Lecture_Notes_-_Assign_2

2 expenses debit credit debit think debit expenses

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2. Expenses debit credit debit Think: Debit Expenses, you can ignore the credits for now. 3. Capital credit debit credit 4. Drawing debit credit debit Those are the easy ones. Remember them by what is highlighted and you will be fine. The assets and liabilities are harder, as they are both debited and credited frequently. 5. Assets debit credit debit 6. Liabilities credit debit credit.
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Let’s review the previous examples using debits and credits this time. Examples A Purchase supplies on credit (on account) for $500. Solution: Supplies increased, supplies is an asset, debit Accounts payable is debt, debt increased, credit Debit Credit Dr Supplies $500 Cr Accounts Payable $500 Example B Purchase supplies for cash, $200. Solution: Supplies increased, debit Cash decreased, cash is an asset, credit Debit Credit Dr Supplies $200 Cr Cash $200 Example C Paid creditors on account, $500. Solution: Paid is a decrease to cash, credit Paying off a creditor decreases, debit Debit Credit Dr Accounts Payable $500 Cr Cash $500 Journal Entries The solutions to the previous examples were Journal entries. An accountant prepares a journal entry to record the transaction . Journal entries consist of at least one debit and one credit – there can be many more than two items recorded. Just like the accounting equation always has to balance, debits and credits always have to balance. If they do not equal, the entry is wrong.
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Example 1 Recorded job completed and billed customer on account, $800. Solution: Job completed means revenue. Revenue is a credit. They have not received cash – they are waiting to receive the customers payment – increase to accounts receivable. Debit Credit Dr Accounts Receivable $800 Cr Revenue $800 Example 1 Received cash from customers on account, $800. Solution: Received cash – debit cash. “customer – account” = accounts receivable – decreased (no longer waiting to receive it) Debit Credit Dr Cash $800 Cr Accounts Receivable $800 Example 3 Received cash for job completed, $800. Solution: Received cash – debit cash. “completed” – revenue = credit Debit Credit Dr Cash $800 Cr Revenue $800 See that the end result of Examples 1 and 2 is the same as Example 3. In examples 1 and 2, the business had to wait to receive the cash, so two journal entries were needed.
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Accounting Cycle: Transactions Journal entries Post T-accounts or ledger Trial balance The cycle begins with transactions. The accountant prepares a journal entry to record the transaction. After the journal entries are recorded, they are posted to the ledger (or T-account). The ledger tells the accountant at a glance how much is in each account. The trial balance is prepared from the ledger.
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