ACCTG 211 1st Edition Lecture 6 Outline of Last Lecture I EX of a problem summarizing Unit 2 II How to solve changes in the Accounting Equation III Going Through each Transaction IV How to create an income statement V How to find Statement of Changes in Stockholder s Equity VI How to calculate a balance sheet VII How to calculate Statement of cash flows Outline of Current Lecture I Double Entry Accounting II Debits and Credits III How debits and credits affect a balance sheet IV Accounting Cycle V Scott s official 6 step process of Journalizing and Posting Transactions VI Anatomy of a Journal Entry VII Examples of Debit and Credit Problems VIII What is a trial balance IX The Closing Process X Temporary VS Permanent Accounts Current Lecture I II Double Entry Accounting a The concept that each party in each transaction gives something and receives something in return Debits and Credits a A T account is a visual depiction of a particular ledger account and is a tool used to understand the effects of one or more transactions in the account b General Ledger the collection of the company s accounts where the information from the financial transactions is organized and stored c Business transactions are first recorded in a journal and then transferred to the general ledger d Trial Balance a list of all the accounts of a company with the related balance e Debit means left side of an account These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute f I II III IV Credit means right side of an account How debits and credits affect a balance sheet a Asset i D increase ii C decrease b Liability i D decrease ii C increase c Shareholder s Equity i D Decrease ii C increase d Revenue i D decrease ii C increase e Expense i D increase ii C decrease Accounting Cycle a record transactions in the journal b post the journal entries to the general ledger c at the end of the accounting period prepare an unadjusted trial balance d prepare adjusting journal entries and post them to the general ledger e prepare an adjusted trial balance f close the temporary accounts g prepare a post closing trial balance Scott s official 6 step process of Journalizing and Posting Transactions a Determine which accounts are affected by the transaction b Classify each affected account as being an asset liability equity revenue or expense account c For each account affected by the transaction determine whether the account increases or decreases d Using your favorite debits and credits tool determine whether each increase or decrease should be recorded as a debit or a credit e Record the transaction in proper journal entry form f Post the transaction to a ledger we will use a T Account Anatomy of a Journal Entry a 1st column i The date nd b 2 column i The Title of Affected Accounts and Transactions 1 Explanation of the transaction if necessary rd c 3 Column i Debits ii Show by how much the affected accounts were debited d 4 Column i Credits ii Show by how much the affected accounts were credited Examples of Debit and Credit Problems a The owners started the business as a corporation by contributing 30 000 cash in exchange for common stock i Debit 30 000 cash ii Credit 30 000 common stock b The company purchased office equipment for 8 000 cash and also purchased land for 15 000 cash i Debit 8 000 office equipment ii Debit 15 000 land iii Credit 23 000 cash c The company earned a total 22 000 of service revenue of which 16 000 was collected in cash i Debit 16 000 cash ii Debit 6 000 A R iii Credit 22 000 service revenue What is a trial balance a A trial balance is a double check report b If you are comfortable with the process of calculating the balances in accounts after transactions have taken place you will find the concept of a trial balance to be a relatively simple extension of this process c The trial balance must balance before you can proceed d The sum of total debit dollars all debit balances must equal the sum of total credit dollars all credit balances e In the accounting cycle we make a total of three trial balances i Unadjusted TB after regular journal entries are posted ii Adjusted TB after adjusting journal entries are posted iii Post Closing TB after closing journal entries are posted The Closing Process a Step 1 Close out any revenue accounts i Debit the revenue account credit Retained Earnings b Step 2 Close out any expense accounts i Debit Retained Earnings credit the expense account c Step 3 Close out the Dividends account i Debit Retained Earnings credit the Dividends account d Step 4 Create a Post Closing Trial Balance Temporary VS Permanent Accounts a Permanent Accounts carry on to the next accounting period b Temporary Accounts zero out at the end of the accounting period i Revenues ii Expenses th V VI VII VIII iii Dividends 1 Component of retained earnings on the balance sheet