identify and Recording Transactions

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Identify and Recording Transactions What to Record An item should be recognized in the financial statements if it is an element is measurable and is relevant and a faithful representation Slide 3 26 LO 3 Identify steps in the accounting cycle 1 Journalizing General Journal a chronological record of transactions Journal Entries are recorded in the journal September 1 Shareholders invested 15 000 cash in the corporation in exchange for ordinary shares Illustration 3 7 Slide 3 27 LO 4 Record transactions in journals post to ledger accounts and prepare a trial balance 2 Posting Posting the process of transferring amounts from the journal to the ledger accounts Illustration 3 7 Illustration 3 8 Slide 3 28 LO 4 Record transactions in journals post to ledger accounts and prepare a trial balance 2 Posting Posting Transferring amounts from journal to ledger Illustration 3 8 Slide 3 29 LO 4 2 Posting Expanded Example The purpose of transaction analysis is 1 to identify the type of account involved and 2 to determine whether a debit or a credit is required Keep in mind that every journal entry affects one or more of the following items assets liabilities equity revenues or expense Slide 3 30 LO 4 Record transactions in journals post to ledger accounts and prepare a trial balance 2 Posting 1 October 1 Shareholders invest 100 000 cash in an advertising venture to be known as Pioneer Advertising Agency Inc Oct 1 Cash 100 000 Share capital ordinary 100 000 Illustration 3 9 Cash Share Capital Ordinary Debit Credit Debit Credit 100 000 100 000 Slide 3 31 LO 4 Record transactions in journals post to ledger accounts and prepare a trial balance 2 Posting 2 October 1 Pioneer Advertising purchases office equipment costing 50 000 by signing a 3 month 12 50 000 note payable Illustration 3 10 Oct 1 Office equipment 50 000 Notes payable 50 000 Office Equipment Notes Payable Debit Credit Debit Credit 50 000 50 000 Slide 3 32 LO 4 Record transactions in journals post to ledger accounts and prepare a trial balance 2 Posting 3 October 2 Pioneer Advertising receives a 12 000 cash advance from KC a client for advertising services that are expected to be completed by December 31 Illustration 3 11 Oct 2 Cash 12 000 Unearned service revenue 12 000 Cash Unearned Service Revenue Debit Credit Debit Credit 12 000 100 000 12 000 Slide 3 33 LO 4 Record transactions in journals post to ledger accounts and prepare a trial balance 2 Posting 4 October 3 Pioneer Advertising pays 9 000 office rent in cash for October Oct 3 Rent expense 9 000 Cash Illustration 3 12 9 000 Cash Rent Expense Debit Credit Debit Credit 100 000 12 000 9 000 9 000 Slide 3 34 LO 4 Record transactions in journals post to ledger accounts and prepare a trial balance 2 Posting 5 October 4 Pioneer Advertising pays 6 000 for a one year insurance policy that will expire next year on September 30 Oct 4 Prepaid insurance 6 000 Illustration 3 13 6 000 Cash Cash Debit Credit 100 000 12 000 9 000 6 000 Prepaid Insurance Debit Credit 6 000 Slide 3 35 LO 4 Record transactions in journals post to ledger accounts and prepare a trial balance 2 Posting 6 October 5 Pioneer Advertising purchases for 25 000 on account an estimated 3 month supply of advertising materials from Aero Supply Illustration 3 14 Oct 5 Advertising supplies 25 000 Accounts payable 25 000 Advertising Supplies Debit Credit 25 000 Accounts Payable Debit Credit 25 000 Slide 3 36 LO 4 Record transactions in journals post to ledger accounts and prepare a trial balance 2 Posting 7 October 9 Pioneer Advertising signs a contract with a local newspaper for advertising inserts flyers to be distributed starting the last Sunday in November Pioneer will start work on the content of the flyers in November Payment of 7 000 is due following delivery of the Sunday papers containing the flyers Illustration 3 15 Slide 3 37 LO 4 Record transactions in journals post to ledger accounts and prepare a trial balance 2 Posting 8 October 20 Pioneer Advertising s board of directors declares and pays a 5 000 cash dividend to shareholders Oct 20 Dividends 5 000 Cash Illustration 3 16 5 000 Cash Dividends Debit Credit Debit Credit 100 000 12 000 9 000 6 000 5 000 5 000 Slide 3 38 LO 4 Record transactions in journals post to ledger accounts and prepare a trial balance 2 Posting 9 October 26 Employees are paid every four weeks The total payroll is 2 000 per day The pay period ended on Friday October 26 with salaries of 40 000 being paid Oct 26 Salaries expense 40 000 Illustration 3 17 40 000 Debit Credit Debit Credit Salaries Expense 40 000 Cash Cash 100 000 12 000 9 000 6 000 5 000 40 000 Slide 3 39 LO 4 Record transactions in journals post to ledger accounts and prepare a trial balance 2 Posting 10 October 31 Pioneer Advertising receives 28 000 in cash and bills Copa Company 72 000 for advertising services of 100 000 provided in October Illustration 3 18 Oct 31 Cash Accounts receivable Service revenue 28 000 72 000 100 000 Cash Accounts Receivable Service Revenue Debit Credit Debit Credit Debit Credit 72 000 100 000 100 000 12 000 28 000 80 000 Slide 3 40 9 000 6 000 5 000 40 000 3 Trial Balance Illustration 3 19 Trial Balance A list of each account and its balance used to prove equality of debit and credit balances Slide 3 41 LO 4 Record transactions in journals post to ledger accounts and prepare a trial balance 4 Adjusting Entries Makes it possible to Report on the statement of financial position the appropriate assets liabilities and equity at the statement date Report on the income statement the proper revenues and expenses for the period Revenues are recorded in the period in which they are Expenses are recognized in the period in which they are earned incurred Slide 3 42 LO 5 Explain the reasons for preparing adjusting entries


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