《會(huì)計(jì)英語(yǔ)第四版》課件單元2

LessonTwo:

TheBalanceSheetandDouble-entry.Aims:1.Toconstructabalancesheetinaformatusedbybusiness.2.Toidentifytheessentialfeaturesofarecordbookkeepingsystem.3.Toapplythedoubleentryruletosimpletransactionsofasoletrader.4.Tounderstandtheaimofthetrialbalanceinthebookkeepingsystem.5.Toexaminetheinter-relationshipbetweenthedailybusinessrecordsandthefinalaccounts.2.1

IntroductionAllorganizationsmustpreparefinancialstatementsperiodically,usuallyatleastonceayear.Thesenormallycomprisethreemainfinancialstatements:(1)TheBalanceSheet;(2)TheIncomeStatement;(3)TheStatementofCashFlow.2.2

TheEffectofTransactions

ontheBalanceSheetJohnstartsabusiness,sellingdenimclothes,tradingas“JohnClothingCo.”.OnJanuary1stJohnopensabusinessbankaccountwith$60000ofhisownmoney.JohnClothingCo.BalanceSheetAsatJanuary1stAssetsCash

&

Bank$60

000

60

000

EquityJohn’s

Capital60

000

$60

000

2.3

TheTwoSectionsofaBalanceSheetABalanceSheetisdividedintotwosections.ThetotalsofeachsectionoftheBalanceSheetarealwaysequalinvalue.Thisisknownastheaccountingequation.EverytransactionofthebusinesswillaffectTWOitemsontheBalanceSheet.Inthisexamplethetwoitemsare:(1)Asset:cashatbank;(2)Equity:John’scapital.2.4

BusinessEntityForaccountingpurposes,theownerandthebusinessaretreatedastwoseparate.OnJanuary2nd,Johnbuysasecondhanddeliveryvanfor$16000payingwithabusinesscheque.AssetsCash

&

Bank$44

000Motor

Vehicles16

000

60

000

EquityJohn’s

Capital60

000

$60

000

2.5

BuyJeansNotYettoPayOnJanuary5ththebusinessbuysdenimjeansfromthemanufacturertoselltocustomers.Thejeanscost$12000.JohnClothingCo.willpaythesuppliernextmonth.AssetsCash

&

Bank$44

000Stock12

000Motor

Vehicles16

000

72

000

Account

Payable12

000EquityJohn’s

Capital60

000

72

000

2.6

TheOrderingandClassificationofAssetsandLiabilities.Intheaboveexample,theassetswerelistedinarandomorder.Thisisclearlyanunsatisfactorymethodofcommunication;thereforetheitemsontheBalanceSheetareorderedandclassified.2.7

TheClassificationofAssetsAssetsarelistedontheBalanceSheetintermsofliquidity,whichmeansthemosttemporaryassets(cash)listedfirst.[1]TheassetsontheBalanceSheetareclassifiedintotwocategories:(1)CurrentAssetsareacquiredbyabusinesstobeconvertedintootherassetsorconsumed,inthenormalcourseofbusiness,withinoneyear.(2)FixedAssetsarelonglifeassetsnormallyacquiredbyabusinesstobeusedovermorethanoneyearintheproductionofgoodsandservices.2.8

TheClassificationofLiabilitiesThecreditorsontheBalanceSheetareclassifiedintotwocategories:(1)Creditors:amountsfallingduewithinoneyear.ThesearesometimescalledCurrentLiabilities.(2)Creditors:amountsfallingdueaftermorethanoneyear.ThesearesometimescalledLongTermLiabilities.2.9

WorkingCapitalNetCurrentAssets(WorkingCapital)isthedifferencebetweencurrentassetsandcurrentliabilities.2.10

Jane’sBusinessOnthebusinessbalancesheet,theassetsownedbythebusinesslesstheliabilities(creditors)owedbythebusinessequalthecapital,theownersstakeinthebusiness.2.11

RecordingBusinessTransactionsTheBalanceSheetandotherfinalaccountsofabusinessaredrawnupattheendoftheaccountingperiod.Allorganizationswill,however,needtorecordtheirtransactionsonaregularbasisduringtheaccountingperiod.Foreachtransactionitwillbenecessarytorecordthefollowing:(1)theamount($);(2)thedate;(3)adescriptionofthetransaction.2.12

BasicRulesforRecordingBusinessTransactionsTherulesforrecordingbusinesstransactionsarethateverytransactionwillatleastaffecttwoitems.2.13

AnExampleofDualAspectConceptAmotorvehicleisboughtforcashof$16000.Thetwoitemsaffectedare:(1)MotorVehicle(+$16000);(2)Cash(-$16000).Eachitemmusthaveitsownrecordi.e.“account”inthebooks(ledgers)ofthebusiness.2.14

DoubleEntryRuleASSETSe.g.andEXPENSESe.g.DebitCreditINCREASES(+)DECREASES(-)EQUITY,CREDITORS,INCOMEandPROVISIONSDebitCredit

DECREASES(-)INCREASES(+)2.15

T-accountAccount

TitleDecreases

&

IncreasesIncreases

&

Decreases

TheleftsideoftheT-accountiscalledDebit,andtherightsideiscalledCredit.2.16

TwoImportantRulesaboutDouble-entryRecordingSystem(1)Debitsincreaseassetsanddecreaseliabilitiesandequity;(2)Creditsincreaseliabilitiesandequityanddecreaseassets.2.17

ApplicationoftheDoubleEntryRule1.Identifythetwoitemsinvolvedinthetransaction(e.g.CashandCapital).2.Ensurethereisanaccountforeachitem(e.g.CashA/c).3.Takingeachitemindependently:4.Repeattheprocessin3withtheotheriteminvolvedinthetransaction.5.Checkthatoneaccounthasbeendebitedandtheotherhasbeencredited.2.18

AnExampleoftheDoubleEntryRuleOnJanuary1stJohnstartsinbusiness,tradingas“JohnClothingCo.”.Heputs$60000ofhisownmoneyintoabusinessbankaccount.Cash

&

Bank

AccountDebit(=+)$Credit(=-)$Jan

1Capital60

000Jan

2Motor

Vehicles16

0002.20

TransactionNo.1:StartingtheOperationsHike’sConsultantsstarteditsoperationsonJanuary31stwhentheownermade$20000cashcontribution.Assets=Liabilities+EquityCashContributed

CapitalDebitCredit++(1)20

000(1)20

0002.21

TransactionNo.2:PurchasingOfficeSuppliesOnMay15th,Hike’sConsultantspurchased$800ofofficesuppliesfromalocalsupplycompanyonaccount.Assets=Liabilities+EquitySuppliesAccounts

PayableDebitCredit++(2)800(2)8002.22

TransactionNo.3:ProvidingServicesonAccountOnMay20th,thecompanyprovidedservicesonaccount(i.e.,itwillcollectcashlater,eventhoughithadalreadyprovidedservices)toMercyFoodStore.Mr.Mercy’sbusinesswasbilledfor$3200.Assets=Liabilities+EquityAccounts

ReceivableConsulting

RevenueDebitCredit++(3)1

600(3)1

6002.23

TransactionNo.4:

PayingCashforOperatingExpensesOnApril5th,thecompanypaid$1200cashforoperatingexpenses.Assets=Liabilities+EquityCash

Operating

ExpenseCreditDebit-+

Expense-

Equity

(4)1

200(4)1

200

2.24

TransactionNo.5:BorrowingMoneyfromBankOnMay31st,duetocashlimitsHike’sConsultantsdecidedtoborrow$8000fromtheLocalBusinessBank.Thecompanyissuedanotethathadaone-yeartermandcarried7%annualinterestrate.Assets=Liabilities+EquityCashNotes

PayableDebitCredit+

+(5)8

000(5)8

0002.25

TransactionNo.6:PayingRentOnJune1st,Mr.Hikesawthatthebusinesswasgrowingandinthisconnectionmadeadecisiontorentalargeroffice.$4800cashwaspaidinadvanceforaone-yearrentofanewoffice.Assets=ClaimsPrepaid

Rent+CashDebit+(6)4

800Credit-(6)4

8002.26

TransactionNo.7:

ReceivingCashfortheProvidedServicesOnJune15th,Hike’sConsultantsreceived$3000cashfromMercyFoodStorefortheprovidedservices(seeTransactionNo.3).Assets=ClaimsCash+Accounts

ReceivableDebit+(7)3

000Credit-(7)3

0002.27

TransactionNo.8:

ReceivinganAdvancedCashPaymentOnJune31st,Mr.HikesignedupacontractwithMikeCompanytoperformconsultingservices.Hike’sConsultantsreceivedanadvancedcashpaymentintheamountof$7200andthetermofthecontractwasoneyear.Assets=Liabilities+EquityCashUnearned

RevenueDebit+(8)7

200Credit+(8)7

2002.28

TransactionNo.9:

ReceivingCashforOperatingActivityOnJune31st,Hike’sConsultantsrepresentedMr.Ebert(aclient)inthecourt,forwhatthecompanyreceived$1400cash.Assets=Liabilities+EquityCashConsulting

RevenueDebit+(9)1

400Credit+(9)1

4002.29

TransactionNo.10:LoaningtootherCompanyOnJune31st,Hike’sConsultantsloanedJamBuildingCompany(InvestmentActivity)$6000.JamBuildingCompanyissuedaone-year,8%note.Assets=ClaimsNotes

Receivable+CashDebit+(10)6

000Credit-(10)6

0002.30

TransactionNo.11:

PayingCashtoPurchaseOfficeEquipmentOnJune31st,Mr.Hikepaid$4000cashtopurchaseanewtableandseveralchairs.Theofficeequipmentisexpectedtohaveausefullifeof2yearsandasalvagevalueof$800.Assets=ClaimsOffice

Equipment+Cash

Debit+(11)4

000Credit-(11)4

0002.31

TransactionNo.12:

PayingCashtoAccountsPayableOnAugust14th,Hike’sConsultantspaid$800ofaccountspayablefromalocalsupplycompany.Assets=Liabilities+EquityCashAccounts

PayableCredit-(12)800Debit-(12)8002.32

TransactionNo.13:

ReceivingaBillforOfficeCleaningServicesOnSeptember18th,Hike’sConsultantsreceiveda$1600billfromSulkCleanersforofficecleaningservices.Mr.Hikeplanstopaythebilllater.Assets=Liabilities+EquityAccounts

PayableOffice

Maintenance

ExpenseCredit+(13)1

600Debit+Expense-Equity(13)1

600

2.33

TransactionNo.14:

PayingCashDistributiontotheOwnerOnNovember31st,Hike’sConsultantspaid$600cashdistributiontoitsowner.Assets=Liabilities+EquityCashCash

DistributionCredit-(15)600Debit+

Dist.-

Equity(15)6002.34

MakingAdjustingEntriesWhenwehaveseenallthetransactionspertainingtotheaccountingperiod,weneedtomakeadjustingentries.Adjustingentriesaremadeattheendofayear(oranyotherfiscalperiod)torecognizerevenueorexpenses(accrualsordeferrals).2.35

AdjustmentNo.1:RecognizingInterestExpenseOnMay31st,Hike’sConsultantsborrowed$8000cashfromabankandagreedtoreturnthemoneyinayearandpay7%annualinterest(seeTransactionNo.5).Fortheaccountingperiodinterestexpenseonthenoteamountedto$327(i.e.,$8000×7%×(7months/12months)).Assets=Liabilities+EquityInterest

PayableInterest

ExpenseCredit+(A1)327Debit+

Expense-

Equity-(A1)3272.36

AdjustmentNo.2:RecognizingRentExpenseOnJune1st,Hike’sConsultantspaid$4800cashinadvanceforanew1-yearofficerent(seeTransactionNo.6).Therentexpensetoberecognizedattheendoftheperiodiscalculatedasfollows:$4800×(7months/12months)=$2800.Assets=Liabilities+EquityPrepaid

RentRent

ExpenseCredit-(A2)2

800Debit+

Expense-

Equity(A2)2

8002.37

AdjustmentNo.3:

RecordingaRevenuefortheProvidedServicesOnJune31st,HikesConsultantsreceivedinadvancecashpaymentof$7200forservicestobeperformedduringayearaftersigningupthecontract(seeTransactionNo.8).ByDecember31stthecompanyhadprovidedservicesfor6months,sotheamounttoberecordedasarevenueis$7200×(6months/12months)=$3600.Thisamountshouldberemovedfromliabilities(UnearnedRevenue)andplacedintoequity(ConsultingRevenue).Assets=Liabilities+EquityUnearned

RevenueConsulting

RevenueDebit-(A3)3

600Credit+(A3)3

6002.38

AdjustmentNo.4:RecordingInterestRevenueOnJuly31st,Hike’sConsultantsloaned$6000toJamBuildingCompanyandreceivedforitanotecarryinga1-yeartermandobligationtopay8%annually(seeTransactionNo.10).Inthisconnection,HikesConsultantshavetorecord$200(i.e.,$6000×8%×(5months/12months))asinterestrevenue.Assets=Liabilities+EquityInterest

ReceivableInterest

RevenueDebit+(A4)200Credit+(A4)2002.39

AdjustmentNo.5:

RecognizingDepreciationExpenseOnJune31st,officeequipmentof$4000wasbought.Theusefullifeofthisassetswasexpectedtobe2yearswithasalvagevalueof$800.Hike’sConsultantshavetorecognizetheamountofofficeequipmentusedduringayearasadepreciationexpense.Theamounttoberecordedis$1600(i.e.,($4000-$800)/2years).Assets=Liabilities+EquityAccumulated

DepreciationDepreciation

ExpenseCredit+Acc.

Depr.-Assets(A5)1

600Debit+Expense-Equity(A5)1

6002.40

AdjustmentNo.6:RecognizingSalariesExpenseAttheendoftheperiodHike’sConsultantsaccrued$1200salariesthatwillbepaidoffinthenextaccountingperiod(2013).Assets=Liabilities+EquitySalaries

PayableSalaries

ExpenseCredit+(A6)1

200Debit+Expense-Equity-(A6)1

200

2.41

AdjustmentNo.7:ExpensingtheSuppliesOnMay15th,Hike’sConsultantsbought$800ofsupplies.Attheendoftheaccountingperiod$200ofsuppliesremainedonhand.Others($600=$800-$200)wereusedduringtheyear,and,therefore,mustbeexpensed.Theadjustmentdecreasesassetsandequity.Assets=Liabilities+EquitySuppliesSupplies

ExpenseCredit-(A7)600Debit+Expense-Equity(A7)6002.42

TransferringDatetoT-accountsNowwewilltransferallthedatatoT-accounts.Notethatwemeetthetworequirementsaboutthedouble-entryrecordingprocess:TotalDebits=TotalCredits;TotalAssets=TotalLiabilities+TotalEquity.2.43

ASummaryofthePrinciplesofAccountsTofacilitateyourunderstandingthebasicprincipalsofT-accounts,atableofaccountsandhowtheyareincreasedordecreasedispresentedbelow:AccountDebitCreditAssetsIncreaseDecreaseContra

AssetsDecreaseIncreaseLiabilitiesDecreaseIncreaseEquityDecreaseIncreaseContributed

CapitalDecreaseIncreaseRevenueDecreaseIncreaseExpensesIncreaseDecreaseDistributionsIncreaseDecrease2.44

TheProceduresofAccountingIngeneral,allthestepsare:(1)Analyzingsourcedocuments;(2)Makingentriestothegeneraljournal;(3)Postingthedatetotheledger;(4)Comparingdebitandcreditbalancesforequality;(5)Preparingfinancialstatements.2.45

TheJournalDateAccount

TitlesDebitCreditJan.

31Cash

Contributed

Capital20

00020

000May

15Supplies

Accounts

Payable800800May

20Accounts

Receivable

Consulting

Revenue3

2003

200April

5Operating

Expense

Cash1

2001

200May

31Cash

Notes

Payable8

0008

000June

1Prepaid

Rent

Cash4

8004

800June

15Cash

Accounts

Receivable3

0003

000June

31Cash

Unearned

Revenue7

2007

200June

31Cash

Consulting

Revenue1

4001

400June

31Notes

Receivable

Cash6

0006

000June

31Office

Equipment

Cash4

0004

000Aug.

14Accounts

Payable

Cash800800Sept.

18Office

Maintenance

Expense

Accounts

Payable1

6001

600Nov.

31Distributions

Cash600600Adjusting

EntriesDec.

31Interest

Expense

Interes