Lesson 3 Analyzing and Recording TransactionsTask team of Fundamental AccountingSchool of Business, Sun Yat-sen University1Outlinet tAccountsAccounts t tDetailed Description of VariousDetailed Description of Various t tAccountsAccounts t tT-AccountsT-Accounts t tRules of Debits and CreditsRules of Debits and Credits t tDouble-entry AccountingDouble-entry Accounting t tIllustrated Application of RulesIllustrated Application of Rules2Opening StorytDo you have any idea about how your parents keep an “account” of how much the family spends?tWhat a good family accountant!3Opening Storyt A global demand for accountants where can the “Big Four” find accountants with talent and virtues? Mr.Land, E accounts; credits credits in in the the journal journal are are posted as credits to the appropriate accounts.posted as credits to the appropriate accounts. All All transactions transactions must must be be keyed keyed by by date date or or number number to provide a link between the journal and the ledger.to provide a link between the journal and the ledger. Ledger Ledger accounts accounts appear appear after after a a series series of of transactions transactions have have been been posted posted and and account account balances balances calculated.calculated.19Trial balancetThe trial balance is a listing, in general ledger order (assets, liabilities, then stockholders equity), of the debit or credit balance in each account 20Transactions, Accounts and Rules of Debits the rules of debit and credit keep the accounting equation in balance t In the double-entry accounting system, at least two accounts are always affected by a transaction. After a transaction is recorded, the accounting equation must remain in balance. t Economic transactions of a business will impact various asset, liability, and/or equity accounts; but, they will not disturb the equality of the accounting equation. 45Case for Discussiont In order for all accounts to look the same, and to simultaneously make sure that the accounting equation stays in balance with double-entry bookkeeping, the debit and credit system was devised. Luca Pacioli first described it in 1494, and the basic system is so sound and efficient, we still use it today. Tradition aside, we would not still be using this ancient system if it did not work extremely well and efficiently. One could set up a system with pluses and minuses, but it would not be as efficient at generating the data needed for financial statements while making sure that the accounting equation was still in balance. One is more likely to make mistakes in entering data with plus and minus signs, although this is a secondary concern to the issues of uniformity and efficiency. tWhy use debits and credits rather than pluses and minuses?46The End of Lesson 347