Chapter 3: Double Entry Accounting Systems Part I

1
Chapter 3 Double Entry Accounting Systems (Part
I)

• Overview
• Permanent and Temporary Accounts
• The Accounting Cycle (text exhibit)
• Double Entry Accounting
  (Example Problem 3-21, pg. 194,
  re T-accounts and Financial Stmt. prep.)
• Note Please ensure that you have completed
  Problem 3-21 before class 5 as it will
  be reviewed and taken up in class.

2
Permanent vs. Temporary Accounts

• Permanent
• Balance sheet accounts. (Provide a snapshot of
  the companys financial position at a point in
  time.) These accounts, therefore, are not closed
  out (zeroed out) at the end of an accounting
  cycle.

3
Permanent vs. Temporary Accounts

• Temporary
• Income statement accounts. These accounts
  accumulate the detailed transactions (i.e.
  Revenues and Expenses) within the Retained
  Earnings account within an accounting
  cycle/current year.
• Dividends Declared account.

4
Permanent vs. Temporary Accounts

• Temporary (contd.)
• These accounts are closed out (zeroed out) and
  their net total (income or loss) posted to the
  Retained Earnings (RE) account at the end of the
  accounting cycle. Therefore, RE keeps track of
  cumulative earnings (less dividends disbursed)
  over time.
• The temporary accounts track the details of the
  current years earnings.

5
Double Entry Accounting Systems

• Journal entry debits credits. This
  maintains the systems balance.
• T-accounts are used to demonstrate/simulate the
  posting of journal entries to accounts within a
  general ledger. The left side of the T
  represents debit (Dr.) entries and the right side
  represents credit (Cr.) entries. Example
  problem 3-21, pg.194