Recording Transactions
The whole process:
Analyze transactions->Record transactions->Summarize transactions->Report transactions
Entries->Post->Trial Balance->Financial Report
A. Analyze Transactions
1. Transactions are recorded in:
a.General Journal 日记账 Chronological record of an organization’s transactions and how each transaction affects the balances in particular accounts
b.General Ledger 总账 Collection of all ledger accounts that supports an organization’s financial statements
c.Ledger Account(Subsidiary Ledger) 分类账 Listing of all the increases and decreases in a particular account
2. T-Account
Account:An organized format used by companies to accumulate the dollar effects of
transactions
a.account format: T-Account
Left side: increase Right side: decrease
b.T-Account:
Account Name
Left Side Right Side
Debit Credit
Visualization of every account; A tool used to represent an account.
The left side of the T-account is always the debit side.
The right side of the T-account is always the credit side.
c.debit & credit
Debits are simply entries on the left.
Credits are simply entries on the right.
这个定义仿佛在逗我。。。 对我来说基本上就是区分正负的约定
d.Expanded Accounting Equation:
Each account uses T-Account format.
3. Double-Entry Accounting
There must be at least one debit and one credit. The (total) debits must always equal the (total) credits.
B. Record Transactions
1. Journal
Journal: A chronological record of all business activities. A book of original entry. Transactions are first entered in this book to show which accounts should be debited and which should be credited.
Rules:
a.Provide a reference date for each transaction.
b.Debits are written first.
c.Credits are indented and written after debits.
d.Total debits must equal total credits.
2. Journal Entries: A 4-steps process
a. Identify which accounts are involved
b. For each account, determine if it is increased or decreased
c. For each account, determine if it is recorded as debit entry or credit entry
d. For each account, determine by how much it will change
C. Summarize Transactions
1. Post Journals to ledgers
Ledger:A classified record of all transactions. A book of final entry. Transactions are posted in the ledger after the same have been recorded in the journal.
Journal and Posting–A simplified format: just use T-Account!
2. Prepare Trial Balance: 试算平衡表
The trial balance lists all account balances in the general ledger. If the books are in balance, the total debits will equal the total credits.
remark：平时不做，只在期末时（制表）做，相当于一个草稿用来手工查（部分）错，由于现在电子记账，已经基本没有用了
3. Closing the accounts 结账
remark:收入就是收入，费用就是费用，都不属于所有者权益，记账时一定是分开记的，只有在期末结账时才会影响到所有者权益。
a. Perpetual (real) accounts vs. Temporary (nominal) accounts
Perpetual (real) accounts 永久性账户/实账户
Report the cumulative increases and decreases in BS accounts from the date of organization.
Not closed to a zero balance at the period’s end.
Balances are carried forward to next period.
Temporary (nominal) accounts 临时性账户/虚账户
(revenues, expenses, and dividends) closed to a zero balance at the end of each period.
At period’s end, adjustments are made, the IS is prepared, and balances are then closed to Retained Earnings.
The closing process applies only to temporary accounts.
b.Why we need to close the Accounts?
It transfers the balances of the “temporary” stockholders’ equity accounts (revenues and expenses) to the “permanent” stockholders’ equity account (retained earnings)
It makes the revenues and expense accounts have a zero balance, which readies them for the next period’s transactions
c. Recording Closing Entries
Close Revenue accounts to Income Summary.
Close Expense accounts to Income Summary.
Close Income Summary account to Retained Earnings.
Close Dividend to Retained Earnings.
4. Correcting Entries
a. Types of Errors
No entry is made when one should have been made
If erroneous entry is made, could be:
• Correct amounts to incorrect accounts
• Incorrect amounts to correct accounts
• Transaction omitted
• GAAP is misapplied
b. Types of accounts involved
• Permanent
– always open so correct anytime
• Temporary
– If accounts not closed, simple correction
– If accounts are closed, use Retained Earnings or just wait (self correcting after 2 years)
c. Correcting entry
Correct entry; Erroneous entry; Correcting entry;
Correcting entry: A journal entry that cancels a previous erroneous entry and adds the correct amounts to the correct accounts; Recorded in the general journal and posted in the general ledger as a regular entry is posted
d. Correction of Errors
What was recorded? What should have been recorded?
Correcting entry depends on where we are in time?
Made and discovered in same fiscal year: the temporary account Rent Expense is still open (not been closed to Retained Earnings)
Made in one fiscal year, discovered next fiscal year: Do nothing (after 2nd year, will be correct), or ???
From HW:
1.bill 账单； notes 票据；没提notes不要想着记notes payable
2.telephone, water, electricity一般记在utilities expense
3.个人独资撤资一般不记xxx, capital ; 记xxx, withdrawal/drawing
4.Contra account 抵消账户：一定与主账户相伴，与主账户相反（目的是冲减主账户的余额）
Contra Asset Account 资产抵消账户：比如累计折旧Accumulated Depreciation（想要留下原始数据，所以通过credit这个账户来折旧）；累计折旧不能清零，balance里的总资产是要算减掉折旧之后的
5.超募->留在银行吃利息（或买理财产品)->interest expense有可能为负
6.list /sticker price->price tag
7.sign a contract, 还是先记收到的账
8.intangible asset无形资产：franchise, copyright, patent...
9.入股不一定都以现金入股，patent, equipment入股都是可能的
Product Cost:
Services industries have no goods, so they don't COSG. They use Cost of Sales as a counterpart.
Component:Material (component cost), direct labor, manufacturing cost, storage cost(mostly, but of course it depends)
Accounting: recorded as inventory first, transferred to COGS after sales !!!
Period Cost:
Is rent expense period cost ?
When a company incurs rent for its manufacturing operations, the rent is a product cost.
If the rent is for items involved in the selling function, the rent is a period cost
if the rent is for items in the administrative function of the company, the rent is a period cost
Accounting: recorded as expense directly !!!