Appendix B - 2 slides each

Appendix B - 2 slides each - Appendix B The Mechanics of an...

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4-1 1 Appendix B The Mechanics of an Accounting System 2 The Traditional Way to Keep the Books: The General Ledger System THE ACCOUNTING CYCLE : Transactions occur in the normal course of business. We record them in our records with a JOURNAL ENTRY . Journal entries are posted to the GENERAL LEDGER. ADJUSTING ENTRIES are made and posted. Transactions Financial Statements
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4-2 3 Accounting cycle continued. .. A trial balance can be prepared at any time to make sure we haven’t made an error with the debit-credit part of the accounting system. More about that after we learn the nuts and bolts about DEBITS and CREDITS. .. Financial statements are written. Closing journal entries are made and posted (and a post-closing trial balance may be prepared) . 4 Terminology What’s a general ledger? A big book of accounting records in which every page is an “account.” What’s an account? A page in the general ledger that is devoted to keeping track of an individual asset or liability or type of owners’ equity. How many are there? As many as the business find necessary for its record keeping.
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4-3 5 Accounts…debits and credits Each account can be increased or decreased. For example, CASH can be increased (when it is collected) and decreased (when it is disbursed). Each item on the balance sheet is either an account or a composite of several accounts. 6 There is no special meaning attached to debits and credits. It simply means left and right in accounting world!!
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4-4 7 How this debit/credit stuff works: DEBIT means LEFT side CREDIT means RIGHT side We can represent an account with a T , where one side is the place where we put the increases and the other side is for decreases. The left side is always called the debit side. When we put something on the left side of an account, we are debiting the account. The right side is always called the credit side. When we put something on the right side of an account, we are crediting the account. 8 Definitions ** Asset : something of value Liability : something owed (creditors’ share of the assets) Equity : what remains (owner’s share of the assets) Revenues : earnings from the sale of goods or services. Expenses : the dollar amount of resources used up by the entity to earn revenues during a period.
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4-5 9 How this Debit/Credit Stuff Works Assets = Liabilities + Owners’ Equity Revenue Expense + Increases in assets go on the left. Debits increase assets. 10 Assets = Liabilities + Owners’ Equity Revenue Expense + __ How this Debit/Credit Stuff Works Decreases in assets go on the right. Credits decrease assets.
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4-6 11 Assets = Liabilities + Owners’ Equity Revenue Expense + __ How this Debit/Credit Stuff Works Increases in liabilities go on the right.
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This note was uploaded on 09/18/2010 for the course BUSS 152 taught by Professor Choiwooseok during the Fall '10 term at Korea University.

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Appendix B - 2 slides each - Appendix B The Mechanics of an...

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