Chapter 3 – Debits Credits and Journals



Acct 2210 Zeigler: Chp 3: Double-Entry Accounting

H/W: Demos, E3-1A, P3-32A, P3-31A, ATC 3-1, ATC 3-3, Canvas & Other

1) Let’s use Double-Entry Accounting “shorthand” to simplify the transaction recording process:

The use of “T-Accounts” (pg 140) can act as a helpful diagram to analyze transactions with Debits & Credits.

** Remembering the Acct Equation…. “A = L + S/E”,

a) Debits (entry on left of “T”): indicates an increase in

all accts on the left-hand side of the acct equation.

b) Credits (entry on right of “T”): indicates an increase

in all accts on the right-hand side of the acct equation.

c) Two fundamental equality requirements exist:

1) The accounting equation must balance, and

2) Total debits must equal total credits.

2) Terminology & Mechanics:

a) General Journal: Record the transactions (pg 149).

b) General Ledger: Collection of all accounts used (pg 151).

c) Posting: Transfer from Journal to Ledger (pg 151).

d) Trial Balance: Internal accounting schedule to periodically test whether all debits equal credits (pg 153).

(Trial Balance, Adjusted T/Balance, Post-Closing T/Balance)

e) Prepare any adjustments at end of accounting period.

f) Prepare Financial Statements and analyze (pg 154).

g) Prepare Closing entries and begin a new Acct period.

- Closing process to Retained Earnings (pg 155-156).

3) Ratios: How is Management doing? (pg 157-160)

a) ROA: Return on Assets (i.e. return on all assets)

b) Debt to Assets Ratio (measure of financial risk)

c) ROE: Return on Equity (i.e. return for the owners)

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