Accounting Records and
Systems
4-2
Why learn basic record keeping procedures?
4-3
The Account
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Device used for calculating net change
•
Simplest form is T-account.
•
Increases listed on one side; decreases listed on
other side.
•
Balanced periodically.
4-4
4-5
Temporary Accounts
•
Revenue and expense accounts.
•
Details of income statement and changes in
retained earnings (RE).
•
Helps summarize operating activity.
•
Avoids cluttering RE account.
•
At end of accounting period, amounts are
totaled, combined and transferred to RE.
–
Balances at beginning of each period are 0.
4-6
General Ledger
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General ledger contains all accounts.
•
Some accounts may be in summary form.
–
E.g. accounts receivable, inventory, fixed assets.
–
Detail or subsidiary ledgers kept for above.
4-7
Chart of Accounts
•
List of all accounts.
•
Numbers assigned to accounts to make
summaries for Balance Sheet and Income
Statement easier.
•
Minimum # is # of BS and IS lines.
–
Usually many more.
•
Management determines # of accounts based
on information needs.
•
May be several levels of detail.
•
Can view as building blocks summarized in
various ways.
4-8
Debit and Credit
•
Left hand side (LHS) of an account arbitrarily called
debit side.
•
RHS is credit side.
•
To debit or charge (credit) means to make an entry
to LHS (RHS).
•
For each transaction:
–
dr. (debit) = cr. (credit)
–
Assets = Liabilities + Owners’ Equity
•
Thus double entry bookkeeping.
4-9
Rules for Dr. and Cr.
