ACCTG 215 - Quiz Section #3 Autumn 2013 The Five Steps to Recording External Transactions Assets = Liabilities + Stockholdersʼ Equity = 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 Rules of the Game: 1. Debits = Credits 2. Assets = Liabilities + Stockholdersʼ Equity For every debit, there will be at least one credit 1. Determine*the*effect*on*the*accounting*equation*(A*=*L*+*E)*2.*Determine*whether*to*debit*or*credit*affected*accounts*Resources*Claim s*to*R es o urces*ACCTG 215 - Quiz Section #3 Autumn 2013 Journal (definition): A chronological record of all transactions affecting a firm LEFT RIGHT Date Ref # Accounts Debit Credit 10/3/2013 1 IPhone 5s Cash $500 $500 Ledger (definition): All accounts used to record a companyʼs transactions (+) Asset Accounts (-) = (-) Liability Accounts (+) + (-) Equity Accounts (+) debits credits debits credits debits credits Discussed in lecture 3.*Record*transactions*in*the*journal*4.*Post*transactions*to*the*ledger*5.*Prepare*a*trial*balance*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 Credit (1) 7/3 (+A) Accounts Receivable 400 (+R/+SE) Service Revenue 400 (Provide services on account) (2) 7/6 (+E/-SE) Maintenance Expense 350 (+L) Accounts Payable 350 (Receive maintenance on account) (3) 7/9 (+A) Cash 400 (-A) Accounts Receivable 400 (Receive cash on account) (4) 7/14 (+A) Notes Receivable 500 (-A) Cash 500 (Loan cash by issuing note receivable) (5) 7/18 (+E/-SE) Advertising Expense 100 (-A) Cash 100 (Pay advertising for the current month) (6) 7/20 (-L) Accounts Payable 350 (-A) Cash 350 (Pay cash on account) (7) 7/27 No entry for Jake. (8) 7/30 No entry for Jake. (9) 7/31 (+A) Cash 500 (-A) Notes Receivable 500 (Receive cash on note receivable)ACCTG 215 - Quiz Section #3 Autumn 2013 !T-Accounts + Cash - + Accounts Receivable - + Notes Receivable - BB $1,000 $500 (4) BB $0 $400 (3) BB $0 $500 (9) (3) $400 $100 (5) (1) $400 (4) $500 (9) $500 $350 (6) $950 $0 $0 - Accounts Payable + (6) $350 $0 BB $350 (2) $0 - Service Revenue + + Maintenance Expense - + Advertising Expense - $0 BB BB $0 BB $0 $400 (1) (2) $350 (5) $100 $400 $350