ACFI1002 Lecture Notes - Lecture 1: The Item, Accounts Payable, Deferral

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azuredonkey885

29 Jun 2018

School

University of Newcastle

Department

Accounting

Course

ACFI1002

Professor

Christine Yap

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Week 1: Recording Business Transactions.

Learning Objectives:

LO1: Explain accounts as they relate to the accounting equations and describe common

accounts.

An account, grouped into assets, liabilities or OE, is the detailed record of all changes occurring in a

particular asset, liability or owners’ equity during a period, due to business transactions. These

transactions are first recorded in a chronologically ordered journal, then this data is copied to the

ledger. A list of all ledger accounts, along with their balances, is called a trial balance.

Record transactions in journal  Copy to ledger  Prepare trial balance.

Assets:

Resource controlled by entity resulting from past events, expected to provide economic

benefits for entity in future.

This includes:

oCash

oAccounts receivable

oBills receivable:

Business sells goods/services in exchange for bill of exchange, written

pledge that customer will pay fixed amount of money by certain date.

oInventories

oPrepaid expenses

oLand

oBuildings

oPlant and equipment

Liabilities:

Defined in AASB 137 as ‘a present obligation of entity arising from past events, the

settlement of which is expected to result in outflow from entity of resources embodying

economic benefits.’

Can include:

oAccounts payable

oBills payable

oAccrued liabilities:

Invoices etc. not yet received, and haven’t been recorded as AP or AR, ie.

taxes payable, interest payable, salary payable.

Owner’s equity:

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The financial estimate of the owner’s claim to the value of a business. This is the residual

interest in the assets of an entity after deducting all liabilities.

This can include:

oCapital

oDrawings

oIncome

oExpenses

The ledger contains the business’s accounts grouped under these headings:

1. Balance sheet accounts: Assets, Liabilities and Owner’s equity.

2. Income statement accounts: Revenue and Expenses.

Organisations have a chart of accounts to list all the accounts used, along with their account

numbers. These account numbers are used as a reference to help track transactions as they are

processed through the accounting system.

Accounts are identified by account numbers with two or more digits. Assets normally begin with

one, liabilities with two, owner’s equity three, revenues four, and expenses five.

LO2: Define debits, credits and normal account balances using double-entry accounting and

T-accounts.

Accounting is based on a double-entry system- recording the dual effects of a business transaction.

Each transaction affects at least two accounts. For example, owner investing $30 000 into company

would increase cash account and capital account.

The T account divides the account into its left and right sides. The account title rests on horizontal

line. For example, cash account appears as:

Increases are recorded on the left side, decreases recorded on right side generally speaking.

Debits always equals credits, liabilities plus owners’ equity always equals assets- this is the

accounting equation.

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The process of creating a T account in preparation for recording a transaction is called opening the

account. For transaction one, we opened the cash account and the owners capital account (Sheena

Bright).

EXPANDING ACCOUNTING EQUATION FOR REVENUES AND EXPENSES:

Owners equity also includes Revenues and Expenses accounts, because revenues and expenses

make up profit or loss, which flows into OE.

An accounts normal balance appears on the side (either debit or credit) where we record an increase

in the account balance. For example, assets, expenses and drawings are debit-balance accounts,

whilst liabilities, capital and revenues are credit-balance accounts.

LO3: Record transactions in the journal.

Details in journal include:

1. Date when transaction occurred

2. Account title and explanation of transaction

3. Posting reference (post.ref)

4. The debit column

5. The credit column

The journalising process follows four steps:

1. Identify transaction from source documents, ie invoice, bank deposit slip, receipt, credit card

returns.

2. Specify each account affected by transaction, and further classify it by type (asset, liability,

OE).

3. Determine whether each account is increased or decreased by transaction. Using rules of

debit and credit, determine whether to credit or debit the account to record its increase or

decrease.

4. Enter transaction into journal, inclusive of brief explanation (narration). Debit side entered

first, credit side last. This is called journalising the transaction.

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Document Summary

Lo1: explain accounts as they relate to the accounting equations and describe common accounts. An account, grouped into assets, liabilities or oe, is the detailed record of all changes occurring in a particular asset, liability or owners" equity during a period, due to business transactions. These transactions are first recorded in a chronologically ordered journal, then this data is copied to the ledger. A list of all ledger accounts, along with their balances, is called a trial balance. Record transactions in journal copy to ledger prepare trial balance. Resource controlled by entity resulting from past events, expected to provide economic benefits for entity in future. This includes: cash, accounts receivable, bills receivable: Business sells goods/services in exchange for bill of exchange, written pledge that customer will pay fixed amount of money by certain date: inventories, prepaid expenses, land, buildings, plant and equipment.

Related Questions

13.
value:
4 points

What would be the appropriate entry for the followingtransaction?
Bill Co. performed $5,200 in consulting services on account

1.Credit to Cash, Debit to Accounts Receivable

2.Debit to Revenue, Debit to Cash

3.Debit to Accounts Receivable, Credit to Cash

4.Debit to Revenue, Credit to Cash

5.Debit to Accounts Receivable, Credit to Revenue

14.
value:
4 points

Which of the following is the appropriate journal entry if acompany performs a service and then bills the customer?

1.Debit to Cash, Debit to Revenue

2.Debit to Cash, Credit to Revenue

3.Debit to Accounts Receivable, Credit to Cash

4.Debit to Revenue, Credit to Accounts Receivable

5.Debit to Accounts Receivable, Credit to Revenue

15.
value:
4 points

Of the following accounts, the one that normally has a creditbalance is:

1.Cash

2.Office Equipment

3.Sales Salaries Payable

4.Dividends

5.Sales Salaries Expense

16.
value:
4 points

For what reason do most sellers require customers to have theirreceipts in order to exchange or return purchased items?

The receipt contains coded information which the seller needs toprepare and analyze the trial balance.

Sellers wish to ensure that the sale in question was rung up on theregister in the first place.

This is a legal requirement mandated by a federal law.

The receipt is serving as a promissory note.

To create an environment in which customer's do not want to returnitems.

17.
value:
4 points

A ledger is:

A record containing increases and decreases in a specific asset,liability, equity, revenue or expense item

A journal in which transactions are first recorded

A collection of documents that describe transactions and eventsduring the accounting process

A list of all accounts with their debit balances at a point intime

A list of all accounts a company uses and includes anidentification number assigned to each account

18.
value:
4 points

Stride Rite has total assets of $425 million. Its total liabilitiesare $110 million. Its equity is $315 million. Calculate the debtratio.

38.6%

13.4%

34.9%

25.9%

14.9%

19.
value:
4 points

The accounting process begins with:

Analysis of business transactions and events

Preparation of financial statements and other reports

Summarizing the recorded effects of business transactions

Presentation of financial information to decision-makers

Preparation of the trial balance

20.
value:
4 points

Which of the following statements is correct?

When a future expense is paid in advance, the payment is normallyrecorded in a liability account called Prepaid Expense

Promises of future payment are called accounts payable

Increases and decreases in cash are always recorded in the retainedearnings account

An account called Land is commonly used to record increases anddecreases in both the land and buildings owned by a business

Accrued liabilities include accounts receivable

21.
value:
4 points

The adjusted trial balance contains information pertainingto:

Asset accounts only

Balance sheet accounts only

Income statement accounts only

All general ledger accounts

Revenue accounts only

22.
value:
4 points

A classified balance sheet:

Measures a company's ability to pay its bills on time

Organizes assets and liabilities into important subgroups

Presents revenues, expenses and net income

Reports operating, investing and financing activities

Reports the effect of profit and dividends on retainedearnings

23.
value:
4 points

If accrued salaries were recorded on December 31 with a credit toSalaries Payable, the entry to record payment of these wages on thefollowing January 5 would include:

A debit to Cash and a credit to Salaries Payable

A debit to Cash and a credit to Prepaid Salaries

A debit to Salaries Payable and a credit to Cash

A debit to Salaries Payable and a credit to Salaries Expense

No entry would be necessary on January 5

24.
value:
4 points

If a company records prepayment of expenses in an asset account,the adjusting entry would:

Result in a debit to an expense and a credit to an assetaccount

Cause an adjustment to prior expense to be overstated and assets tobe understated

Cause an accrued liability account to exist

Result in a debit to a liability and a credit to an assetaccount

Decrease cash

tealfox592

Elite RealtyGeneral Ledger

	ASSETS
11	Cash
12	Accounts Receivable
13	Prepaid Insurance
14	Office Supplies
16	Land

	LIABILITIES
21	Accounts Payable
22	Unearned Rent
23	Notes Payable

	EQUITY
31	Common Stock
32	Retained Earnings
33	Dividends

	REVENUE
41	Fees Earned

	EXPENSES
51	Salary and Commission Expense
52	Rent Expense
53	Advertising Expense
54	Automobile Expense
59	Miscellaneous Expense

Elite Realty acts as an agent in buying, selling, renting, andmanaging real estate. The unadjusted trial balance on March 31,2018, follows:

Elite Realty

UNADJUSTED TRIAL BALANCE

March 31, 2018

	ACCOUNT TITLE	DEBIT	CREDIT
1	Cash	26,700.00
2	Accounts Receivable	59,300.00
3	Prepaid Insurance	3,100.00
4	Office Supplies	2,100.00
5	Accounts Payable		12,700.00
6	Common Stock		10,000.00
7	Retained Earnings		36,100.00
8	Dividends	2,300.00
9	Fees Earned		234,500.00
10	Salary and Commission Expense	145,000.00
11	Rent Expense	29,000.00
12	Advertising Expense	16,700.00
13	Automobile Expense	5,100.00
14	Miscellaneous Expense	4,000.00
15	Totals	293,300.00	293,300.00

The following business transactions were completed by EliteRealty during April 2018. Enter the transactions through the 23rdon Page 18 of the two-column journal:

Apr.	1	Paid rent on office for month,$4,500.
	2	Purchased office supplies onaccount, $2,200.
	5	Paid insurance premiums,$5,100.
	10	Received cash from clients onaccount, $53,000.
	15	Purchased land for a futurebuilding site for $230,500, paying $22,000 in cash and giving anote payable for the remainder.
	17	Paid creditors on account,$6,100
	20	Returned a portion of theoffice supplies purchased on April 2, receiving full credit fortheir cost, $330.
	23	Paid advertising expense,$4,500.

Enter the following transactions on Page 19 of the two-columnjournal:

Apr.	27	Discovered an error incomputing a commission; received cash from the salesperson for theoverpayment, $3,000.
	28	Paid automobile expense(including rental charges for an automobile), $1,700.
	29	Paid miscellaneous expenses,$1,800.
	30	Recorded revenue earned andbilled to clients during the month, $54,000.
	30	Paid salaries and commissionsfor the month, $11,900.
	30	Paid dividends, $4,000.
	30	Rented land purchased on April15 to local merchants association for use as a parking lot in Mayand June, during a street rebuilding program; received advancepayment of $10,200.

	Required:
1.	Record the April 1, 2018,balance of each account in the appropriate balance column of afour-column account, type Balance in the item section, and select acheck mark in the Posting Reference column.
2.	Journalize the transactionsfor April in a two-column journal beginning on Page 18. Refer tothe Chart of Accounts for exact wording of account titles. Insertthe appropriate posting references in both the journal and theledger as each item is posted.
3.	Post to the ledger, extendingthe account balance to the appropriate balance column after eachposting. Post in chronological order. For transactions occurring onthe same day, post in the order presented in the instructions.Insert the appropriate posting references in both the journal andthe ledger as each item is posted.
4.	Prepare an unadjusted trialbalance of the ledger as of April 30, 2018.
5.	Assume that the April 30transaction for salaries and commissions should have been $19,100.(a) Why did the unadjusted trial balance in (4) balance? (b)Journalize the correcting entry on April 30. Use page 20. (Note:You will not be required to post this entry to the ledger at thistime.) (c) Is this error a transposition or slide?

Solve the problem

skycamel501

Morrison Accounting Services was organized on June 2 by a group of accountants to provide accounting and tax services to small businesses. The following transactions occurred during the first month of business:

June 2	Received contributions of $10,000 from each of the three owners of the business in exchange for shares of stock. (Capital Stock)
June 5	Purchased a computer system for $12,000. The agreement with the vendor requires a down payment of $2,500 with the balance due in 60 days. (Computer; Cash; Accounts Payable)
June 8	Signed a two-year promissory note (Note Payable) at the bank and received cash of $20,000.
June 15	Billed $12,350 to clients for the first half of June. Clients are billed twice a month for services performed during the month, and the bills are payable within ten days. (Accounts Receivable; Service Revenue)
June 17	Paid a $900 bill from the local newspaper for advertising for the month of June. (Advertising Expense)
June 23	Received the amounts billed to clients for services performed during the first half of the month.
June 28	Received and paid gas, electric, and water bills (Utilities Expense). The total amount is $2,700.
June 29	Received the landlordâs bill for $2,200 for rent on the office space the Morrison leases. The bill is payable by the 10^th of the following month. (Rent Expense; Rent Payable)
June 30	Paid salaries and wages for June. (Salaries Expense) The total amount is $5,670.
June 30	Billed $18,400 to clients for the second half of June.
June 30	Declared and paid dividends in the amount of $6,000. (Dividends)

Prepare journal entries on the books of Morrison Accounting Services to record the transactions entered into during the month. Ignore depreciation expense and interest expense (weâll get to that later in the semester.)

Prepare a trial balance in good form at June 30. List the accounts in the following order: assets, liabilities, ownersâ equity, revenue, expenses, dividends. (You will find it helpful to set-up and post to T-accounts; the T-accounts are not required to be turned in for grading.)

Prepare the following financial statements in good form:

Income statement for the month of June

Statement of retained earnings for the month of June

Classified balance sheet at June 30.

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ACFI1002 Lecture Notes - Lecture 1: The Item, Accounts Payable, Deferral

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