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Fa - Session 2

1. The document outlines the steps in analyzing and processing financial transactions which include determining the transaction's effect on accounts, applying double entry rules, recording the entry in a journal, and posting the entry to the general ledger. 2. It also discusses preparing a trial balance to confirm that total debits equal total credits and the basic rules for journal entries which are to debit the receiver, credit the giver, debit what comes in and credit what goes out, and debit expenses and losses and credit incomes and gains. 3. The trial balance proves the equality of total debits and credits but does not verify the correctness of transactions.

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Haroon Rasheed
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130 views

Fa - Session 2

1. The document outlines the steps in analyzing and processing financial transactions which include determining the transaction's effect on accounts, applying double entry rules, recording the entry in a journal, and posting the entry to the general ledger. 2. It also discusses preparing a trial balance to confirm that total debits equal total credits and the basic rules for journal entries which are to debit the receiver, credit the giver, debit what comes in and credit what goes out, and debit expenses and losses and credit incomes and gains. 3. The trial balance proves the equality of total debits and credits but does not verify the correctness of transactions.

Uploaded by

Haroon Rasheed
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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FINANCIAL ACCOUNTING

Session 2
MMS – I
Steps in Analyzing and
Processing Transactions

1. Analyze the transaction to determine its


effect on assets, liabilities,
- Supported by a source document.
2. Apply the rules of double entry.
- Dr. increases an asset.
- Cr. Increases a liability.
3. Record the entry.
– Enter in chronological order in a journal.
– Enter the date/debit account/debit amount on one line.
– Enter the credit account/credit amount indented on the next
line.
 This form is called journal form and
usually is followed by an explanation.
4. Post the entry.
– Post the entry to the general ledger by
transferring the date and amount to the
proper account.
5. Prepare the trial balance to confirm the
balance of the accounts.
– Confirm that the accounts are still in balance
after recording and posting transactions.
The Trial Balance
 The total of debits and credits in the accounts
must be equal.
 A trial balance is prepared periodically (usually
on the last day of the month) to test this
equality.
 Steps in preparing a trial balance:
1. List each ledger account that has a balance, debit
balances in the right column, credit balances in the
left column.
2. Add (foot) each column.
3. Compare the totals of the two columns
 An account may have a balance other
than its normal balance.

An asset account may have a credit balance.

A liability account may have a debit balance.
 The trial balance proves whether or not
the total of all debits recorded equals the
total of all credits recorded.
 It does not prove that the transactions
were analyzed correctly or recorded for
the correct amounts or in the proper
accounts.
BASIC RULES FOR JOURNAL
ENTRIES
 DR THE RECEIVER
CR THE GIVER
 DR WHAT COMES IN
CR WHAT GOES OUT

 DR ALL EXPENSES/LOSSES
CR ALL INCOMES/GAINS

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