1.

ALCIE and the rules of Debits and Credits

Normal Balance To Increase Balance To Decrease Balance

Assets Liabilities Capital Income Expense

Debit Credit Credit Credit Debit

Debit Credit Credit Credit Debit

Credit Debit Debit Debit Credit

Owner Investments are always CREDITS and Owner Withdrawals are always DEBITS.
2) You are asked to list the five steps followed in making journal entries

All general journal forms include a page number in the upper right corner. This allows for posting references to general ledger accounts. Every journal entry has a day and month entered in the date columns. The year is generally excluded since it is good practice to begin a new journal at the beginning of each accounting period. Where account # 1 is entered on the above form you would enter the account title of the account that will be debited. It is placed flush against the margin. The Debit dollar amount for the journal entry is placed in the debit column. Note that there is a space for dollars as well as cents. The next row on the form above is intended for the credit side of the journal entry. Notice that the credit side (Account # 2) is always indented. There is a column for the amount of the credit side of the entry. Finally, every entry requires an explanation as to why the entry is being made. 1. Identify each account affected and its type 2. Determine whether each account is increased or decreased 3. Record the transaction in the journal, title of account debited and title of the account credited. 4. Include a brief explanation. The debit side should always equal the credits. 5. The date of the transaction 3) The problem is extensive and tests everything you have done so far. In it you are asked to (a) record journal entries (b) post the journal entries to the general ledger (c) prepare a trial balance and (d) prepare each of the three financial statements. The comprehensive review problem under Lecture 3 is a good example of what you can expect to see. You should also be able to describe how the business did in its first month of operations. Remember that there are three primary reasons for a person to start a for profit business.

A new for-profit business generally has two goals when it begins. The first is to make money. The amount of money any business makes is measured by the income statement. The second goal can be described as "growing the business". This growth can easily be measured by increases in the capital of the business.

4) Be sure you understand what a trial balance is as well as how and why it is prepared. The purpose of the trial balance is to help ensure that all debits in the general ledger accounts equal all credits. The trial balance is prepared in columnar format. Although the trial balance is not a formal financial statement but is rather a form used for internal purposes, it is customary to place a heading on it. The heading, at a minimum should include the name of the report or form, "Trial Balance" and the date on which it is prepared. Once again, it is prepared after all journal entries are posted to the general ledger. There are generally four columns on the trial balance. The first column, moving from left to right is used to record the account numbers. All accounts that appear in the general ledger will also appear on the trial balance. The second column contains the name of the account. The third column is the debit column and it contains ending account balances for all accounts that have debit balances. The fourth and final column is the credit column. It contains the ending account balances for all accounts that have credit columns. Shown below is an example trial balance in table format. Mythical Company Trial Balance June 30, 2001 Account Title Cash Accounts Receivable Prepaid Expenses Equipment Accounts Payable Notes Payable Jim Jones, Capital Jim Jones, Withdrawals Legal Service Revenues Rent expense

Account Number 101 105 110 115 201 205 301 305 401 501

Debits $10,000 12,000 1,500 4,500

Credits

$5,000 5,000 15,850 500 3,500 450

505 510 515

Office Supplies Expense Cleaning expense Advertising Expense Totals

100 100 200 $29,350

$29,350

The trial balance is in balance with total debits equaling total credits. The financial statements can be prepared directly from the trial balance.