2.11:Understanding the learning objectives

Last updated
Save as PDF

Page ID: 48917

\( \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \) \( \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} \)\(\newcommand{\id}{\mathrm{id}}\) \( \newcommand{\Span}{\mathrm{span}}\) \( \newcommand{\kernel}{\mathrm{null}\,}\) \( \newcommand{\range}{\mathrm{range}\,}\) \( \newcommand{\RealPart}{\mathrm{Re}}\) \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\) \( \newcommand{\Argument}{\mathrm{Arg}}\) \( \newcommand{\norm}[1]{\| #1 \|}\) \( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\) \( \newcommand{\Span}{\mathrm{span}}\) \(\newcommand{\id}{\mathrm{id}}\) \( \newcommand{\Span}{\mathrm{span}}\) \( \newcommand{\kernel}{\mathrm{null}\,}\) \( \newcommand{\range}{\mathrm{range}\,}\) \( \newcommand{\RealPart}{\mathrm{Re}}\) \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\) \( \newcommand{\Argument}{\mathrm{Arg}}\) \( \newcommand{\norm}[1]{\| #1 \|}\) \( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\) \( \newcommand{\Span}{\mathrm{span}}\)\(\newcommand{\AA}{\unicode[.8,0]{x212B}}\)

• An account is a storage unit used to classify and summarize money measurements of business activities of a similar nature.

• A firm sets up an account whenever it needs to provide useful information about a particular business item to some party having a valid interest in the business.

• A T-account resembles the letter T.

• Debits are entries on the left side of a T-account.

• Credits are entries on the right side of a T-account.

• Debits increase asset, expense, and Dividends accounts.

• Credits increase liability, stockholders' equity, and revenue accounts.

• Analyze transactions by examining source documents.

• Journalize transactions in the journal.

• Post journal entries to the accounts in the ledger.

• Prepare a trial balance of the accounts and complete the work sheet.

• Prepare financial statements.

• Journalize and post adjusting entries.

• Journalize and post closing entries. Prepare a post-closing trial balance.

• A journal contains a chronological record of the transactions of a business. An example of a general journal is shown in Exhibit 11. Journalizing is the process of entering a transaction in a journal.

• Posting is the process of transferring information recorded in the journal to the proper places in the ledger.

• Cross-indexing is the placing of (1) the account number of the ledger account in the general journal and (2) the general journal page number in the ledger account.

• An example of cross-indexing appears in Exhibit 10.

• A trial balance is a listing of the ledger accounts and their debit or credit balances.

• If the trial balance does not balance, an accountant works backward to discover the error.

• A trial balance is shown in Exhibit 13.

• Horizontal analysis involves calculating the dollar and/or percentage changes in an item from one year to the next.

• Vertical analysis shows the percentage that each item in a financial statement is of some significant total.