problem_solving_sample_chptr

problem_solving_sample_chptr - CHAPTER 2 . THE RECORDING...

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CHAPTER 2 . . . . . . . . . . . . . . . . . . . . . . . . . . T HE RECORDING PROCESS OVERVIEW Due to the great number of transactions that occur daily in most businesses, accountants do not find it practical to present the cumulative effects of these transactions on the basic accounting equation in tabular form as we did in Exercise 2 in Chapter 1. Instead, they have developed a system by which the effects of transactions and events may conveniently be recorded, sorted, summarized, and stored until financial statements are desired. That system is the focus of this chapter. SUMMARY OF STUDY OBJECTIVES 1. Explain what an account is and how it helps in the recording process. An account is a record or increases and decreases in specific asset, liability, and owner's equity items. 2. Define debits and credits and explain how they are used to record business transactions. The terms debit and credit are synonymous with left and right. Assets, drawings, and expenses are increased by debits and decreased by credits. Liabilities, owner's capital, and revenues are increased by credits and decreased by debits. 3. Identify the basic steps in the recording process. The basic steps in the recording process are: (a) analyze each transaction in terms of its effect on the accounts, (b) enter the transaction information in a journal, and (c) transfer the journal information to the appropriate accounts in the ledger. 4. Explain what a journal is and how it helps in the recording process. The initial accounting record of a transaction is entered in a journal before the data is entered in the accounts. A journal (a) discloses in one place the complete effect of a transaction, (b) provides a chronological record of transactions, and (c) prevents or locates errors because the debit and credit amounts for each entry can be readily compared.
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2-2 Problem-Solving Survival Guide for Accounting Principles, 7th Edition __________________________________________________________________________ _ 5. Explain what a ledger is and how it helps in the recording process. The entire group of accounts maintained by a company is referred to as the ledger. The ledger keeps in one place all the information about changes in specific account balances. 6. Explain what posting is and how it helps in the recording process. Posting is the procedure of transferring journal entries to the ledger accounts. This phase of the recording process accumulates the effects of journalized transactions in the individual accounts. 7. Prepare a trial balance and explain its purposes. A trial balance is a list of accounts and their balances at a given time. Its primary purpose is to prove the mathematical equality of debits and credits after posting. A trial balance also uncovers errors in journalizing and posting and is useful in preparing financial statements. TIPS ON CHAPTER TOPICS
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problem_solving_sample_chptr - CHAPTER 2 . THE RECORDING...

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