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Journal Entries

Journal Entries

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Journal Entries

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  1. Journal Entries Refresher on… Debits Credits Accounts

  2. Debits & Credits • Debits are the left of the T account. • Debits do not mean increase. • Debits are not “good” or “bad”. • Credits are the right of the T account. • Credits do not mean decrease. • Credits are not “good” or “bad”.

  3. Impact on accounts • How do you show new credit sales [accounts receivable go up]? • How do you reflect prepaid insurance getting used up [go down]? • How do you take land you sold off the books [no gain or loss]? • How do you show an increase to cash from a customer paying their bill?

  4. Impact on accounts • Debit AR • Credit Sales Rev. • Debit Insurance Exp • Credit Prepaid • Debit Cash • Credit Land • Debit Cash • Credit AR • How do you show new credit sales [accounts receivable go up]? • How do you reflect prepaid insurance getting used up [go down]? • How do you take land you sold off the books [no gain or loss]? • How do you show an increase to cash from a customer paying their bill?

  5. Liability Accounts • How do you show buying inventory on credit [accounts payable goes up]? • How do you reflect taxes payable getting paid [go down]? • How do you show paying off an old loan with a new loan? • How do you show the obligation to pay workers after their work is complete but not yet paid?

  6. Liability Accounts • Debit Inventory • Credit Accts Payable • Debit Tax Payable • Credit Cash • Debit Old Loan • Credit New Loan • Debit Salaries Expense • Credit Salaries Payable • How do you show buying inventory on credit [accounts payable goes up]? • How do you reflect taxes payable getting paid [go down]? • How do you show paying off an old loan with a new loan? • How do you show the obligation to pay workers after their work is complete but not yet paid?

  7. What do you need – debit or credit? • Make patents go up? • Make AP go down? • Make Revenue go up? • Make Expenses go up? • Make Mortgage Loan go up? • Make Salaries payable go down? • Make Cash go down?

  8. Debits & Credits Assets, Exp Liabilities, Equity & Dividends & Revenues DRCRDRCR Incr. Decr. Decr. Incr. + - - + The key is to memorize and practice what an increase or decrease requires…until it is second nature.

  9. Accounting Transactions • Accounting information system: • The system of collecting and processing transaction data and communicating financial information • Can vary widely based on factors such as: • Type of business and its transactions • Size of company • Amount of data • Information requirements

  10. Accounting Transactions (Continued) • Transactions are economic events that must be recorded in the financial statements • Not all events are recorded and reported as accounting transactions: • Only those that change assets, liabilities, or shareholders’ equity

  11. Transaction Identification Process

  12. Account • An individual accounting record of increases and decreases in a specific asset, liability, or shareholders’ equity item • Three parts: • The title of the account • A left or debit side • A right or credit side

  13. The T Account

  14. Expanded Accounting Equation

  15. Accounting CycleMrs. Morris Steps for the month of September

  16. Steps in the Recording Process • Step 1: Analyze each transaction to determine its effect on accounts (if any) • Evidence comes from a source document • Step 2: Record transaction as a journal entry in the general journal • Step 3: Transfer information to appropriate accounts in the general ledger • Step 4: Prepare a trial balance