So, after a couple of attempts of practice quizzes, I found that just reading and looking at pictures was not going to give me the understanding of the concepts that I needed to take me to the next level. Voila! Three hours later and some very amateur Microsoft Word tables, I had to work each relational table by hand and I wouldn’t recommend this unless you just have time to kill and you’re in dire straits to complete your mid-term with at least a “C”!
Now this isn’t going to look like your Excel spreadsheet but I was able to decipher the connection between the Journal, Ledger and Balance Sheet.
The first three steps in the accounting cycle are (1) Journalize (recording) the transactions, (2) Post each journal entry to the appropriate ledger accounts, (3) prepare a trial balance.
An account has three elements: 1) a title, 2) a left side; debit side, 3) a right side; credit side which resembles the = T account
Receipts are listed as debits and payments are listed as credits – the use of debits and credits is to record changes in assets, liabilities, and owner’s equity.
If a debit total exceeds the credit total, the account has a debit balance; it eh credit total exceeds the debit total, the account has a credit balance.
Any Asset Account
*Normally have debit balances. Increases are recorded by debits and decreases are recorded by credits.
| Debit (to record an increase) | Credit (to record a decrease) |
Assets = Liabilities + Owner’s Equity
DEBIT BALANCES = CREDIT BALANCES
ALSO KNOWN AS
DOUBLE-ENTRY ACCOUNTING
Any Liability Account
or Owner’s Equity
*Normally have credit balances. Increases are recorded by credits and decreases are recorded by debits.
| Debit (to record a decrease) | Credit (to record an increase) |
The General Journal is where your first entries will by posted with a debit for a credit. My Word Document isn't Blogger friendly however I was able to apply the information into the 'generic' general ledger and balance sheets. For instance, my first post was 1/20/09 where Cash was my $80,000 debit with a coinciding Capital Stock for $80,000 (Owners invest cash in the business). 1/21/09 was a land purchase with a $52,000 Land debit and a matching $52,000 Cash credit. 1/22/09 was a building purchase paid part cash and part notes payable that looked like $36,000 debit for building, a $6,000 cash down-payment and notes payable for $30,000. On the 23rd, tools & equipment were purchased as a debit for $13,800 on 60 day credit of $13,800. The next day, unused tools & equipment were sold at cost for $1,800. This showed and accounts receivable debit of $1,800 with tools & equipment being credited for the same. A collection was made from a tow company of $600 where cash was debited and accounts receivable was credited. Last but not least, partial payment was made to a tool supplier as a liability for $6,000 debited to accounts payable and credited to cash.
*This is where the tunnel vision begins!* |
GENERAL LEDGER (SECOND ENTRY)
CASH
DEBIT 80,000
CREDIT 52,000
CREDIT 6,000
DEBIT 600
CREDIT 6,800 BALANCE $15,800
CAPITAL STOCK
CREDIT 80,000
BALANCE $80,000
LAND
DEBIT 52,000
BALANCE $52,000
BUILDING
DEBIT 36,000
BALANCE $36,000
NOTES PAYABLE
CREDIT 30,000
BALANCE $30,000
TOOLS & EQUIPMENT
DEBIT 13,800
CREDIT 1,800
BALANCE $12,000
ACCTS PAYABLE
CREDIT 13,800
DEBIT 6,800
BALANCE $7,000
ACCTS RECEIVABLE
DEBIT 1,800
CREDIT 600
BALANCE $1,200
BALANCE SHEET (THIRD ENTRY)
ASSETS = LIABILITIES + OWNER’S EQUITY
+80,000 +80,000 (INVEST CASH IN THE BUSINESS)
+52,000
- 52,000 (PURCHASE OF AN ASSET FOR CASH)
+36,000 +30,000
- 6,000 (PURCHASE OF AN ASSET, SMALL DOWN PAYMENT)
+ 13,800 +13,800 (CREDIT PURCHASE OF AN ASSET)
+ 1,800
- 1,800 (CREDIT SALE OF AN ASSET W/NO GAIN OR LOSS)
+ 600
- 600 (COLLECTION OF AN ACCOUNT RECEIVABLE)
- 6,800 - 6,800 (PARTIAL PAYMENT OF ACCOUNT PAYABLE
Next preview, I’ll attempt the Income Statement, Journal and Trial Balance!
