Ch2 - Chapter 2 Analyzing Transactions Chapter 2 introduces...

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35 Chapter 2 Analyzing Transactions ______________________________________________ Chapter 2 introduces the rules of debit and credit, two-column journals, four-column ledgers, the chart of accounts, the trial balance, and horizontal analysis. Chapter 2 builds the foundation for all that will be learned about accounting principles. Unlike many other college courses, it is impossible to understand Chapter 3 and beyond if the principles of Chapter 2 are not mastered. Please dispel the false belief that "maybe I'll get the next chapter—even though I'm totally lost now." I encourage you to seek help immediately if you begin to struggle with course content. Tutorial services (go to to enter its website) , peer assistance through “Student Lounge” via “Discussion and Private Messages” of ETUDES , and my office hours are there to provide you with help. Too frequently, students wait until after they have unsuccessfully completed their first examination to seek help. For those who seek help, these resources will ensure their success in the course. Accounts: Accounts are used to record and summarize the effects of transactions on financial statements. Accounts are used to record business transactions. An account is simply a record of all the increases and decreases in a financial statement item (such as cash, supplies, and accounts payable). A group of accounts is called a ledger. Only a very small enterprise with very few transactions (such as a lawn mowing service run by students) could use the accounting system illustrated in Chapter 1. For most businesses, this system would be inefficient. For example, in the prior chapter all business transactions affecting owner’s equity were recorded in the capital account. In Chapter 2, the different types of owner’s equity transactions will be separated and recorded in the following accounts: capital, drawing, revenue, and expense accounts. This separation will make it easier to prepare financial statements. A flexible system of numbering accounts- Chart of Accounts Under the text’s indexing system, accounts are assigned a two-digit number. The first digit indicates the account’s classification (1=assets, 2=liabilities, 3=owner’s equity, 4=revenue, and 5=expenses.) All enterprises will have the same categories of accounts; however, the account
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This note was uploaded on 06/22/2009 for the course ACCOUNTING 1A taught by Professor Seyedin during the Fall '08 term at Foothill College.

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Ch2 - Chapter 2 Analyzing Transactions Chapter 2 introduces...

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