09 26 Lecture Notes - Chapter 3.docx

4 Pages

Business Administration
Course Code
Business Administration 2257
Baldwin Wallace

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September 26 th The Accounting Cycle Ongoing during the period Identify economic event  prepare journal entry  post entry to G/L (general ledger)  Period end Prep & post adjusting entries  prep trial balance  prep F/S  prep and post closing entries Assets = Liabilities + Shareholders’ Equity Cash sales – asset and owners’ equity increase (cash is an asset and everything has to balance – cash carries over to retained earnings which is part of OE) Cash/accounts receivable – no impact – cash is an asset, so assets go up, but accounts receivable is an asset as well and it’s being reduces because the amount is being paid Equipment/cash – no impact – cash is an asset and so is equipment, so when we purchase with cash, cash decreased and equipment increases. It doesn’t impact the equation on a whole Advertising bill – Assume you got an invoice from the company and put it in as an accounts payable – you decrease both cash and accounts payable. Or you get the bill, decrease your cash with decreases your net income Dividends paid – Decrease cash and owners’ equity. When we pay shareholders’ we’re giving their share in the net income. Dividends are not an expense. Paid means cash – if they pay a salary with shares in the company instead of cash, there will be a note in the question. Off balance sheet financing/transactions – Economic activity that isn’t on the balance sheet Every journal entry must have a debit and credit (left and right respectively) component i.e. the entry must balance Provide the following information - Affected accounts - Debit or credit by account - Amount of entry Debit Cash $25,000 Credit A/R $25,000 To record collection of cash from customer Let’s do some examples from E3-9, p. 124 1. Company received $5000 from each of the three principle owners in exchange for shares of capital stock. Always put debit first and always check the number of shareholders DR – cash $15,000 CR – owners’ equity 2. DR – cash $10,000 CR – liability (bank note) $10,000 3. You purchase office supplies for $130 The textbook treats office supplies as an asset – otherwise you put them in as expense we’ll be using them as an expense – not an on the balance sheet. DR – supplies $130 CR – cash $130 4. Purchased a van for $15,000 on an open account. The company has 25 days to pay for the van DR – van $15,000 CR – accounts payable $15,000 7. You paid the amount due on the van DR – accounts payable $15,000 CR – cash $15,000 You have to have a debit and a credit and they have to balance Turn to page 127 P3-3 Transaction analysis and financial statements 1. Received $5000 from each of the two principal owners in exchange for shares DR – cash $10,000 CR – OE (capital stock) $10,000 2. Signed a two year note at the bank for $15,000. Interest and the $15,000 will be paid at the end of the two years. DR – cash $15,000 CR –bank note $15,000 Not accounts payable – accounts payable is a current liability 3. Pur
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