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1、,THE ACCOUNTING CYCLE: Capturing Economic Events,Chapter 3,The Role of Accounting Records,Establishes accountability for assets and transactions.,Keeps track of routine business activities.,Obtains detailed information about a particular transaction.,Evaluates efficiency and performance within compa
2、ny.,Maintains evidence of companys business activities.,Accounting Terms,Account,Ledger,Assets,Liabilities,Owners equity,Double-entry accounting,T-account,Cash,Accounts Payable,Gay Gillen, Capital,Ledger,All individual accounts combined make up the ledger.,Individual asset accounts,Individual liabil
3、ity accounts,Individual owners equity accounts,Accounting Terms,The Ledger,The entire group of accounts is kept together in an accounting record called a ledger.,Cash,Accounts Payable,Capital Stock,Accounts are individual records showing increases and decreases.,The Use of Accounts,Increases are rec
4、orded on one side of the T-account, and decreases are recorded on the other side.,Left or Debit Side,Right or Credit Side,Title of Account,Lets see how debits and credits are recorded in the Cash account for JJs Lawn Care Service.,Receipts are on the debit side.,Payments are on the credit side.,The
5、balance is the difference between the debit and credit entries in the account.,Debit and Credit Entries,A = L + OE,Debits and credits affect accounts as follows:,Debit and Credit Rules,A = L + OE,Debit balances,Credit balances,=,In the double-entry accounting system, every transaction is recorded by
6、 equal dollar amounts of debits and credits.,Double Entry AccountingThe Equality of Debits and Credits,One debit,One credit,Each transaction is recorded with at least:,Total debits must equal total credits.,The Double-Entry System,Lets record selected transactions for JJs Lawn Care Service in the ac
7、counts.,May 1: Jill Jones and her family invested $8,000 in JJs Lawn Care Service and received 800 shares of stock.,Will Cash increase or decrease?,Will Capital Stock increase or decrease?,May 1: Jill Jones and her family invested $8,000 in JJs Lawn Care Service and received 800 shares of stock.,May
8、 2: JJs purchased a riding lawn mower for $2,500 cash.,Will Cash increase or decrease?,Will Tools & Equipment increase or decrease?,May 2: JJs purchased a riding lawn mower for $2,500 cash.,May 8: JJs purchased a $15,000 truck. JJs paid $2,000 down in cash and issued a note payable for the remaining
9、 $13,000.,Will Truck increase or decrease?,Will Cash and Notes Payable increase or decrease?,May 8: JJs purchased a $15,000 truck. JJs paid $2,000 down in cash and issued a note payable for the remaining $13,000.,May 11: JJs purchased some repair parts for $300 on account.,Will Tools & Equipment inc
10、rease or decrease?,Will Accounts Payable increase or decrease?,May 11: JJs purchased some repair parts for $300 on account.,May 18: JJs sold half of the repair parts to ABC Lawns for $150, a price equal to JJs cost. ABC Lawns agrees to pay JJs within 30 days.,Will Tools & Equipment increase or decre
11、ase?,Will Accounts Receivable increase or decrease?,May 18: JJs sold half of the repair parts to ABC Lawns for $150, a price equal to JJs cost. ABC Lawns agrees to pay JJs within 30 days.,In an actual accounting system, transactions are initially recorded in the journal.,The Journal,Posting involves
12、 copying information from the journal to the ledger accounts.,Posting Journal Entries to the Ledger Accounts,Posting Journal Entries to the Ledger Accounts,Posting Journal Entries to the Ledger Accounts,Lets see what the cash account looks like after posting the cash portion of this transaction for
13、JJs Lawn Care Service.,Posting Journal Entries to the Ledger Accounts,This ledger format is referred to as a running balance (as opposed to simple T accounts).,Ledger Accounts After Posting,Net income is not an asset its an increase in owners equity from profits of the business.,A = L + OE,Increase,
14、Decrease,Increase,Either (or both) of these effects occur as net income is earned . . .,. . . but this is what “net income” really means.,What is Net Income?,A = L + OE,Retained Earnings,Capital Stock,Retained Earnings,The balance in the Retained Earnings account represents the total net income of t
15、he corporation over the entire lifetime of the business, less all amounts which have been distributed to the stockholders as dividends.,Revenue and Expenses,The price for goods sold and services rendered during a given accounting period.,Increases owners equity.,The costs of goods and services used
16、up in the process of earning revenue.,Decreases owners equity.,The Realization Principle: When To Record Revenue,Realization Principle Revenue should be recognized at the time goods are sold and services are rendered.,Recognition of revenue and cash receipts do not necessarily occur at the same time,The Matching Principle: When To Record Expenses,Matching Principle Expenses should be recorded in the
