Account: basic summary device of accounting. An account is the detailed record of all the changes that occurred in an individual asset, liability or equity during a time period

Journal: chronological record of transactions. Where transactions are first recorded

Ledger: book of accounts. Where transactions from a journal are posted/copied

Trial Balance: List of all ledger accounts and their balances

Record Transactions in journal –à copy to ledger -à prepare trial balance

Accounts are grouped in 3 categories:

• Assets- something a business owns that has value
  • Cash
  • Accounts Receivable
  • Notes Receivable
  • Prepaid expenses- rent and insurance
  • Land
  • Building
  • Equipment, Furniture and Fixtures
  • Liabilities- something owed
    • Accounts Payable
    • Notes Payable
    • Accrued Liabilities- taxes, interest, salary
    • Stockholder’s equity- owner’s claim to assets of business
      • Common stock
      • Retained Earnings- net income
      • Dividends
      • Revenues
      • Expenses

Chart of Accounts: contains list of account names you might use to record a transaction to (pg66)

Ledger contains accounts grouped under:

• Assets, liabilities, equity
• Revenues and Expenses

Assets usually are numbered beginning with 1

Liabilities numbered beginning with 2

Equity beginning with 3

Revenues 4

Expenses 5

Debits, Credits  and Double-Entry Accounting:

Receiving side and giving side

Example: Business received cash of 10,000 dollars. Business issues 10,000 dollars of stock

Double Entry System: Dual effects of each transaction is recorded. Every transaction has at least 2 accounts

T Account: shortened form of general ledger

• Takes shape of T
• Left side is debit
• Right side is credit

Example:                                         …..  Cash……

DR | CR

how to record business transactions

Increases and Decreases in Accounts:

Assets: Debits = increase to assets, credits = decrease to assets

Liabilities and Equity: Debits = decrease to liabilities, credits = increase to liabilities

Balance: amount remaining in an account

Steps in Recording Process:

Step 1: Transactions recorded in journal

1. Identify each account affected and its type
2. Determine whether each account increased or decreased (credit/debit)
3. Record each transaction in journal including brief explanation, credit indented

Date     Account and Explanation               Debit      Credit

Debit listed first

Credit indented

Brief explanation

Step 2: Posting from Journal to Ledger

Revenues are increases in equity that result from providing goods and services

Expenses are decreases in equity

Assets = liabilities + equity   (revenues and expenses)

Normal Balance: appears on side where recorded increases occur

Assets: Debit-balance accounts

Liabilities and equity: Credit-Balance accounts (usually… equity varies)

If items that should have a debit balance has a credit balance, that means there is negative amount

I am Alexander Glaser, I am an online writer specializing in Economics Tutorials

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