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Chapter 4 Comments 8th ed

Chapter 4 Comments 8th ed - Instructor Comments Chapter...

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Instructor Comments Chapter Four Although Chapter 1 and 3 are important, Chapter 2 provides a very important framework to introduce you to the accounting process. Chapter 4 expands this introduction and lays the foundation for the bookkeeping process, which is vital to your understanding of financial accounting. This chapter will explain how basic transactions are recorded in the bookkeeping process and how these transactions are reflected in the financial statements. Chapter begins with the expansion of the accounting equation, followed by an analysis of some basic transactions that are summarized in the table on page 101. You should note that the accounting equation always stays in balance, and that every transaction requires at least two changes in the equation. Before proceeding any further, make sure you understand the expanded accounting equation and the various types of accounts that are used in the illustration on page 102. You should have a clear understanding off the five basic types of accounts: Assets Liabilities Owner's equity (which is composed of paid-in capital and retained earnings) Revenue, and Expense All transactions will be recorded in one or more accounts of these five basic categories. Note in particular how the financial statements on page 104 are derived from the data in the table on page 102 . The bookkeeping part of the chapter begins at the top page 101 and introduces you to some new terminology. Make sure you understand what each of the bolded terms mean. Although the tables used to analyze transactions in this chapter are useful and help improve your understanding of the transactions, the tables become very cumbersome
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when a business has more than a few transactions. Therefore, in this course we will record all transactions using the debit-credit process and journal entries as illustrated on page 107. You must know this process; you should use it to work problems instead of the “horizontal model” mentioned in some homework assignments. The “horizontal model” used on page 102 and then starting again on page 108 may initially be useful to you in understanding the effects of transactions on the financial statements, but it is very limited in its use. You must understand the debit and credit process and how to make journal entries now!!!! Your book does a good job of explaining the debit-credit process. However, I believe that my explanation below will help your understanding: A debit is simply an entry on the left and a credit is simply an entry on the right. They do not mean increase or decrease! You will find that a debit increases some accounts and decreases other accounts. The same is true for a credit. (Debits should be recorded in journal format and on the left; credits are always indented and recorded on the right.) Here is the way I explain this process to my regular classroom accounting students. The debit credit system is based on the following logic: (1) FIRST , we know that “assets = liabilities + owner's equity”.
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Chapter 4 Comments 8th ed - Instructor Comments Chapter...

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