Week 1 - The basic tool of accounting is the accounting equation It measures the resources of a business(what the business owns or has control of and

Week 1 - The basic tool of accounting is the accounting...

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The basic tool of accounting is the accounting equation. It measures the resources of a business (what the business owns or has control of) and the claims to those resources (what the business owes to creditors and to the owner). The accounting equation is made up of three partslong dash assets, liabilities, and equitylong dash and shows how these three parts are related. Assets appear on the left side of the equation, and the liabilities and equity appear on the right side. Assets = Liabilities + Equity Transactions are first recorded in a journal, which is the record of transactions in date order. Journalizing a transaction records the data only in the journallong dash but not in the ledger (the record which holds all of the accounts of a business). The data must also be transferred to the ledger. The process of transferring data from the journal to the ledger is called posting. We post from the journal to the ledger. Debits in the journal are posted as debits in the ledger and credits as creditslong dash no exceptions. The journalizing and posting process has five steps: Step 1: Identify the accounts and the account type (asset, liability, or equity). Step 2: Decide if each account increases or decreases using the rules of debits and credits. Step 3: Record the transaction in the journal. Step 4: Post the transaction into the ledger. Step 5: Determine if the accounting equation is in balance. In this problem we will focus on the first three steps. We will analyze and then record Texas Sales Consultants transactions in the journal (journalize the transactions). Jan. 22: Performed services for customers on account, $ 6 comma 500 . Step 1: Identify the accounts and the account type (asset, liability, or equity). Texas Sales Consultants performs a service for a client who does not pay immediately. The business receives the client's promise to pay $ 6 comma 500 . This promise is an asset, an accounts receivable, because the business expects to collect the cash in the future. In accounting, we say that the company performed this service on account.
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It is in performing the service (doing the work), not collecting the cash, that the company earns the revenue. As a result, this transaction increases Accounts Receivable (an asset) and increases Service Revenue (equity). Step 2: Decide if each account increases or decreases using the rules of debits and credits. Accounts Receivable increases. The business is now owed an amount from a customer. Service Revenue increases. Texas Sales Consultants has earned revenue by performing tax services. An increase in an asset account is recorded with a debit and an increase in a revenue account is recorded with a credit. Step 3: Record the transaction in the journal. To record this transaction in the journal we must increase Accounts Receivable (an asset) with a debit of $ 6 comma 500 and increase Service Revenue (an equity) with a credit of $ 6 comma 500 .
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