Textbook Notes (367,844)
Canada (161,454)
Accounting (533)
ACC 414 (22)
Else Grech (19)
Chapter 3

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ACC 414
Else Grech

Chapter 3  Debit and credits o Making an entry on the left side of the T account is called debiting o Making an entry on the right side of the T account is called crediting o If the total of the debit amount is more than credits, the account will have a debit balance (vice versa) o Basis for the double-entry system of recording transactions  Gives a logical method for recording transactions. o All assets and expense (as well as dividends) accounts are increased on the left side, and decreased on the right side of the T account. o All liability, shareholders equity (besides dividends) and revenue are increased on the right side and decreased on the left side  Financial Statements and ownership structure o In a corporation, the following accounts will be used in the equity section:  Common shares, contributed surplus, dividends, retained earnings, accumulated other comprehensive income… o In a proprietorship or partnership  Capital account: used to indicate the investment in the company by the owner(s)  Drawings account: used to indicate withdrawals by the owner(s)  ^-- these two are grouped under Owners equity THE ACCOUNTING CYCLE  Accounting cycle o (1) Identification and measurement of transactions and other events  Any change in a cash sale or purchase (no matter the size) must be recorded  An item should be recognized if it meets the definition of an element and is measurable  Events are of two types  External events: interaction between an entity and its environment  Internal events: interaction within an entity o (2) Journalization  To have a complete record of each transaction or other selected event in one place, a journal is used  Chronological is the simplest used with four parts  The accounts and amounts to be debited  The accounts and amounts to be credited  A date  An explanation  *special journals*: summarize transactions that have a common characteristic which saves time in doing the various bookkeeping tasks 1 o (3) Posting  Posting consist of the items entered in the general journal that are transferred to the general ledger  The general journal posting is completed when all the posting reference numbers have been recorded opposite the account titles in the journal  Indicates the ledger account number of the account involved.  Indicates that the posting has been completed for that item o (4) Trial balance preparation  Prepared at the end of a
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