accounting transactions
We call economic events that require recording in the financial statements
Transaction analysis
Step One:is the process of identifying the specific effects of economic events on the accounting equation
account
is an individual accounting record of increases and decreases in a specific asset, liability, stockholders' equity, revenue, or expense item
T account
In its simplest form, an account consists of three parts: (1) the title of the account, (2) a left or debit side, and (3) a right or credit side.
it is referred to as a
increases in liabilities
must be entered on the right or credit side
decreases in liabilities
must be entered on the left or debit side
increases in assets
must be entered on the left or debit side
decreases in assets
must be entered on the right or credit side
Asset accounts
normally show debit balances
liability accounts
normally show credit balances
The Common Stock account
is increased by credits and decreased by debits
normal balance is credit
Retained Earnings
is increased by credits and decreased by debits
normal balance is credit
Dividends account
is increased by debits and decreased by credits
normal balance is debit
Revenue accounts
are increased by credits and decreased by debits
normal balance is credit
expense accounts
are increased by debits and decreased by credits
normal balance is debit
Practically every business uses these basic steps in the recording process:
1. Analyze each transaction in terms of its effect on the accounts.
2. Enter the transaction information in a journal.
3. Transfer the journal information to the appropriate accounts in the ledger (book of accounts or T-Accounts).
A complete journal entry consists of:
1. The date of the transaction is entered in the Date column.
2. The account to be debited is entered first at the left. The account to be credited is then entered on the next line, indented under the line above. The indentation differentiates debits from
It is important to use correct and specific account titles in
journalizing
The entire group of accounts maintained by a company is referred to collectively as the
ledger
posting
The procedure of transferring journal entry amounts to ledger accounts is called
This phase of the recording process accumulates the effects of journalized transactions in the individual accounts.
Posting involves these steps:
1. In the ledger, enter in the appropriate columns of the debited account(s) the date and debit amount shown in the journal.
2. In the ledger, enter in the appropriate columns of the credited account(s) the date and credit amount shown in the journal.
trial balance
lists accounts and their balances at a given time
The accounts are listed in the order in which they appear in the ledger. Debit balances are listed in the left column and credit balances in the right column. The totals of the two columns must be equal.
These are the procedures for preparing a trial balance:
1. List the account titles and their balances.
2. Total the debit column and total the credit column.
3. Verify the equality of the two columns.