| Chapter Four - The Accounting System |
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Accounting Entries:
| Business transactions are first entered into a journal chronologically. |
| There may be multiple journals – Sales/cash receipt/cash disbursement journals. |
| To organize the massive list of various journal entries, the accountant groups transactions together by ‘posting’ them into a general ledger. |
| At the end of a period, we create a Trial Balance. This lists all accounts in Debit/Credit columns. |
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| Debit/Credits: |
| In its simplest form – Debits are on the left / Credits are on the right |
| General Rule for increasing an account: |
| D.A.D.E. – Debits – Assets, Dividends, Expenses |
| C.L.O.R. – Credits – Liabilities, Owner’s Equity, Revenue |
| Warning – there are exceptions (e.g. Accumulate Depreciation is a Contra-Asset, credit balance) |
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| Journal / General Ledger Entry: |
| The typical format is to present your debits first and then credits are indented below: |
Cash $50
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Revenue $50
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| (Debit Cash for $50 and credit Revenue for $50) |
| Note: Debits will always equal credits – it is a way to double check yourself. |
| This will come naturally after practice. |
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| T-Tables: |
| Journal entries are important, but it is difficult to look down a list of entries to find an account balance. |
| Use T-Tables to help organize your accounts and solve accounting problems. |
This is a much better method than relying on the A=L+OE to solve questions
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Accounts Receivable
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| $1,000 (Beg Bal) |
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| $3,000 (New A/R)
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$2,500 (Collected) |
| $1,500 (End Bal)
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| $1,000 is the beginning balance in the accounting – debit balance |
| $3,000 is the new account receivables for the period – it is increasing the account – so it is debited |
| $2,500 is the amount paid from customers for the IOUs – it decreases A/R – so we credit the account. |
| $1,500 is the ending balance – what is left – in the account – it has a debit balance. |
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