2

Analyzing
Transactions
1

After studying this chapter, you should be able to:

1. Describe the characteristics of an account and
record transactions using a chart of accounts
and journal.
2. Describe and illustrate the posting of journal
entries to accounts.
3. Prepare an unadjusted trial balance and explain
how it can be used to discover errors.
4. Discover and correct errors in recording
transactions.

2-1

Objective
Objective 11
Describe the characteristics of
an account and record
transactions using a chart of
accounts and journal.
3

2-1

Accounting systems are

designed to show the increases
and decreases in each financial
statement item as a separate
record. This record is called an
account.
4

2-1

The T Account

Title

The T account has

a title.

55

2-1

Title
Debit
The left side of
the account is
called the debit
side.

66

2-1

Title
Debit

Credit
The right side of the
account is called the
credit side.

77

2-1

Title
Debit

Credit

Amounts
entered on the
left side are
debits.
88

2-1

Title
Debit

Credit
Amounts
entered on the
right side are
credits.
99

(In Rp 000)

(a)
(d)

2-1

Cash
25,000 (b)
7,500 (e)
(f)
(h)

Balance

20,000
3,650
950
2,000

5,900

Balance
Balanceof
ofthe
theaccount
account

10
10

2-1

A group of accounts
for a business entity is
called a ledger.

11

2-1

A list of the accounts

in a ledger is called a
chart of accounts.

12

2-1

Assets are resources owned

by the business entity.

Cash
Supplies
Prepaid expenses
Buildings
13

2-1

Liabilities are debts owed to

outsiders (creditors).
Accounts payable
Notes payable
Wages payable
14

2-1

Owners equity is the owners

right to the assets of the
business. A drawing account
represents the amount of
withdrawals by the owner.
15

2-1

Revenues are increases in

owners equity as a result
of selling services or
products to customers.
Fees earned
Commission revenue
Rent revenue
16

2-1

The using up of assets or

consuming services in the
process of generating
revenues results in expenses.
Wages expense
Rent expense
Miscellaneous expense
17

2-1

Every transaction affects

at least two accounts.

18

Journalizing

2-1

This transaction is initially

entered in a record called a
journal. The process of
recording a transaction in the
journal is called journalizing.

19

2-1

Journalizing requires the following steps:

1. Record the date. If this is the first entry on
the page, the year is inserted above the
month. As long as the month does not
change, the rest of the journal entries on
the require on the day be recorded.
2. The title of the account debited is listed in
the Description column.
(Continued)

20

2-1

3. Enter the amount in the Debit column.

4. Record the credit account in the
Description column.
5. Enter the amount in the Credit column.
Watch these steps take place as the entry
to record Chris Clarks deposit is
presented in the next slide.
21

Balance Sheet Accounts

2-1

@solusinet

(a) On November 1, Cita Cinta opens a

new business and deposits Rp.
25,000,000 in a bank account in the
name of SolusiNet.
22

2-1

Page 1

JOURNAL
Date
2007

Description

1 Nov. 1 Cash
2
Cita Cinta, Capital
3

P.R.

Debit

Credit

25 000 000
25 000 000

Invested cash in SolusiNet.

23
23

2-1

The effect of this entry is shown in the

accounts of SolusiNet as follows:
Cash

Cita Cinta, Capital

Nov. 1 25,000

Nov. 1

(In Rp 000)

25,000

24

2-1

@solusinet

(b) On November 5,
SolusiNet bought land
for Rp 20,000,000
paying cash.
25

2-1

5 Land

20 000 000

Cash
Purchased land for

20 000 000

building site.

26

2-1

@solusinet

(c) On November 10,

SolusiNet purchased
supplies on account for
Rp1,350,000
27

2-1

10 Supplies
Accounts Payable
Purchased supplies on

1 350 000
1 350 000

account.

28

2-1

@solusinet

(f) On November 30,

SolusiNet paid
creditors on account,
Rp. 950,000
29

2-1

30 Accounts Payable
Cash
Paid creditors on

950 000
950 000

account.

30

2-1

Balance Sheet Accounts

Debits

Credits

Asset accounts. Increase (+) Decrease (-)

Liability accounts. Decrease (-) Increase (+)
Owners equity
(capital) accounts
Decrease (-) Increase (+)
31

2-1

Balance Sheet Accounts

Asset Accounts
Debit for
increases
(+)

Credit for
decreases
()

Liability Accounts
Debit for
decreases
()

Credit for
increases
(+)

Owners Equity Accounts

Debit for
decreases
()

Credit for
increases
(+)
32

2-1
Example Exercise 2-1
Prepare a journal entry for the purchase of a truck on June 3
for Rp.42,500, 000 paying Rp.8,500,000 cash and the
remainder on account.
Follow My Example 2-1
June 3 Truck
Cash
Accounts Payable

For Practice: PE 2-1A, PE 2-1B

Rp. 42,500,000
8,500,000
34,000,000
33

Income Statement Accounts

2-1

@solusinet

(d) On November 18, SolusiNet

received fees of Rp7,500,000 from
customers for services provided.

34

2-1

30 Cash

7 500 000

Fees Earned
Received fees from

7 500 000

customers.

35

2-1

@solusinet

(e) Throughout the month, SolusiNet

incurred the following expenses:
wages, Rp. 2,125,000; rent Rp.
800,000; utilities, Rp. 450,000; and
miscellaneous, Rp.275,000.
36

2-1

30 Wages Expense

2 125 000

Rent Expense

800 000

Utilities Expense

450 000

Miscellaneous Expense

275 000

Cash

3 650000
Paid expenses.

37

2-1

@solusinet

(g) On November 30, a count

revealed that Rp.800,000 of
the supplies inventory had
been used during the month.
38

2-1

30 Supplies Expense
Supplies
Supplies used during

800 000
800 000

November.

39

2-1

Income Statement Accounts

Debits
Revenue accounts Decrease (-)
Expense accounts Increase (+)

Credits
Increase (+)
Decrease (-)

40

2-1
Income Statement Accounts

Revenue Accounts
Debit for
decreases
()

Credit for
increases
(+)
Less

Expense Accounts
Debit for
increases
(+)

Credit for
decreases
()
41

Continued

2-1

Equals
Net Income (credit > debits)
increases owners equity (capital)
Net Loss (debits > credits) decreases
owners equity (capital)
42

2-1
Example Exercise 2-2
Prepare a journal entry on August 7 for the fees earned on
account, Rp.115,000,000.
Follow My Example 2-2
Aug. 7

Accounts Receivable
Fees Earned

For Practice: PE 2-2A, PE 2-2B

115,000,000
115,000,000

43

Drawing Account

2-1

The owner of a proprietorship may

withdraw cash from the business for
personal use. Such withdrawals have the
effect of decreasing owners equity.

44

2-1

@solusinet

(h) On November 30, Cita Cinta

withdrew Rp.2,000,000 in cash
from SolusiNet for personal use.

45

2-1

2007

Nov 30 Cita Cinta, Drawing

Cash
Cita Cinta withdrew

2 000 000
2 000 000

cash for personal use.

46

2-1
Example Exercise 2-3
Prepare a journal entry on December 29 for the payment of
Rp.12,000,000 to the owner of Smartstaff Consulting
Services, Dominique Walsh, for personal use.
Follow My Example 2-3
Dec. 29 Dominique Walsh, Drawing
Cash

12,000,000
12,000,000

47

For Practice: PE 2-3A, PE 2-3B

2-1
Increase
(Normal Bal.) Decreases
Balance sheet accounts:
Asset
Liability
Owners Equity:
Capital
Drawing
Income statement accounts:
Revenue
Expense

Debit
Credit

Credit
Debit

Credit
Debit

Debit
Credit

Credit
Debit

Debit
Credit

48

2-1
Example Exercise 2-4
State for each account whether it is likely to have (a)
debit entries only, (b) credit entries only, or (c) both
debit and credit entries. Also, indicate its normal
balance.
1.
2.
3.
4.
5.
6.

Ambarwati, Drawing
Accounts Payable
Cash
Fees Earned
Supplies
Utilities Expense
49

2-1

Follow My Example 2-4

1.
2.
3.
4.
5.
6.

Debit entries only; normal debit balance

Debit and credit entries; normal credit balance
Debit and credit entries; normal debit balance
Credit entries only; normal credit balance
Debit and credit entries; normal debit balance
Debit entries only; normal debit balance

50

For Practice: PE 2-4A, PE 2-4B

2-1

The equality of debits and credits

for each transaction is built into the
accounting equation: Assets =
Liabilities + Owners Equity.
Because of this double equality,
this system is called the doubleentry accounting system.
51

Transaction Analysis

2-1

1. Determine whether an asset, liability,

owners equity, revenue, expense, or
drawing account is affected by the
transaction.
2. For each account affected by the transaction,
determine whether the account increases or
decreases.
3. Determine whether each increase or
decrease should be recorded as a debit or a
credit.
Continued

52

2-1

4. Record the transaction using a journal

entry.
5. Periodically post journal entries to the
accounts in the ledger.
6. Prepare an unadjusted trial balance at
the end of the period.

53

2-2

Objective
Objective 22
Describe and illustrate
the posting of journal
entries to the accounts.
54

2-2

The process of transferring

the debits and credits from
the journal entries to the
accounts is called posting.
55

2-2

@solusinet

Dec. 1 SolusiNet paid a premium of

Rp.2,400,000 for a
comprehensive insurance policy
covering liability, theft and fire.
The policy covers a one-year
period.
56

2-2

(In Rp. 000)

57

2-2

@solusinet

Dec. 1 SolusiNet paid rent for December,

Rp.800,000. The company from
which SolusiNet is renting its store
space requires the payment of rent
on the first of each month, rather
than at the end of the month.
58

2-2

Rent Expense
Cash
Paid rent for December.

52
11

800 000
800 000

59

2-2

An alternative approach is to debit

Rent Expense for Rp.800,000 on
December 1. This avoids having to
transfer the balance to an expense
account at the end of the month.

60

2-2

SolusiNet received an offer from a local

retailer to rent the land purchased on
November 5. The retailer plans to use
the land as a parking lot for its employees
and customers. SolusiNet agreed to rent
the land to the retailer for three months,
with the rent payable in advance.
61

2-2

@solusinet
Dec. 1 SolusiNet receives Rp. 360,000
for three months rent for use of
its land beginning December 1.
1

Cash

11

Unearned Rent
Received advance

23

360 000
360 000

payment for three

months rent on land.

62

2-2

@solusinet
Dec. 4 SolusiNet purchased office equipment
on account from PD.Tunas Jaya. for
Rp.1,800,000
4

Office Equipment
Accounts Payable
Purchased office

18 1 800 000
21

1 800 000

equipment on account.

63

2-2

@solusinet

Dec. 6 SolusiNet paid Rp.180,000 for

a newspaper advertisement.

Miscellaneous Expense
Cash
Paid for newspaper ad.

59
11

180 000
180 000

64

2-2

@solusinet

Dec. 11 SolusiNet paid

creditors Rp.400,000
11

Accounts Payable
Cash
Paid creditors on

21
11

400 000
400 000

account.

65

2-2

@solusinet

Dec. 13 SolusiNet paid a receptionist and

part-time assistant Rp.950,000 for
two weeks wages.
13

Wages Expense
Cash
Paid two weeks wages.

51
11

950 000
950 000

66

2-2

@solusinet

Dec. 16 SolusiNet received

Rp.3,100,000 from fees earned
for the first half of December.
16

Cash

11

Fees Earned
Received fees from

41

3 100 00
3 100 00

customers.

67

2-2

@solusinet

Dec. 16 Fees earned on account

totaled Rp.1,750,000 for the
first half of December.
16

Accounts Receivable
Fees Earned
Recorded fees earned

12
41

1 750 000
1 750 000

on account.

68

2-2

@solusinet
Dec. 20 SolusiNet paid Rp.900,000 to Executive
Supply Co. on the Rp.1,800,000 debt
owed from the December 4 transaction.
20

Accounts Payable
Cash
Paid part of amount

21
11

900 000
900 000

owed to Executive
Supply Co.

69

2-2

@solusinet

Dec. 21 SolusiNet received

Rp.650,000 from customers
in payment of their accounts.
21

Cash

11

Accounts Receivable
Received fees from

12

650 000
650 000

customers on account.

70

2-2

@solusinet

Dec. 23 SolusiNet paid Rp

1,450,000 for supplies.
23

Supplies
Cash
Purchased supplies.

14
11

1 450 000
1 450 000

71

2-2

@solusinet

Dec. 27 SolusiNet paid the receptionist

and part-time assistant
Rp.1,200,000 for two weeks
wages.
27

Wages Expense
Cash
Paid two weeks wages.

51
11

1 200 000
1 200 000

72

2-2

@solusinet

Dec. 31 NetSolutions paid Rp.310,000

for telephone charges for the
month.
31

Utilities Expense
Cash
Paid telephone charges.

54
11

310 000
310 000

73

2-2

@solusinet

Dec. 31 SolusiNet paid Rp.225,000 for

electric usage for the month.
Page 1

JOURNAL
Date

2007

Description

Dec 31 Utilities Expense

Cash
Paid for electric usage.

Post.
Ref.

54

11

Debit

Credit

225 000
225 000

74

2-2

@solusinet

Dec. 31 SolusiNet received Rp.2,870,000

from fees earned for the second
half of December.
31

Cash

11

Fees Earned
Received fees from

41

2 870 000
2 870 000

customers.

75

2-2

@solusinet

Dec. 31 NetSolutions earned

Rp.1,120,000 on account
for the second half of
December.
31

Accounts Receivable
Fees Earned
Recorded fees earned

12
41

1 120 000
1 120 000

on account.

76

2-2

@solusinet

Dec. 31 Cita Cinta withdrew

Rp.2,000,000 for personal use.
31

Cita Cinta, Drawing

Cash
Cita Cinta withdrew

32
11

2 000 000
2 000 000

cash for personal use.

77

2-2
Example Exercise 2-5

On March 1, the cash account balance was

Rp. 22,350,000. During March, cash
receipts totaled Rp.241,880,000 and the
March 31 balance was Rp.19,125,000.
Determine the cash payments made during
March.

78

2-2
Follow My Example 2-5

In Rp.000

Using the following T-account solve for the amount of

cash payment (indicated by ? below).
Cash
Mar. 1 Bal
22,350 ?
Cash receipts 241,880
Mar. 31 Bal. 19,125

Cash payments

Rp.19,125 = Rp.22,350 + Rp.241,880 Cash payments

Cash payments = Rp.22,350 + Rp.241,880 Rp.19,125 =
Rp.245,105
79

For Practice: PE 2-5A, PE 2-5B

2-3

Objective
Objective 33
Prepare an unadjusted
trial balance and explain
how it can be used to
discover errors.
80

2-3

The equality of debits and credits

in the ledger should be proved at
the end of each accounting period
by preparing a trial balance. The
heading should first list the name
of the company, the statements
title, and the date it is prepared.
81

2-3

82

2-3
Example Exercise 2-6
For each of the following errors, considered individually,
indicate whether the error would cause the trial balance
totals to be unequal. If the error would cause the trial
balance total to be unequal, indicate whether the debit or
credit total is higher and by how much.
a. Payment of a cash withdrawal of Rp.5,600,000 was
journalized and posted as a debit of RP.6,500,000 to
Salary Expense and a credit of RP.6,500,000 to Cash.
b. A fee of Rp.2,850,000 earned from a client was
debited to Accounts Receivable for Rp.2,580,000 and
credited to Fees Earned for Rp.2,850,000.
c. A payment of Rp.3,500,000 to a creditor was posted
as a debit of Rp.3,500,000 to Accounts Payable and a
debit of Rp.3,500,000 to Cash.

83

2-3
Follow My Example 2-6
a. The totals are equal since both the debit and credit
entries were journalized and posted for Rp.6,500,000.
b. The totals are unequal. The credit total is higher by
Rp.270,000 (Rp.2,850,000 Rp.2,580,000).
c. The totals are unequal. The debit total is higher by
Rp.7,000,000 (Rp.3,500,000 + Rp.3,500,000).

For Practice: PE 2-6A, PE 2-6B

84

2-4

Objective
Objective 44
Discover and correct
errors in recording
transactions.
85

2-4

A transposition occurs when

the order of the digits is
changed mistakenly, such as
writing Rp.542,000 as
Rp.452,000 or Rp.524,000.
In a slide, the entire number is
mistakenly moved one or more
spaces to the right or the left, such
as writing RP.542.000 as $54,200.

86

2-4

Another type of error is a posting

error. Assume that on May 5 a
Rp.12,500,000 purchase of office
equipment on account was
incorrectly journalized and posted
as a debit to Supplies and a credit
to Accounts Payable for
Rp.12,500,000.
87

2-4

Entry to Correct Error

May 31 Office Equipment

Supplies
To correct erroneous

18 12 500 000
14
12 500 000

debit to Supplies on
May 5. See invoice
from Bella Office
Equipment Company.

88

2-4
Example Exercise 2-7
The following errors took place in journalizing and
posting transactions:
a. A withdrawal of Rp.6,000,000 by Roni Ahmad,
owner of the business, was recorded as a debit to
Office Salaries Expense and a credit to Cash.
b. Utilities Expense of Rp.4,500,000 paid for the
current month was recorded as a debit to
Miscellaneous Expense and a credit to Accounts
Payable.
Journalize the entries to correct the errors. Omit
explanations.

89

2-4
Follow My Example 2-7

In Rp.000

a. Cheri Ramey, Drawing

Office Salaries Expense

6,000

b. Accounts Payable
Miscellaneous Expense

4,500

6,000
4,500

Utilities Expense
4,500
Cash
4,500
Note: The first entry in (b) reverses the incorrect
entry, and the second entry records the correct
entry.
For Practice: PE 2-7A, PE 2-7B

90