By William H. Webster, CPA
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6. 7. Analyze business transactions. Journalize transactions. Post transactions to the ledger accounts. Prepare a trial balance of the general ledger. Analyze, prepare, and post the adjusting entries. Prepare an adjusted trial balance. Prepare the financial statements: income statement, balance sheet, and statement of cash flows. 8. Journalize and post the closing entries. 9. Prepare a post-closing trial balance. We learned in Chapter 1 there would be a flow of gozintas and gozoutas that we would visualize and fit into the accounting equation, or its corollary, the revenue proposition.
Consider the more complicated case of a construction company over the long course of erecting a building. The company needs cash from its customer to pay the ongoing costs of construction. GAAP has industry specific guidelines on activities like progress payments to accommodate special needs of unique business activities. The matching principle measures the performance of the gozinta and gozouta for each time period. The costs of doing business, the expenses, in the period are matched to the revenues generated.
How to Speak Accounting 25 ❏ Double-entry bookkeeping keeps the books in balance. ❏ We illustrate double-entry bookkeeping by writing transactions in T accounts. The left side of the T is always a debit. The right side is always a credit. Depending on where the account is classified within the equation elements, an increase or a decrease could be either a debit or a credit. For each transaction, the total debits equal the total credits. ❏ The accounting system is based on a chart of accounts that establishes all of the pots where you’re going to record transactions.