Type
Solution Manual
Book Title
Financial Accounting Fundamentals 5th Edition
ISBN 13
978-0078025754

978-0078025754 Chapter 2 Lecture Note Part 1

March 26, 2020
CHAPTER 2
ACCOUNTING FOR BUSINESSTRANSACTIONS
Related Assignment Materials
Student Learning Objectives
Questions
Quick
Studies*
Exercises*
Problems*
Beyond the
Numbers
Conceptual objectives:
C1. Explain the steps in processing
transactions and the role of
source documents.
3, 6, 9
2-1
2-1
2-6
2-3, 2-4,
2-6, 2-9
C2. Describe an account and its use
in recording transactions.
1,2, 14
2-2
2-2
2-5
2-4, 2-6
C3. Describe a ledger and a chart of
accounts.
2-3
2-3, 2-16
2-1, 2-2,
2-3, 2-4, 2-6
C4. Define debits and credits and
explain their role in double-
entry accounting.
7
2-4, 2-5,
2-10
2-4
2-1, 2-2, 2-3
2-6
Analytical objectives:
A1. Analyze the impact of
transactions on accounts and
financial statements.
.
2-7
2-5, 2-6,
2-9, 2-11,
2-12, 2-13,
2-15, 2-20,
2-21
2-1, 2-2,
2-3, 2-4,
2-5, 2-6
2-1, 2-2,
2-4, 2-5,
2-6, 2-7,
2-8
A2. Compute the debt ratio and
describe its use in analyzing
financial condition.
2-23
2-5
2-1, 2-2,
2-7, 2-8,
2-10
Procedural objectives:
P1. Record transactions in a journal
and post entries to a ledger.
3, 4,5
2-6
2-7, 2-11,
2-12, 2-14
2-19
2-1, 2-2,
2-3, 2-4
P2. Prepare and explain the use of a
trial balance.
8
2-8
2-8, 2-10,
2-20, 2-21
2-1, 2-2,
2-3, 2-4, 2-6
P3. Prepare financial statements
from business transactions.
10, 11, 12,
13,15, 16,
17, 18
2-9
2-16, 2-17,
2-18, 2-19,
2-22
2-5
2-4, 2-7,
2-8
*See additional information on next page that pertains to these quick studies, exercises and problems.
Additional Information on Related Assignment Material
The Serial Problem for Success Systems continues in this chapter. Problems 2-3A & 2-5A can be
completed using Excel. Problem 2-1A, 2-3A, and the Serial Problem can be completed with Sage 50
Complete Accounting Software or QuickBooks Software.
Connect (Available on the instructor’s course-specific website) repeats all numerical Quick Studies, all
Exercises and Problems Set A. Connect provides new numbers each time the Quick Study, Exercise or
Problem is worked. It allows instructors to monitor, promote, and assess student learning. It can be used
in practice, homework, or exam mode
Synopsis of Chapter Revisions
Akola Project: NEW opener with new entrepreneurial assignment
New layout showing financial statements drawn from trial balance
New preliminary coverage of classified and unclassifed balance sheets
Changed selected numbers for FastForward
Revised Piaggio's (IFRS) balance sheet
Updated debt ratio section using Skechers
Learning Objective
Slides
C1
2-3
C2
4-9
C3
10
C4
11-14
P1
15-18
A1
19-24
P2
25-27
P3
28-32
A2
35
VISUAL #2-1
THREE PARTS OF AN ACCOUNT
(1) ACCOUNT TITLE
Left Side
Right Side
called
called
(2) DEBIT
(3) CREDIT
Rules for using accounts
Accounts are assigned balance sides (Debit or Credit).
To increase any account, use the balance side.
To decrease any account, use the side opposite the balance.
Finding account balances
If total debits = total credits, the account balance is zero.
If total debits are greater than total credits, the account has a debit
balance equal to the difference of the two totals.
If total credits are greater than total debits, the account has a
credit balance equal to the difference of the two totals.
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
VISUAL #2-2
REAL ACCOUNTS
ALL ACCOUNTS ARE ASSIGNED BALANCE SIDES
BALANCE SIDES FOR ASSETS, LIABILITIES, AND
EQUITY ACCOUNTS ARE ASSIGNED BASED ON
SIDE OF EQUATION THEY ARE ON.
ASSETS
=
LIABILITIES + EQUITY
are on the
left side of the equation
therefore they are
are on the
right side of the equation
therefore they are
ASSIGNED LEFT SIDE
BALANCE
ASSIGNED RIGHT SIDE
BALANCE
DEBIT BALANCE
CREDIT BALANCE
All Asset Accts
All Liability Accts
All Equity Accts
Normal
Normal
Normal
Debit
Credit
Debit
Credit
Debit
Credit
Balance
Balance
Balance
+ side
- side
- side
+ side
- side
+ side
*In a sole proprietorship, there is only one equity account, which is called
capital. For that reason, the terms equity and capital are often used
interchangeably. (When corporations are discussed in detail, you will learn
many stockholders’ equity accounts.) Equity is an account classification
like assets. Owner’s Name, Capital, is the account title.
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
VISUAL #2-3
TEMPORARY ACCOUNTS
Temporary accounts are established to facilitate efficient accumulation of
data for statements. Temporary accounts are established for withdrawals,
each revenue, and each expense. Temporary accounts are assigned
balances based on how they affect equity.
(Equity Account)
Owner’s Name, Capital
Debit
Credit Balance
- side
+ side
Temporary Accounts Effect on equity? E or E
Owner, Withdrawals* E = Dr
Revenues E = Cr
Expenses E = Dr
All Withdrawal Accts
All Revenue Accts
All Expense Accts
Normal
Normal
Normal
Debit
Credit
Debit
Credit
Debit
Credit
Balance
Balance
Balance
+ side
- side
- side
+ side
+ side
- side
Note:
Transactions during the period always increase the balances of these
temporary accounts since the transaction represent additional withdrawals,
revenues, and expenses. We will later learn how to move these amounts
back to the real account they affect CAPITAL. At the end of the
accounting period, transferring withdrawals, revenues, and expenses back to
capital is the main use for the decrease side of the temporary accounts.
*The “Owner’s Name, Withdrawals” is the account title and the
classification of account is a contra-equity.
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
VISUAL #2-4
USING ACCOUNTS - SUMMARY
Real Accounts
All Asset Accts
All Liability Accts
All Equity Accts
Debit +
Credit +
Credit +
Balance
Balance
Balance
RULE REVIEW
Temporary Accounts
Transaction analysis rules
Each transaction affects at least 2
accounts.
Each transaction must have equal
debits and credits.
All Withdrawal
Accounts
Debit +
Balance
General account use rules
To increase any account, use balance
All Revenue Accounts
side.
Credit +
To decrease any account, use side
Balance
opposite the balance
All Expense Accounts
Debit +
Balance

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