DECK, FABM 1

• Journal


  The accounting record where business transactions are first recorded
• Journalizing


  The recording process of business transactions in the journal
• Types of Journals


  • Special Journal
  • General Journal
• Special Journals


  • Used to record transactions of a similar nature
  • Simplify the recording process
  • Provide an efficient way of recording and retrieving information
• Common examples of Special Journals

  • Sales journal
  • Purchase journal
  • Cash receipts journal
  • Cash disbursement journal
• General Journal


  Used to record all other transactions that cannot be recorded in the special journals
• Ledger


  • A systematic compilation of a group of accounts
  • Used to classify the effects of business transactions on the accounts
  • Also called the "book of secondary entries" or the "books of final entries"
• Posting


  The process of recording in the ledger
• Kinds of Ledgers


  • General ledger
  • Subsidiary ledger
• General ledger


  Contains all the accounts appearing in the trial balance
• Subsidiary ledger


  Provides a breakdown of the balances of controlling accounts
• All transactions are recorded in the accounting records using the "double entry system"
• Concept of duality


  Views each transaction as having a two-fold effect on values - a value received and a value parted with
• Concept of equilibrium


  Requires that each transaction is recorded in terms of equal debit and credits
• Normal balances of accounts


  • Asset - Debit
  • Liability - Credit
  • Equity - Credit
  • Income - Credit
  • Expense - Debit
• Rules of debit and credit

  To debit an account with a normal debit balance means to increase that account

  To credit means to decrease it

  To credit an account with a normal credit balance means to increase that account

  To debit it means to decrease it
• Balance sheet accounts


  • Asset accounts - Debit for increases, Credit for decreases

  Liability accounts - Debit for decreases, Credit for increases

  Equity accounts - Debit for decreases, Credit for increases
• Income statement accounts


  • Income accounts - Debit for decreases, Credit for increases

  Expense accounts - Debit for increases, Credit for decreases
• Ending balance accounts

  Debits to specific assets or expense accounts should be greater than (or equal) to the credits to that account

  Credits to liability, equity or income should be greater than (or equal) to the debits to that account

  The difference between the monetary totals of debits and credits to an account represents the ending balance of that account
• Abnormal balance


  If an assets or expense account results to an ending balance that is a credit, meaning the total amount of debit is less than the total amount of credits, then the account is said to have an abnormal balance

  This means a recording error has been committed and a correction is needed to eliminate the abnormal balance
• Contra accounts


  Accounts related to another account that are presented in the financial statements as a deduction to their related accounts
• Adjunct accounts


  Accounts related to another account that are presented in the financial statements as an addition to their related accounts
• If an account has a normal debit balance, its contra account has a normal credit balance (the opposite)
• If an account has a normal debit balance, its adjunct account has a normal debit balance (the same)
• If an account has a normal credit balance, its contra account has a normal debit balance (the opposite)
• If an account has a normal credit balance, its adjunct account has a normal credit balance (the same)
• Accounting Cycle


  The steps or procedures used to record transactions and prepare financial statements

  Implements the accounting processes of identifying, recording and communicating economic information
• Identifying and analyzing transactions and events

  • The first step in the accounting cycle

  Involves identifying a business transaction and analyzing whether the transaction should be recorded or not
• Source documents to analyze

  • Sales invoice vs. official receipt

  Purchase order

  Delivery receipt
• Accounting cycle


  1. Identifying and analyzing transactions and events

  2. Journalizing

  3. Posting to the ledger

  4. Preparing a trial balance

  5. Adjusting entries

  6. Preparing financial statements

  7. Closing entries
• Identifying and analyzing transactions and events

  First step in the accounting cycle, involves identifying a business transaction and analyzing whether the transaction should be recorded or not
• Journalizing


  Second step in the accounting cycle, recording transactions in the journal
• Journal entry


  • Date
  • Accounts titles
  • Debit
  • Credit
  • Short description of the transaction
• Simple journal entry


  One which contains a single debit and a single credit element
• Compound journal entry


  One which contains two or more debits or credits
• Journal entries - start up

  • Initial investment
  • Loan obtained
  • Acquisition of equipment
  • Purchase of inventory
• Journal entries - operations

  • Cash sales
  • Cost of goods sold
  • Supplies expense
• The accounting cycle represents the steps or procedures used to record transactions and prepare financial statements
• The accounting cycle implements the accounting processes of identifying, recording and communicating economic information