Introduction to Recording

Transactions

The Accounting Cycle

Analyze Events
& Transactions

Close Temporary Accounts Record

(Revenue & Expense Accounts) Transactions
(Journalize & Post)

Prepare
Financial Record
Statements Adjusting Entries
(Journalize & Post)

Occurs every fiscal period (e.g., month, quarter, year)

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 3 Tools for Recording Transactions
1. T-account
2. Journal entry
3. Balance sheet equation

Recording Transactions:
Your Turn

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 Your Turn: Record the Transaction
ABC Company buys $15,000 of inventory on account

Journal Entry
Inventory (A) (inc) $15,000
Accounts Payable (L) (inc) $15,000

Impact on T-Accounts
Inventory (A) Accounts Payable (L)
$15,000 $15,000

Your Turn: Record the Transaction

ABC Company pays suppliers $5,000 for inventory previously
purchased on account
Journal Entry
Accounts Payable (L) (dec) $5,000
Cash (A) (dec) $5,000

Impact on T-Accounts
Cash (A) Accounts Payable (L)
$5,000 $5,000

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 Your Turn: Record the Transaction
ABC Company purchases $50,000 in equipment for cash

Journal Entry
Equipment (A) (inc) $50,000
Cash (A) (dec) $50,000

Impact on T-Accounts
Cash (A) Equipment (A)
$50,000 $50,000

Your Turn: Record the Transaction

ABC Company issues 1,000 shares of common stock for $10
cash per share
Journal Entry
Cash (A) (inc) $10,000
Capital Stock (OE) (inc) $10,000

Impact on T-Accounts
Cash (A) Capital Stock (OE)
$10,000 $10,000

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 Your Turn: Record the Transaction
ABC Company obtains a $10,000 loan from the bank

Journal Entry
Cash (A) (inc) $10,000
Loan Payable (L) (inc) $10,000

Impact on T-Accounts
Cash (A) Loan Payable (L)
$10,000 $10,000

Your Turn: Record the Transaction

ABC Company purchases a building for $120,000 with a loan
from the bank
Journal Entry
Building (A) (inc) $120,000
Loan Payable (L) (inc) $120,000

Impact on T-Accounts
Building (A) Loan Payable (L)
$120,000 $120,000

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 Your Turn: Record the Transaction
ABC Company purchased a 5-year insurance policy for $10,000
and paid the premium in advance
Journal Entry
Prepaid Insurance (A) (inc) $10,000
Cash (A) (dec) $10,000

Impact on T-Accounts
Cash (A) Prepaid Insurance (A)
$10,000 $10,000

Introduction to TGS Year 1

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 A Simple Case: The Garden Spot
• Mary Jo started The Garden Spot on January 1
• Mary Jo needs to record transactions to capture the effect of
things that happened during the year
• Mary Jo needs to prepare financial statements for the year
 Income statement
 Balance sheet
 Statement of cash flow

Financial Statement Framework

Jan 1 Throughout the Year Dec 31

Issued stock Purchased inventory Adjustments

Obtained loan Sold inventory
Purchased equipment Incurred operating expenses
Purchased truck Made loan payment

Income Statement
Balance Sheet Revenues Balance Sheet
A L -Expenses A L
Cash =Net Earnings Cash

OE Change in Cash OE
RE Statement of RE
Cash Flow Dividends

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 The Accounting Cycle
Analyze Events
& Transactions

Close Temporary Accounts Record

(Revenue & Expense Accounts) Transactions
(Journalize & Post)

Prepare
Financial Record
Statements Adjusting Entries
(Journalize & Post)

Occurs every fiscal period (e.g., month, quarter, year)

TGS Year 1: Transactions 1-5

and a Summary

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 The Garden Spot: Transaction 1
Mary Jo met with her lawyer to incorporate the business, and she and Josh invested $60,000 in the
company in exchange for shares of common stock. They had contemplated borrowing the
$60,000 from Mary Jo's parents but had decided instead to use some of the money they had saved
over the past 10 years.
A = L + OE

Journal Entry

The Garden Spot: Transaction 2

She met with a loan officer from National Bank and obtained a $40,000 loan. The loan was to be
repaid in equal principal payments over four years. The interest rate was 10%, and interest was
payable at the end of each year when the principal payment was made.

A = L + OE
Cash (A) Capital Stock (OE)
BB 0 0 BB

(1) 60,000 60,000 (1)

Journal Entry

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 The Garden Spot: Transaction 3
She visited a local used car dealer and purchased a truck for $12,000 cash. The truck seemed in
excellent condition, and Mary Jo expected she would be able to use it for 5 years.

A = L + OE
Cash (A) Loan Payable (L) Capital Stock (OE)
BB 0 0 BB 0 BB

(1) 60,000 40,000 (2) 60,000 (1)

(2) 40,000

Journal Entry

The Garden Spot: Transaction 4

She went to a local hardware store to buy the necessary equipment for her business, paying
$10,000 cash for equipment she also expected she could use for 5 years.

A = L + OE
Cash (A) Truck (A) Loan Payable (L) Capital Stock (OE)
BB 0 BB 0 0 BB 0 BB

(1) 60,000 12,000 (3) (3) 12,000 40,000 (2) 60,000 (1)
(2) 40,000

Journal Entry

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 The Garden Spot: Transaction 5
Purchases of inventory throughout the year costing $260,000, $235,000 of which was paid in cash
and $25,000 was purchased on account.

A = L + OE
Cash (A) Truck (A) Loan Payable (L) Capital Stock (OE)
BB 0 BB 0 0 BB 0 BB

(1) 60,000 12,000 (3) (3) 12,000 40,000 (2) 60,000 (1)
(2) 40,000 10,000 (4)

Equipment (A)
BB 0

(4) 10,000

Journal Entry

The Garden Spot: After recording transactions 1-

5

A = L + OE
Cash (A) Truck (A) Loan Payable (L) Capital Stock (OE)
BB 0 BB 0 0 BB 0 BB

(1) 60,000 12,000 (3) (3) 12,000 40,000 (2) 60,000 (1)
(2) 40,000 10,000 (4)
235,000 (5)
Inventory (A) Equipment (A) Accounts Payable (L)
BB 0 BB 0 0 BB

(5) 260,000 (4) 10,000 25,000 (5)

Journal Entry

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