incorrect dollar amounts that have been journalized or
posted to the correct account
Limitations of the trial balance
59
Prepare financial statements
from the trial balance
Learning objective 9
60
▪Once the trial balance is balanced, we can use it to
help prepare the financial statements
Financial statements
61
Step in the accounting cycle Documentation
1. Analyze transactions Source documents
2. Journalize transactions General journal
3. Post transactions from the journal to the ledger General ledger
4. Prepare a trial balance Trial balance
5. Prepare the financial statements Financial statements
▪The trial balance can be used to help construct the
financial statements
▪The order of the accounts in the trial balance is
generally the order in which they appear in the
financial statements
– balance sheet accounts are at the top of the trial balance
– income statement accounts are at the bottom of the trial
balance
Financial statements
62
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