Lesson 1-0: Module 1 Introduction

Lesson 1-0 Video: Module 1 Introduction

 Before, avoided lots of financial accounting jargon.
 This course will cover formal financial accounting terms in order to prepare for advanced
accounting courses.
 Essentially, this class is really important.

Lesson 1-1: Transaction and Transaction Worksheet

Lesson 1-1 Video: Transaction and Transaction Worksheet
 A transaction:
o Has financial effect on the firm
o Is reliably estimated
 In general, transaction involves firm receiving something and giving something else in
return.
 Account:
o An account is any particular element of assets, liabilities, or shareholders’ equity
 Examples: cash, accounts payable, common stock
 Financial transactions are recorded and summarized in accounts
 Recording a transaction:
o Recording is showing the impact of a transaction on accounts
o FAE constitutes the foundation of recording financial transactions
 We have been using transaction worksheets from the very first course!

Lesson 1-2: T-Accounts, Debit and Credit

Lesson 1-2 Video: T-Accounts, Debit and Credit
 Double-entry System
o This is the concept that each transaction impacts at least two accounts
 T-Account
o Record transactions on accounts through T-accounts
o Left always debit, right always credit

o
o Think of the balance sheet as a huge T-account: assets on left as debit, liabilities
and SHE on right as credit
o Assets under normal circumstances have a balance of debit; increase by debiting.
o L and SHE normally have credit balances; increase by crediting these accounts.
 Rules of Recording in Formal Accounting
 o Dividends decrease retained earnings
 Dividends go up, RE go down, thus an increase in dividends is a debit
o Revenues increase RE
 Thus, an increase in revenues is a credit.
o Expenses decrease RE
 Expense goes up, RE goes down; thus, an increase in expenses is a debit.
o Make sure that TOTAL DEBITS is equal to TOTAL CREDITS for each
transaction


o Debit Inventory 1000, credit accounts payable 1000
o Total debits = total credits for each transaction!
Lesson 1-3: Journal Entry, Ledger, Trial Balance
Lesson 1-3 Video: Journal Entry, Ledger, Trial Balance
 A journal is the list of transactions in chronological order.
 Each transaction in the journal is called a journal entry.
 Journal entry:


o Gaining land, losing cash
o Simple explanation at bottom of journal entry
o Debit account on left, credit on right; just like T-account.
 Ledger
o Ledger is the group of all T-accounts with balances
o Journal entries need to be copied to account in the ledger to calculate individual
accounts’ balances. This process is call posting.
  Flow of accounting info
o Transaction occurs
o Transaction is journalized
o Journal entry is posted to individual ledger accounts using T-accounts
o After posted, we calculate balances
 Trial Balance
o Shows all accounts with their balance up to trial balance date
o Very useful to prepare financial statements at the end of the year

o
o Total debit = total credit
 We learned mainly terminology, how to record transactions, journalize, and post.

Module 1 Review