INTERMEDIATE ACCOUNTING I

CHAPTER 3

A REVIEW OF THE ACCOUNTING PROCESS

Basic terminology

• event

• transaction
• account
• real and nominal accounts
• ledger
• journal
• posting
• trial balance
• adjusting entries
• financial statements
• closing entries

Double-entry accounting

• Debits and credits must equal




• Normal debit balances



• Normal credit balances



• Contra accounts

The accounting cycle

• Information from source documents

• Journalization



• Posting to the ledger



• Trial balance



• Adjusting entries



• Prepaid expenses



• Unearned revenues



• Accrued liabilities (expenses)



• Accrued assets (revenues)



• Estimated items

The closing process and preparation of a post-closing trial balance





• Close all normal credit balance accounts to Inc. Summary on RE



• Close all normal debit balance accounts to Inc. Summary on RE



• Close Income Summary to RE



• Close Dividends to RE

• Use of a work sheet to prepare financial statements



• Use of work sheet is optional. Work sheet format varies.



• Typical format has columns (dr, cr) for the Unadjusted T.B, Adjusted Entries, Adjusted Trial Balance, Income Statement Balance Sheet.

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