ACCTG 211 1st Edition Lecture 6Outline of Last Lecture I. EX of a problem summarizing Unit 2II. 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 sheetVII. How to calculate Statement of cash flows:Outline of Current Lecture I. Double Entry AccountingII. Debits and CreditsIII. How debits and credits affect a balance sheetIV. Accounting Cycle V. Scott’s official 6 step process of Journalizing and Posting TransactionsVI. Anatomy of a Journal EntryVII. Examples of Debit and Credit ProblemsVIII. What is a trial balance?IX. The Closing ProcessX. Temporary VS Permanent AccountsCurrent LectureI. Double Entry Accountinga. The concept that each party in each transaction gives something and receives something in return. II. Debits and Creditsa. 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 ledgerd. Trial Balance: a list of all the accounts of a company with the related balance.e. Debit: means left side of an accountThese 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. Credit: means right side of an accountI. How debits and credits affect a balance sheeta. Asset:i. D: increaseii. C: decreaseb. Liability:i. D: decreaseii. C: increasec. Shareholder’s Equity:i. D: Decreaseii. C: increased. Revenue: i. D: decreaseii. C: increasee. Expensei. D: increaseii. C: decreaseII. Accounting Cycle a. record transactions in the journalb. post the journal entries to the general ledgerc. at the end of the accounting period, prepare an unadjusted trial balanced. prepare adjusting journal entries and post them to the general ledgere. prepare an adjusted trial balancef. close the temporary accountsg. prepare a post closing trial balance. III. Scott’s official 6 step process of Journalizing and Posting Transactionsa. Determine which accounts are affected by the transaction.b. Classify each affected account as being an asset, liability, equity, revenue, or expenseaccount. 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)IV. Anatomy of a Journal Entrya. 1st column:i. The dateb. 2nd column i. The Title of Affected Accounts and Transactions1. Explanation of the transaction if necessaryc. 3rd Columni. Debitsii. Show by how much the affected accounts were debitedd. 4th Columni. Creditsii. Show by how much the affected accounts were creditedV. Examples of Debit and Credit Problemsa. The owners started the business as a corporation by contributing $30,000 cash in exchange for common stocki. Debit $30,000 cashii. Credit $30,000 common stockb. The company purchased office equipment for $8,000 cash and also purchased land for $15,000 cashi. Debit 8,000 office equipmentii. Debit 15,000 landiii. Credit 23,000 cash c. The company earned a total $22,000 of service revenue, of which $16,000 was collected in cashi. Debit 16,000 cashii. Debit 6,000 A/Riii. Credit 22,000 service revenueVI. What is a trial balance?a. A trial balance is a “double check” reportb. 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 processc. The trial balance must “balance” before you can proceedd. 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 balancesi. Unadjusted TB – after “regular” journal entries are postedii. Adjusted TB – after “adjusting” journal entries are postediii. Post-Closing TB – after “closing” journal entries are postedVII. The Closing Processa. Step 1: Close out any revenue accountsi. Debit the revenue account, credit Retained Earningsb. Step 2: Close out any expense accountsi. Debit Retained Earnings, credit the expense accountc. Step 3: Close out the Dividends accounti. Debit Retained Earnings, credit the Dividends accountd. Step 4: Create a Post-Closing Trial BalanceVIII. Temporary VS Permanent Accountsa. Permanent Accounts carry on to the next accounting periodb. Temporary Accounts zero out at the end of the accounting periodi. Revenuesii. Expensesiii. Dividends1. Component of retained earnings on the balance