Accounting

Definition of Accounting
Accounting is the process of recording financial transaction pertaining to a business.

Basic Equation: Assets = Liabilities + Owner's Equity

Assets: Resource of a business Owns.

Liabilities: Cliams to those to whom company owes money.
Owner's Equity: Claims of owner's.

Basic
Assets = Liabilities + Owner's Equity
Equation:
Extended Cash + Equipment + Spplies + Account Payable + Owner's Capital - Owner's
= +
Equation: Account Receivable Note Payable Drawing's + Revenues-Expenses

Prepare A Tabular Analysis:

1. The owner's invested $25000 cash in business.
2. The company purched $7000 of ofiice equipment on credit.
3. The company received $8000 cash in exchane for serviced performed.
4. The company paid $850 for this month rent.
5. The owner's Withdraw $1000 cash for personal use.

-
+Account +Account +Notes +Owner's
tnx. Cash +Equipment +Supplies = Owner's
Receivable Payable payable Capital
Drawing
1. +$25000 +$2500
2. +$7000 +$7000
3. +$8000
4. -$850

5. -$1000 -$1000
Owner's
Assets=$38150 Liabilities=$7000
Equity=$31150

Financial Statement:

Companies prepare four financial statements from the summarized accounting data.

1. Income statement:
The income statement reports the revenues and expenses for resulting net income or net loss for a specifi c
period of time.
2. Owner's equity statement:
The owner's equity statement reports the changes in owner's equity for a specific period of time.
3. Balance sheet:
The balance sheet reports the assets, liabilities, and owner’s equity for a specific period of timee.
4. Statement of cash flows :
The statement of cash flows summarizes information about the cash inflows (receipts) and outflows (payments)
for a specific period of time.

Practice problem:

i. Prepare a tabular summary of the transactions.

ii.Prepare income statement and balance sheet at July 31, 2017 for Joan Robinson, Attorney.
Joan Robinson opens her own law offi ce on July 1, 2017. During the fi rst month of opera-
tions, the following transactions occurred.

1. Joan invested $11,000 in cash in the law practice.

2. Paid $800 for July rent on office space.
3. Purchased equipment on account $3,000.
4. Performed legal services to clients for cash $1,500.
5. Borrowed $700 cash from a bank on a note payable.
6. Performed legal services for client on account $2,000.
7. Paid monthly expenses: salaries and wages $500, utilities $300, and advertising $100.
8. Joan withdrew $1,000 cash for personal use.

-
+Account +Account +Notes +Owner's
tnx. Cash +Equipment +Supplies = Owner's
Receivable Payable payable Capital
Drawing
1. +$11000 +$11000
2. -$800

3. +$3000 +$3000
4. +$1500
5. +$700 +$700
6. +$2000

7. -$500
-$300
-$100
8. -$1000 -$1000
Owner's
Assets=$15500 Liabilities=$3700
Equity=$11,800

JOAN ROBINSON,ATTORNEY
Income Statement
For the Month Ended July 31, 2017
Rvenues
Service revinues $3500
Expenses
Rent expense $800
Salaries and wages expense $500
Utilities expense $300
Advirtising expense $100
Total expenses = $1700
Net income = $1800

JOAN ROBINSON,ATTORNEY
Owner's Equity statement
For the Month Ended July 31, 2017
Owner's Capital, July 1
Owner's Capital $11000
Net income $1800
Owner's Drawings $1000
Owner's Capital, July 31 $11,800
 JOAN ROBINSON,ATTORNEY
Balance Sheet
For the Month Ended July 31, 2017
Assets:
Cash $10500
Equipment $3000
Account receivable $2000
Total Assets =$15500
Liabilities and Owner's equity
Account Payable $3000
Notes payable $700
Total Liabilities =$3700
Owner's Capital $11,800
Total Liabilities and Owner's equity =$15500

Contributions of Journal in recording process.

Complete effect of a transaction.

Chronological record.
Prevent or locate errors.

Journalizing:

Entering transactional data in the journal is known as journaling.

1. The date of transaction.

2. Debit and Credit.
3. Explanation of transaction.

Debits and Credits

Debits and credits indicate where value is flowing into and out of a business. They must be equal to keep a company’s
books in balance.

Debits increase the value of asset, expense and loss accounts.

Credits increase the value of liability, equity, revenue and gain accounts.

Practice problem:

Presented below is information related to Hammond Real Estate Agency.

Oct.
1.Lia Berge begins business as a real estate agent with a cash investment of $30,000
2.Paid rent, $700, on offi ce space.
3.Purchases offi ce equipment for $2,800, on account.
6.Sells a house and lot for Hal Smith; bills Hal Smith $4,400 for realty services performed.
27.Pays $1,100 on the balance related to the transaction of October 3.
30.Receives bill for October utilities, $130 (not paid at this time).

a) Jaurnalize the September transactions.

b) Open ledger accounts and post the September transactions.
c) Prepare a trial balance at September 30, 2017.

JOAN ROBINSON,ATTORNEY
General Journal
For the Month Ended July 31,
Date Account Titles & Explanation Ref Debit Credit
Oct.1 Cash $30,000
Owner's Capital $30,000
2 Rent Expense $700

Cash $700
3 Equipment $2,800
Account Payable $2,800
6 Account Receivable $4,400
Service Revenue $4,400
27 Account Payable $1,100
Cash $1,100
30 Utilities Expense 130
Accounts Payable 130

Practice problem:

Bob Sample opened the Campus Laundromat on September 1, 2017. During the fi rst month
of operations, the following transactions occurred.
Sept.
1.Bob invested $20,000 cash in the business.
2.The company paid $1,000 cash for store rent for September.
3.Purchased washers and dryers for $25,000, paying $10,000 in cash and signing a $15,000, 6-month, 12% note
payable.
4.Paid $1,200 for a one-year accident insurance policy.
10.Received a bill from the Daily News for online advertising of the opening of the laundromat $200.
20.Bob withdrew $700 cash for personal use.
30.The company determined that cash receipts for laundry services for the month were $6,200.

Bob Sample
General Journal
For the Month Ended Sept. 30

Date Account Titles & Explanation Ref Debit Credit

Sept.1 Cash $20,000
Owner's Capital $20,000
(Owner investment of cash in business)
2 Rent Expense $1,000
Cash $1,000
Paid September rent
3 Equipment $25,000
Cash $10,000
Notes Payable $15,000
(Purchased laundry equipment for cash and 6-month, 12% note payable)
4 Prepaid Insurance $1,200
Cash $1,200
(Paid one-year insurance policy)
10 Advertising Expense $200
Date Account Titles & Explanation Ref Debit Credit
Accounts Payable $200
(Received bill from Daily News for advertising)
20 Owner's Drawing $700

Cash $700
(Withdraw cash for personal use)
30 Cash $6,200
Service Revenue $6,200
(Received cash for services performed)

Bob Sample
General Ledger
For the Month Ended Sept. 30

Cash

Date Account Titles Ref Debit Credit Balance

Sept.1 Cash $20,000 $20,000
2
Cash $1,000 $19000
3
Cash $10,000 $9000
4
Cash $1,200 $7800
20
Cash $700 $7100
30 Cash $6,200 $13300

Owner's Capital

Date Account Titles Ref Debit Credit Balance

Sep.1 Owner's Capital $20,000 $20,000

Rent Expense

Date Account Titles Ref Debit Credit Balance

Sept.2 Rent Expense $1,000 $1,000

Equipment
Date Account Titles Ref Debit Credit Balance
Sept.3 Equipment $25,000 $25,000

Notes Payable

Date Account Titles Ref Debit Credit Balance

Sept.3 Notes Payable $15,000 $15,000

Prepaid Insurance

Date Account Titles Ref Debit Credit Balance

Sept.4 Prepaid Insurance $1,200 $1,200

Advertising Expense

Date Account Titles Ref Debit Credit Balance

Sept.10 Advertising Expense $200 $200

Accounts Payable

Date Account Titles Ref Debit Credit Balance

Sept.10 Accounts Payable $200 $200

Owner's Drawing

Date Account Titles Ref Debit Credit Balance

Sept.20 Owner's Drawing $700 $700

Service Revenue

Date Account Titles Ref Debit Credit Balance

Sept.30 Service Revenue $6,200 $6,200

Bob Sample
Trial Balance
For the Month Ended Sept. 30

Account Titles Debit Credit

Cash $13300
Account Titles Debit Credit
Owner's Capital $20,000
Rent Expense $1,000
Equipment $25,000

Notes Payable $15,000

Prepaid Insurance $1,200
Advertising Expense $200
Accounts Payable $200
Owner's Drawing $700
Service Revenue $6,200
Total= $41400 $41400