An account is an accounting record of increases and decreases in a specic asset, liability, or stockholders’ equity item. An account consists of three parts: 1. A title. 2. A left or debit side. 3. A right or credit side.
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Debits and Credits.
!he !he ter terms ms debit debit and and cre credit dit are are dir direct ection ional al sign signals als:: "eb "ebit it indi indicat cates es left, left, and credi creditt indicates indicates right. 1. Assets, di#idends, and e$penses are are increased by debits and decreased by credits. 2. %iabilities, common stock, retained retained earnings, and re#enues re#enues are increased by credits and decreased by debits.
C.
Steps in in th the Re Recording Pr Process.
usinesses use three basic steps in the recording process: 1. Analy&e each transaction transaction for for its e'ects on on the accounts. accounts. 2. (nter the transaction information in a )ournal. 3. !ransfer the )ournal information to the appropriate accounts in the ledger.
D.
The The Ge Genera ra !ou !ourn rna a""!our !ourn nai# ai#in ing g.
(ntering transaction data in the general )ournal is called )ournali&ing. !he general )ournal: )ournal: 1. "iscloses in one place the the complete e'ects of a transaction. transaction. 2. *ro#ides a chronological record of transactions. transaction s. 3. +elps to pre#ent pre#ent or locate errors because the debit and credit amounts for each entry can be easily compared. . A simple )ournal entry in#ol#es in#ol#es only t-o t-o accounts accounts one debit debit and one credit/ credit/ -hereas -here as a compound )ournal entry in#ol#es three or more accounts.
E.
The Ledger.
!he ledger is the entire group of accounts maintained by a company. A general ledger contains all the assets, liabilities, and stockholders’ equity accounts. 1. !he ledger pro#ides information about changes in specic account balances for a company. 2. 0ompanies arrange the ledger in the sequence in -hich they present the accounts in the nancial statements, beginning -ith the balance sheet accounts.
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Posting"Chart o% Accounts.
1. *osting is transferring )ournal entries to the ledger accounts. 2. *osting in#ol#es the follo-ing steps: a. n the ledger, in the appropriate columns of the accounts/ debited, enter the date, )ournal page, and debit amount sho-n in the )ournal. b. n the reference column of the )ournal, -rite the account number to -hich the debit amount -as posted. c. n the ledger, in the appropriate columns of the accounts/ credited, enter the date, )ournal page, and credit amount sho-n in the )ournal. d. n the reference column of the )ournal, -rite the account number to -hich the credit amount -as posted. 3. A chart of accounts lists the accounts and the account numbers that identify their location in the ledger. Accounts are usually numbered starting -ith the balance sheet accounts follo-ed by income statement accounts.
G.
Tria &aance.
A trial balance is a list of accounts and their balances at a gi#en time. 1. ts primary purpose is to pro#e check/ that the debits equal the credits after posting. 2. t can be used by the company to unco#er errors in )ournali&ing and posting. 3. t is useful in preparing nancial statements.
