University:
Southeastern University
Course:
BUSI 2133 | Principles Of Financial Accounting
Academic year:

2023
Views:

222

Pages:

2
Author:

Douglas Atkins

CHAPTER 3: The Double-Entry Accounting System The year about which financial statements report is called a fiscal year. p.151 In the T-account model, the left side represents the debits and the right side the credits. p.152 An account has been debited when an amount is written on the left side and credited when the amount is written on the right side. You can abbreviate credit by using cr. and debit by using dr. For any given account the difference between debits and credits is called account balance. Both, debits and credits can represent either an increase or a decrease. Rules of Debits and Credits 1. Debit increases assets; Credits decrease assets. 2. Debits decrease liabilities and stockholders’ equity; Credits increase liabilities and stockholders’ equity. Recording Transactions on T- Accounts - Step 1: Determine HOW the event affects each element of the accounting equation; Do they decrease, increase or remain unaffected. - Step 2: Convert the increase/decrease terminology to debit/credit by using the debits and credits rules. - Step 3: Identify the specific account being affected and record the debits and s=credits according to it. Every transaction recorded requires at least one debit and one credit. And the total of the debit amount should be the total of the credit account. The General Journal Source documents are the documents in which businesses rely as the basis of entering transaction data into the accounting system (invoices, time cards, check registers, deposit tickets and cash register tapes). p.162 Accountants simplify recordkeeping by recording the data of the resource documents in journals. Because everything is recorded in journals before entering into ledger accounts, the journals are called books of original entry. Companies use special journals to record recurring transactions: sales on account, purchases on account, card receipts and cash payments. If the transaction does not fall in any of those categories, they are recorded in the general journal. GENERAL JOURNAL EXAMPLE Date Aug. 1 Account Title Cash Service Revenue Debit Credit 1,000 1,000 The process of copying the dollar amounts of debits and credits into the general ledger is called posting. p.164 The collection of all the accounts used by a particular business is called the general ledger. And a list of all general ledger accounts and their numbers is called a chart of accounts. To test whether the debits are equal to credits in the general ledger, accountants prepare an internal accounting schedule called a trial balance. The level of debt risk can be measured in part by using debt-to-assets ratio, as follows: Total debt/Total Assets Return to Equity ratio Net income/ Stockholders’ equity

Principles of Financial Accounting Chapter 3 Notes

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