Chapter 3

 

Account

• A person accounting record of increases and decreases in a specific assets, liability or shareholders' equity item, along with opening and closing balances

• T- account 3 parts

• Title of the account

• A left or debit side

• A right or credit side

• In its simplest form, these parts are positioned like the letter T therefore, called a T account

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Left or debit side (Dr.)

Right or credit side (Cr.)

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Debits and Credits

• Describe where entries are made in the T accounts:

• Debiting:entering an amount on the left side

• Crediting: entering an amount on the right side

• If the debit amounts exceed credits amounts, account has a debit balance

• If the credit amounts exceed debit amoutns, account has a credit balance

 

 

Normal Balance

• Assets - Debit for increase, credit for decrease

• Liabilities - Debit for decrease, credit for increase

• Increases in shareholders' equity

• Common shares

• Debit for decrease

• Credit for increase

• Retained earnings

• Debit for decrease

• Credit for increase

• Decreases in shareholders' equity

• Revenues

• Debit for decrease

• Credit for increase

• Expenses

• Debit for increase

• Credit for decrease

• Devidends declared

• Dbit for increase

• Credit for decrease

 

 

Journalize transactions

• Source docs provid evidence of a transaction

• After the transaction is analyzed, the journal entry for the transaction is recorded in the general journal

• Entering transaction data is known as journalizing

• The general journal serves 3 purposes

• Dicloses the complete effects of a tranaction in one place, including a brief explanation of the transaction

• Provides a chronological record of transactions

• Helps to prevent and locate errors

 

 

Post to ledger accoutns

• A general ledger contains all the assets, liabilty, and shareholders' equity, dividends declared, revenue and expense accounts

• List of all acounts maintained by a company is called a chart of accounts

• Each account has a number so it is easier to identigy

• Posting is the process of transferring journal entreis from the general ledger to the general ledger accounts

 

 

Trail Balance

• List of the general ledger accounts and their balances at a specific time- usually the end of an accounting period

• Serves to prove that debits equal credits after posting

• Sum of debits = sum of credits

• Aids in the preparation of financial statements

• Subjects to limitations

• Does not prove that the general ledger is correct

• Examples : missing transactions, incorrect account, duplicate postings

 

 

Summary of the Accounting Cycle

• Chapter 3 - steps 1-4

• Analyze business transactions

• Journalize the transactions

• Post to the ledger accounts

• Prepare a trail balance

• Chapter 4 (Next) steps 5-9

• Jounalize and post adjusting entries

• Prepare an adjusted trail balance

• Prepare financial statements

• Jounalize and post closing entries

• Prepare a post-closing trail balance