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HTAP-102 Review

Account Types

Assets: properties of value owned by the company (i.e. things which can be sold for money)

Liabilities: claims of creditors on the company (i.e. these are created when assets are bought on account)

Owner's Equity: this includes Capital, Withdraws/Drawings, Revenue, and Expenses

Formulae:

Trial Balance:

Assets = Liabilities + Owners Equity

Owner's Equity  = Capital - Drawings + Revenue - Expenses

Therefore:

Assets = Liabilities + Capital - Drawings + Revenue - Expenses

Income Statement:

Net Income = Revenue - Expenses

 

T - Accounts, Debit or Credit?

The debit side is the left side and the credit side is the right side.

Assets, Expenses, and Drawings are handled the same:

Dr the account if the value is increasing ­

Cr the account if the value is decreasing

These accounts should usually have a debit balance.

Liabilities, Capital, and Revenue are handled the same:

Cr the account if the value is increasing ­

Dr the account if the value is decreasing

These accounts should usually have a credit balance.

Adjusting Entries

Expiry of Prepaid Expenses:

Debit the expense account (e.g. insurance expense)

Credit the Prepaid asset account (e.g. prepaid insurance)

Depreciation:

Debit the expense account: Depreciation Expense of _______

Credit the contra account: Accumulated Depreciation of ______

General Journal Entry

Date

Particulars

P

Dr

Cr

Month

Day

Dr account name

 

xxxx

 

 

 

second Dr account name (if necessary)

 

xxxx

 

 

 

        Cr account name

 

 

xxxx

 

 

        second Cr account name (if necessary)

 

 

xxxx

 

 

        a note explaining why the transaction occurred

 

 

 

 

 

Working Papers

Account Names

Trial Balance

Adjustments

Adjusted Trial Balance

Income Statement

Balance Sheet

 

Dr

Cr

Dr

Cr

Dr

Cr

Dr

Cr

Dr

Cr

Asset

xxxx

 

 

xx

xxxx

 

 

 

xxx

 

Asset

xxxx

 

 

 

xxxx

 

 

 

xxxx

 

Asset

xxxx

 

 

 

xxxx

 

 

 

xxxx

 

Asset

xxxx

 

 

xx

xxxx

 

 

 

xxxx

 

Liability

 

xxxx

 

 

 

xxxx

 

 

 

xxxx

Liability

 

xxxx

 

 

 

xxxx

 

 

 

xxxx

Liability

 

xxxx

 

 

 

xxxx

 

 

 

xxxx

Liability

 

xxxx

 

 

 

xxxx

 

 

 

xxxx

Revenue

 

xxxx

 

 

 

xxxx

 

xxxx

 

 

Capital

 

xxxx

 

 

 

xxxx

 

 

 

xxxx

Drawings

xxxx

 

xx

 

xxxx

 

 

 

xxxx

 

Expense

xxxx

 

xx

 

xxxx

 

xxxx

 

 

 

Expense

xxxx

 

 

 

xxxx

 

xxxx

 

 

 

 

Dr Total

Cr Total

Dr Total

Cr Total

Dr Total

Cr Total

Dr Total

Cr Total

Dr Total

Cr Total

 

 

 

 

 

 

 

 

Net Income

Net Income

 

 

 

 

 

 

 

 

New Total

New Total

New Total

New Total

 

 

 

 

 

 

 

 

 

 

 

 

The Dr total must equal the Cr total

The Dr total must equal the Cr total

Add the adjustment values to the trial balance values, if both are debits or both are credits then you add, if one is a debit and one is a credit then you subtract. The Dr total must equal the Cr total.

Bring all revenue and expense account balances from the adjusted trial balance to the income statement. At first the Dr total will not equal the Cr total. Calculate Net Income by subtracting the Cr total from the Dr total. If the answer is negative then the value calculated is a Net Loss. When the net income/loss is added to the small total, the two sides must balance.

Bring all asset, liability, capital and drawing account balances from the adjusted trial balance to the balance sheet. Add the Net Income/Loss to the column with the smallest balance. Now when the columns are totaled they must equal.

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