©The McGraw-Hill Companies, Inc. 2006McGraw-Hill/Irwin Chapter Four The Double-Entry Accounting System

Chapter Four—Riddle What lies at the bottom of the ocean and twitches? Answer = A nervous wreck Vocabulary Lesson: Burglarize “What a crook sees with”

Debit/Credit Terminology T-account Debit (the Left side) Credit (the Right side) Credit Account Title

Debit/Credit Scheme Follow along as I use the basic “Accounting Equation” of: (Assets = Liabilities + Owners’ Equity) to demonstrate how to learn the debit/credit scheme.

Left side Right side ASSETS = LIABILITIES. + S.E. Debit = LeftCredit = Right increase debit decrease credit Asset accounts increase on the left or debit side and decrease on the right or credit side. increase creditdecrease debit Liability accounts increase on the right or credit side and decrease on the left or debit side. increase credit decrease debit Equity accounts increase on the right or credit side and decrease on the left or debit side. In every transaction, the total dollar value of all debits equals the total dollar value of all credits.

Journal entries and Ledger accounts with Double-Entry Accounting Let’s see the traditional accounting cycle works

The Accounting Cycle 1.) Transactions occur in the normal course of business. We record them in our records with a JOURNAL ENTRY (called “Journalizing”). (Equivalent of entering a row on transaction worksheet) 2.) Journal entries are then “transferred” to the GENERAL LEDGER (called “Posting”). (Equivalent of putting dollar amount in a column on the transaction worksheet) 3.) A trial balance may be prepared. It shows the balance (amount and whether debit or credit) of each account. A trial balance is NOT the same as a “Balance Sheet”, which is a formal financial statement. The Process

The General Journal Accountants initially record data from source documents into a journal. Journal Entry

General Journal Date Account Title Debit Credit Aug. 1 Cash 1000 Service Revenue 1000 Services rendered for cash Post from General Journal to the General Ledger 1000 Cash Service Revenue

Class Problem We will be doing Problem #4-28A -- page 190 in textbook (rather than Collins Consultants example in your Ready Notes) to illustrate the steps in the Accounting Process (i.e., Journalizing, Posting, etc.) Let’s start with the first 8 “regular” transactions There is an ‘avi’ file to watch for Problem #4-28A You can review on your own the Collins Consultants example on the next slides: 16 “routine” journal entries 7 “adjusting” journal entries