The business world we live and work in would not be able to operate without a reliable method for recording the effects of transactions. A systematic method of recording transactions is necessary if companies such as IBM and General Electric (and even local clothing stores and restaurants) are to generate information with which to make sound business decisions. This systematic method, termed the accounting cycle, has existed for centuries and still works well today. How does the system that captures and processes this information work and why do you need to know about it? This course addresses those questions.
Businesses buy and sell goods or services; borrow and invest money; pay wages to employees; purchase land, buildings, and equipment; distribute earnings to owners; and pay taxes to the government. These activities are referred to as “exchange transactions” because the entity is actually trading (exchanging) one thing for another. To determine how well an entity is managing its resources, the results of transactions must be analyzed. The accounting cycle makes the analysis possible by recording and summarizing an entity’s transactions and preparing reports that present the summary results.
In this course, the debit and credit technique of transaction analysis that has been used by accountants for over 500 years is explained. Although not necessary for an understanding of financial statements, debits and credits provide a useful shorthand for summarizing complex transactions. So get ready for a discussion of double-entry accounting, a system described by the German philosopher Goethe as “among the finest inventions of the human mind.”
Learning Objectives
- Explore the process of transforming transaction data into useful accounting information.
- Explore how to analyze transactions and determine how those transactions affect the accounting equation
- Recognize how to record the effects of transactions using journal entries
- Explore how to summarize the resulting journal entries through posting and prepare a trial balance
- Identify how technology has affected the first three steps of the accounting cycle.
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Prerequisites
No Advanced Preparation or Prerequisites are needed for this course.