Texts: The mechanics of accounting involve analyzing the effect on the accounting equation of financial transactions. Knowing how transactions affect the accounting equation allows you to consider and account for all the ramifications of sometimes complicated transactions. Think about the steps in the accounting cycle:
1. Analyze business transactions
2. Journalize the transactions
3. Post journal entries to general ledger accounts
4. Prepare the unadjusted trial balance
5. Record the adjusting entries in the General Journal and post to Ledger Accounts.
6. Prepare the adjusted trial balance
7. Prepare the Four Basic Financial Statements (Income Statement, Owner's Equity, Balance Sheet, and Cash Flow) using the adjusted trial balance
8. Record Closing Entries in General Journal and post to Ledger Accounts
9. Prepare Post-closing Trial Balance
10. Prepare reversing entries and post to the ledger accounts (if applicable)
This week we will focus on steps 1 through 4. T accounts help us to visualize increases and decreases for an account when we are journalizing the transaction in Step 2. The left side of any account is always called the debit side, and the right side of any account is always called the credit side. We must determine the type of account before associating plus or minus.
You are mentoring an accounting intern who asks for clarification about the following:
1. What are some examples of transactions that would need to be recorded or journalized?
2. Can you provide an example of a transaction and the journal entry needed from Topic 10 or 11 of our textbook or from your current employer?
3. Why is it important to accurately record the transaction you selected?
4. What do you think of when you hear the words debit and credit? How does it differ from the way these terms are used in accounting? What does our eBook say about debits and credits? What is the normal balance of an account?
5. How would you describe the left (debit) and right (credit) side of each of the four basic account types: Asset, Liability, Equity, Revenue, and Expense? Can you share an example of each type?
6. What is the unadjusted trial balance? What guarantees that it is correct? What possible errors could happen and still allow the trial balance to balance?