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Chapter 4- Bookkeeping Process

by: Noelle Oleartchick

Chapter 4- Bookkeeping Process Acct 3001

Marketplace > Austin Peay State University > Acct 3001 > Chapter 4 Bookkeeping Process
Noelle Oleartchick
GPA 3.5

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About this Document

Covers the key terms for this chapter and the bookkeeping process is broken down.
Foundations of Accounting
Lesley Davidson
Class Notes
Accounting, FinancialAccounting
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This 3 page Class Notes was uploaded by Noelle Oleartchick on Tuesday September 6, 2016. The Class Notes belongs to Acct 3001 at Austin Peay State University taught by Lesley Davidson in Fall 2016. Since its upload, it has received 35 views.


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Date Created: 09/06/16
Chapter 4: bookkeeping process 1 The Bookkeeping/accounting process 1.1The balance sheet equation  Assets= Liabilities + Stockholders’ Equity  The net income needs to be shown on the balance sheet in order to have the balance sheet balanced correctly. o This is done in retained earnings. 1.2Bookkeeping Procedures 1. Transactions are first recorded in a journal. a. The journal is a day-to-day, chronological record of transactions b. Referred to as book of original entry c. Journal entry format- Date, name of account, amount 2. Transactions are then recorded in a ledger. a. There is a separate account for each category-> asset, liability, and stockholders’ equity category. b. Accounts are arranged in a certain sequence to facilitate the posting process c. A chart of accounts serves as an index for the ledger i. The account format looks like a “T” chart 1. The chart has one side for additions and one for subtractions 2. Left side is the debit side; right side is the credit side 3. Debit and credit mean left and right (nothing to do with banking names)  The account balance is the arithmetic difference between the prior balance and the additions and subtractions.  In the bookkeeping procedure the debit/credit entries to accounts are set up so that when debit=credit, the balance sheet equation will be in balance.  Source documents- invoice from supplier, check stub, ect. Are raw material used in bookkeeping process. 1.2.1Asset Accounts  Increases in assets are recorded as debit entries  Decreases are recorded as credit entries 1.2.2Liabilities and Stockholders’ Equity Accounts  Increases are recorded as credit entries  Decreases are recorded as debit entries  Revenues are increases in stockholders’ equity o Revenue accounts will have a credit balance and will increase with credit entries  Expenses are decreases in stockholders’ equity o Expense accounts have debit balance and increase with debit entries 1.3Adjustments  Happens at the end of accounting period  Bookkeepers record an adjustment done to balance to show accrual accounting.  Two types of adjustments: o Accruals o Reclassifications 2 Transaction Analysis Methodology  Involves answering 5 questions to know the effect a transaction has on the financial statement. o What’s going on? o What accounts are affected? o How are they affected? o Does the balance sheet balance? o Does my analysis make sense? 3 Key terms and phrases: 1. Transaction Analysis methodology- the process of answering 5 questions to ensure a transactions is understood. 2. Debit- the left side of an account; an increase in asset and expense accounts; decrease in liability, stockholders’ equity, and revenue accounts. 3. Transactions- economic interchanges between entities that are accounted for and reflected in financial statements 4. Journal- A chronological record of transactions 5. Adjusting journal entry- a journal entry usually made during the process of closing the books that results in more accurate financial statements. 6. Balance sheet equation- Assets= liabilities+stockholders’ equity (A=L+SE) 7. On account- Used to describe a purchase or sale for which cash will be paid or received at a later date. A “credit” transaction. 8. Post(posting)- the process of recording a transaction in the respective ledger accounts using a journal entry as the source of information recorded. 9. Ledger- A record of transactions arranged by account name. 10.Account balance- the arithmetic sum of the additions and subtractions to an account through a given date. 11.Chart of Accounts- An index of the accounts contained in a ledger. 12.Credit- the right side of an account; a decrease in asset and expense accounts; increase in liability, stockholders’ equity and revenue accounts. 13.Source document- evidence of a transaction that supports the journal entry recording the transaction. 14.Closing the books- The process of posting transactions and adjustments to the ledger and preparing the financial statements 15.Accrued( or accrual)- recognition that an amount has been earned, or is owed, bus hasn’t been received or paid.


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