Record Keeping Fundamentals Accounting Process Transaction Analysis

Recordkeeping Fundamentals

The Account Permanent Accounts and Temporary Accounts The ledger Chart of Accounts Debit and Credit
Assets
Debit Credit

Liabilities
Debit Credit

Owners Equity
Debit Credit

Accounting Process
1. Analyze transactions 2. Journalize original entries
Record chronologically in journal

3. Post journal entries to ledger

Organize by account

4. Identify, journalize and post adjusting entries 5. Journalize and post closing entries
Close out temporary accounts

6. Prepare financial statements

Transaction Analysis
Determine dual effect on accounts. Assets = Liabilities + Owners Equity. dr. (debit) = cr. (credit). Example Owner invests $5,000 in business.
Cash Paid-In Capital

+ $5,000

Debit

Credit

Debit

Credit

+ $5,000

Trial Balance

Trial Balance
Why prepare?
Shows equality of debits and credits (i.e., maintained integrity of accounting equation).
But still could be errors.

Convenient summary for making adjusting entries and preparing financial statements.

Copies Express
Copies Express was incorporated on November 20, 2009, and began operating on January 2, 2010. The balance sheet as of the beginning of operations is shown in Exhibit 1.

 Exhibit 1 Balance sheet as of Sheet as of January 2, 2006 Balance January 2, 2010

Assets Cash Supplies Building and equipment Land Total Liabilities and Owners Equity Accounts payable Bank loan Capital stock Total $ 2,000 24,400 300,000 12,000 $ 338,400

10,400 24,000 304,000 $ 338,400

Copies Express
In preparing financial statements for the first year of operations, the accountant reviewed the record of cash receipts and disbursements for Copies Express. This information appears in Exhibit 2.

Exhibit 2 Cash Receipts and Disbursements:2010 2006 Cash Receipts and Disbursements:
Cash receipts: Cash sales Collect accounts receivable Total

$ 176,450 64,750 $ 241,200 85,750 15,000 52,600 28,375 2,880 12,000 10,400 $ 207,005 $

Cash disbursements: Wages and salaries Heat, light, power Additional supplies Selling and administration Interest * Paymentbank loan (12/31) Paymentaccounts payable Total

* Interest at 12 percent per annum on the bank loan was payable June 30 and December 31 [($24,000*.12) = $2,880]. Interest payments for 2006 were made when due.

Copies Express
In addition, the accountant examined certain other information relative to operations. These additional items appear in Exhibit 3.

Exhibit 3
Other Information Relative to Operations 1. At the end of 2006, Copies Express owed $9,875 to suppliers for the purchase of photocopy supplies for which it had not yet paid. 2. The yearly depreciation expense on the buildings and equipment was $15,000. 3. At the end of 2006, Copies Express was owed $11,000 for copying services by customers who had not yet paid. Copies Express expected that all of these customers would pay within 30 days. 4. An inventory taken of the supplies at year-end revealed that the years cost of supplies was $60,250. 5. Income taxes for 2006 were expected to be $11,593. They were unpaid as of December 31, 2006.

Questions
1. Prepare income statement for 2010 and a balance sheet as of December 31, 2010 2. Explain the derivation of each number on these financial statements

Journal Entries
(1)

(2)

(3)

(4)
(5) (6)

Cash Sales Accounts Receivable Sales Cash Accounts Receivable Wages and Salaries (expense) Cash Heat, Light, and Power (expense) Cash Supplies Inventory Cash Selling and Administration (expense) Cash

176,450

64,750
64,750 85,750

176,450 64,750 64,750 85,750 15,000 52,600 28,375

15,000
52,600 28,375

(7)

(8)
(9) (10) (11) (12)

Interest Expense Cash Bank Loan Cash Accounts Payable (payment) Cash Supplies Inventory Accounts Payable Depreciation Expense Accumulated Depreciation Accounts Receivable Sales

Journal Entries
2,880

12,000
10,400 9,875 15,000 11,000

2,880 12,000 10,400 9,875 15,000 11,000

Journal Entries
(13) (14) Cost of Supplies Used Supplies Inventory Tax Expense Taxes Payable 60,250 60,250 11,593 11,593

Cash

Accnts Recv.

Supp.

= Accounts Payable

Loan Tax payable Payable

Owners Equity 176,450

Description of Transaction Cash sales Collect accnt receivables Collected Wages & Sal. Maintenance Addl Supp. Selling & Ad Exp Interest Exp. Loan Payment

176,450 64,750 64,750 (85,750) (15,000) (52,600) (28,375) (2,880) (12,000) 52,600 (64,750)

64,750

(85,750) (15,000) (28,375) (2,880) (12,000)

(10,400)

(10,400)

Accnts Payable Payment

Addl Supp. 11,000 Sales Cost of (60,250)

9,875 11,000 (60,250)

9,875

COPIES EXPRESS Income Statement For the Year Ended December 31, 2002

Sales $252,200 Less Operating expenses: Cost of supplies used $60,250 Wages and salaries 85,750 Heat, light, and power 15,000 Selling and administration 28,375 Depreciation (buildings & eqpt.) 15,000 Total Operating Expense 204,375 Operating profit 47,825 Less: Interest expense 2,880 Income before taxes 44,945 Income taxes 11,593 Net income $ 33,352

COPIES EXPRESS Balance Sheet as of December 31, 2002 Assets

Current assets Cash Accounts receivable Supplies inventory Total Current Assets Fixed Assets Property, plant and equipment Building and equipment Less: Accumulated depreciation Land Total Fixed Assets Total Assets

$36,195 11,000 26,625

$ 73,820

$300,000 (15,000) 12,000

297,000 $370,820

Liabilities and Owners Equity

Current liabilities Accounts payable Taxes payable Total Current Liabilities Long-term debt: Bank loan Total Liabilities Owners equity: Capital stock Retained earnings Total Owners Equity Total liabilities and owners equity

9,875 11,593

21,468 12,000 33,468

304,000 33,352

337,352 $370,820