ACCTG 215 Quiz Section 3 Autumn 2013 The Five Steps to Recording External Transactions 1 Determine the effect on the accounting equation A L E Assets Resources Liabilities Stockholders Equity Claims to Resources Each transaction will have a dual effect which is the foundation of A DOUBLE ENTRY ACCOUNTING SYSTEM Three Things Used to Determine the Effect on the Accounting Equation 1 Account 2 Direction 3 Amount 2 Determine whether to debit or credit affected accounts Rules of the Game 1 Debits Credits 2 Assets Liabilities Stockholders Equity For every debit there will be at least one credit ACCTG 215 Quiz Section 3 Autumn 2013 3 Record transactions in the journal Journal definition A chronological record of all transactions affecting a firm Date 10 3 2013 Ref 1 Accounts IPhone 5s Cash LEFT RIGHT Debit 500 Credit 500 4 Post transactions to the ledger Ledger definition All accounts used to record a company s transactions Asset Accounts debits credits Liability Accounts debits credits 5 Prepare a trial balance Discussed in lecture Equity Accounts debits credits ACCTG 215 Quiz Section 3 Autumn 2013 Practice Problem Jake owns a lawn maintenance company while Lucy owns a machine repair shop For the month of July the following transactions occurred July 3 Jake provides lawn services to Lucy s repair shop on account 400 July 6 One of Jake s mowers malfunctions Lucy provides repair services to Jake on account 350 July 9 Lucy pays 400 to Jake for lawn services provided on July 3 July 14 Lucy borrows 500 from Jake by signing a note July 18 Jake purchases advertising in a local newspaper for the remainder of July and pays cash 100 July 20 Jake pays 350 to Lucy for services provided on July 6 July 27 Lucy performs repair services for other customers for cash 700 July 30 Lucy pays employees salaries for month 200 July 31 Lucy pays 500 to Jake for money borrowed on July 14 Required Determine the effect on the accounting equation record the transactions as journal entries and post the journal entries to the T accounts for Jake s Lawn Maintenance Company Assume that Jake starts the month of July with 1 000 in cash ACCTG 215 Quiz Section 3 Autumn 2013 Solution Debit 1 7 3 A Accounts Receivable R SE Service Revenue Provide services on account 2 7 6 E SE Maintenance Expense L Accounts Payable Receive maintenance on account 3 7 9 A Cash Credit 400 400 350 350 400 A Accounts Receivable Receive cash on account 4 7 14 A Notes Receivable A Cash Loan cash by issuing note receivable 5 7 18 E SE Advertising Expense A Cash Pay advertising for the current month 6 7 20 L Accounts Payable A Cash Pay cash on account 400 500 500 100 100 350 350 7 7 27 No entry for Jake 8 7 30 No entry for Jake 9 7 31 A Cash 500 A Notes Receivable Receive cash on note receivable 500 ACCTG 215 Quiz Section 3 Autumn 2013 T Accounts BB 3 9 Cash 1 000 500 400 100 500 350 4 5 6 BB 1 950 Accounts Receivable 0 400 400 3 BB 4 0 Notes Receivable 0 500 500 9 0 Accounts Payable 6 350 0 BB 350 2 0 Service Revenue 0 400 400 BB BB 1 2 Maintenance Expense 0 350 350 BB 5 Advertising Expense 0 100 100