28 Sep Discussion – T Accounts
Chapter 3 is probably the most important chapter of the entire course. It describes how the accounting equation-table method we looked at in Chapter 2 is too cumbersome to be used in a company that has thousands upon thousands of transactions every month. Instead, accountants use a more efficient approach called the double-entry system of debits and credits.
We will continue our study this week of the accounting cycle for a service based company. Keep in mind the steps in the accounting cycle as we work through each week:
- Analyze business transactions
- Journalize the transactions
- Post journal entries to general ledger accounts
- Prepare a Worksheet
- 4a Prepare a Trial Balance in the Worksheet
- 4b Record Adjusting Entries in the Worksheet
- 4c Prepare Adjusted Trial Balance in the Worksheet
- 4d Complete and Balance the Balance Sheet and Income Statement columns in the Worksheet
5. Prepare the Four Basic Financial Statements (Income Statement, Owners Equity, Balance Sheet and Cash Flow) using data from the Worksheet
6. Record the adjusting entries in the General Journal and post to Ledger Accounts.
7. Record Closing Entries in General Journal and post to Ledger Accounts
8. Prepare Post-closing Trial Balance
9. Review the Financial Statements and Interpret the financial information
As the bookkeeper of a new start-up company, you are responsible for keeping the chart of accounts up to date. At the end of each year, you analyze the accounts to verify that each account should be active for accumulation of costs, revenues, and expenses.
T accounts help us to visualize increases and decreases for an account. The left side of any account is always called the debit side and the right side of any account is always called the credit. We must determine the type of account before associating plus or minus. Review the T accounts presented in Chapter 3. How would you describe the left and right side of each type of Balance Sheet Account? How would you describe the left and right side of each type of Income Statement Account?
Our eBook describes how to calculate an account balance. Can you describe this process for the Cash account in your own words? How does this process different for a Liability or Owner’s Equity Account? What does the term ‘normal balance’ mean?
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