STARTING AN ACCOUNTING SYSTEM (The Accounting Cycle (Journalizing the…
STARTING AN ACCOUNTING SYSTEM
The Accounting Equation
Equity of persons to whom a business owes money
Assets = Liabilities + Capital
Equity of the owner
The Double-Entry Bookkeeping System
is a system in which each financial transaction is recorded as two separate accounting entries to maintain the balance shown in the accounting equation.
Double-entry bookkeeping is used to balance the accounting equation:
Assets = Liabilities + Owner’s Equity
The Accounting Cycle
The general ledger is a book of accounts that contains a separate sheet or section for each account.
An account is a form used to sort and summarize changes in a specific item. Separate accounts for each item may be kept on cards, sheets, or in bound book form.
a title, consisting of the name of a particular asset, liability, or owner’s equity;
a left side, which is called a debit side; and
a right side, which is called a credit side.
Journalizing the Transactions
Preparing Financial Statements and Closing Books
The firm’s financial statements are prepared from the information contained in the trial balance.
Analyzing Source Documents
Preparing the Trial Balance.
The trial balance is a summary of the balances of all general ledger accounts at the end of the accounting period