Accounting Rules to Accounting Rules to Remember Remember Georgia CTAE Resource Network Georgia CTAE Resource Network Instructional Resources Office Instructional Resources Office Written by: Dr. Marilynn K. Skinner Written by: Dr. Marilynn K. Skinner May 2009 May 2009
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Accounting Rules to Remember Georgia CTAE Resource Network Instructional Resources Office Written by: Dr. Marilynn K. Skinner May 2009.
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Accounting Rules to Accounting Rules to RememberRemember
8.8. Journalize and post adjusting entriesJournalize and post adjusting entries
9.9. Journalize and post closing entriesJournalize and post closing entries
10.10. Prepare a port-closing trial balancePrepare a port-closing trial balance
Steps in the Closing ProcessSteps in the Closing Process
1.1. Close revenues to income summaryClose revenues to income summary
2.2. Close expenses to income summaryClose expenses to income summary
3.3. Close income summary to capitalClose income summary to capital
4.4. Close draw to capitalClose draw to capital
When your trial balance When your trial balance doesn’t balancedoesn’t balance
Try these steps –Try these steps –
1.1. Add your columns again from bottom to Add your columns again from bottom to top.top.
2.2. Calculate the difference in your columnsCalculate the difference in your columns
3.3. Divide your difference by 9, if it divides Divide your difference by 9, if it divides evenly, you have a transposition evenly, you have a transposition (entering 123 rather than 132) or a slide, (entering 123 rather than 132) or a slide, (entering 100 rather than 10)(entering 100 rather than 10)
When your trial balance When your trial balance doesn’t balancedoesn’t balance
4.4. Look for an amount that is the amount of Look for an amount that is the amount of the difference.the difference.
5.5. Look for an amount that is ½ the Look for an amount that is ½ the difference ( you put a debit as a credit or difference ( you put a debit as a credit or a credit as a debit)a credit as a debit)
When your trial balance When your trial balance doesn’t balancedoesn’t balance
6.6. Check for the preceding amounts in this Check for the preceding amounts in this order:order:1.1. Check that you wrote down the totals from the Check that you wrote down the totals from the
ledger correctly on the trial balance, checking not ledger correctly on the trial balance, checking not only the amount but that debits are recorded as only the amount but that debits are recorded as debits and credits as credits.debits and credits as credits.
2.2. Retotal you ledger accountsRetotal you ledger accounts
3.3. Retotal your journalsRetotal your journals
4.4. Check journal entries against ledger postings.Check journal entries against ledger postings.
And other rulesAnd other rules
Assets when they are used up become expensesAssets when they are used up become expenses
The Balance Sheet contains only permanent The Balance Sheet contains only permanent accounts ( the balances never go to 0).accounts ( the balances never go to 0).
The Income Statement Contains only the The Income Statement Contains only the temporary accounts (balances are brought to 0 temporary accounts (balances are brought to 0 every month).every month).
Adjusting entries always affect both a balance Adjusting entries always affect both a balance sheet and an income statement accountsheet and an income statement account
And other rulesAnd other rules
Order of accounts in the general ledger:Order of accounts in the general ledger:AssetsAssetsLiabilitiesLiabilitiesOwner’s capitalOwner’s capitalOwner’s drawOwner’s drawRevenueRevenueExpensesExpensesThis is also the order of accounts in the trial This is also the order of accounts in the trial
balancebalance
Financial StatementsFinancial Statements
The Balance SheetThe Balance Sheet
Reflects the accounting equation by Reflects the accounting equation by proving that assets = liabilities + owner’s proving that assets = liabilities + owner’s equityequity
Dated for a specific dateDated for a specific date
Financial StatementsFinancial Statements
The income statement reflects the activities The income statement reflects the activities of the current accounting period.of the current accounting period.
Format:Format:
Revenues – Expenses = Net IncomeRevenues – Expenses = Net Income
Financial StatementsFinancial Statements
Statement of Owner’s EquityStatement of Owner’s Equity
Ties the Income Statement and Balance Ties the Income Statement and Balance Sheet together by showing the effect of Sheet together by showing the effect of the period activity on the balance sheet.the period activity on the balance sheet.
Beginning Owner’s Equity + Net Income Beginning Owner’s Equity + Net Income (Loss) = Ending Owner’s Equity(Loss) = Ending Owner’s Equity