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8/6/2019 Iimb Term1 Fa Class 2
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Learning Objectives
Understand the double-entry recording
framework and the rules for debit and
credit
Understand the key steps in the
accounting process
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T-Accounts
Each asset, liability, and shareholdersequity category is assigned a T-account. Itlooks like this:
By convention, the T-account separates theincreases from the decreases
Asset A/c
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T-Accounts
Accountants use two convenientabbreviations: debit and credit
Debit is a verb that means record an
entry on the left side of an account
Credit is a verb that means record anentry on the right side of an account.
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T-Account rules
Increases in assets are placed on the left side ofasset t-accounts and decreases in assets areplaced on the right side
Increases in liabilities are placed on the right side
of liability t-accounts and decreases in liabilitiesare placed on the left side
Increases in shareholders equity are placed onthe right side of shareholders equity t-accounts
and decreases in shareholders equity are placedon the left side
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Double-entry book-keeping
(a) An increase in an asset (b) decrease in aliability or (c) decrease in shareholders equityare recorded on the debit side of the respectiveaccounts
(a) a decrease in an asset (b) an increase in aliability or (c) increase in shareholders equityare recorded on the credit side of the respectiveaccounts
Debits = Credits for all transactions and for the
basic equation at any time.
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T-Accounts
Beg. Balance
Increases
DR.
Decreases
CR.
End. Balance
Assets
Decreases
DR.
Beg. Balance
Increases
CR.
End. Balance
Shareholders Equity
Decreases
DR.
Beg. Balance
Increases
CR.
End. Balance
Liabilities
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How does Shareholders Equity change?
= +
+-
+-
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Summary of the Accounting Process
Journalizing
in General
Journal
Periodic Posting
to the Appropriate
Accounts in the
General Ledger
Preparation ofUnadjusted
Trial Balance
Correction and
Adjustments ofthe Unadjusted
Trial Balance
Preparation ofFinancial
Statements
Results of
Events and
Transactions
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Journal Entries
Prior to posting in T-accounts, accountants record atransaction by making a journal entry.
Journal entries are recorded in the General Journal
A journal entry shows both sides of the transaction with the
name of the accounts and their respective debit or credit.
For example, the issuance of Rs. 100,000 worth shares toowners on Jan 1 would be recorded as:
Jan 1 Cash 100,000Share Capital 100,000
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Trial Balance
A list of your accounts with their balances
at a point in time
Device for verifying that the sum of all thedebit balances equals the sum of all credit
balances
The TB is used to create: Profit and Loss Account, Balance Sheet, etc.
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Errors in the Trial Balance
Locating errors
Correcting errors
Hard to detect errors Errors of principle
Errors of omission or repetition
Compensatory errors
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Chapter 2: Review
Terms to know: Account
Assets
Balance
Credit
Debit
Dividends
Double entry system
Expenses
Journal Entry
Posting
Trial Balance
Liabilities
Revenues
Share Capital
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Next Class
Chapter 3