ACCT10002 Lecture Notes - Lecture 2: Trial Balance, Accounting Equation, Retained Earnings
19 Jun 2018
School
Department
Course
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Introductory Financial Accounting
Lecture 2: Double Entry
Accounting transactions and events
Transactions are external exchanges pf something of value between two or more entities. These
transactions must be recorded because they have an effect on assets, liabilities and equity.
Analysing transactions
Transaction analysis is the process of identifying the specific effects of transactions and events on the
accounting equation.
Each transaction analysed in terms of its effects on A, L and Eq.
Equity consists of three sub-headings:
1. Share capital- the original share holdings
2. Retained Earnings- the excess of revenue and expenses
3. Reserves- the amounts held in reserve
Revenue is the earnings of the firm, expenses are the costs of earnings- both are accounted for in
retained earnings. This difference between revenues and expenses is the profit or loss of the
firm.
Double entry system
System uses and refers to debits (DR, expense) and credits (CR, revenue) to a T-account. The T-account
records the dual effects of a business transaction and affects two or more accounts.
A debit is an accounting entry that either increases an asset or expense account, or decreases a liability or
equity account. It is positioned to the left in an accounting entry.
A credit is an accounting entry that either increases a liability or equity account, or decreases an asset or
expense account.
An account is an individual accounting records of increases and decreases in a specific asset,
liability or equity item.
Total debits must equal total credits. Debit/Credit procedures for Assets and Liabilities and Expenses and
Revenue are as follows:
Debit and credit procedures for Equity accounts are the same for Liabilities and Revenues.
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Document Summary
Transactions are external exchanges pf something of value between two or more entities. These transactions must be recorded because they have an effect on assets, liabilities and equity. Transaction analysis is the process of identifying the specific effects of transactions and events on the accounting equation. Each transaction analysed in terms of its effects on a, l and eq. Equity consists of three sub-headings: share capital- the original share holdings, retained earnings- the excess of revenue and expenses, reserves- the amounts held in reserve. Revenue is the earnings of the firm, expenses are the costs of earnings- both are accounted for in retained earnings. This difference between revenues and expenses is the profit or loss of the firm. System uses and refers to debits (dr, expense) and credits (cr, revenue) to a t-account. The t-account records the dual effects of a business transaction and affects two or more accounts.
