After reading this chapter, you should be able to answer the following questions: How can the basic accounting equation be expanded to include revenues and expenses? How does the expanded accounting equation stay in balance after every transaction? How is the income statement linked to the balance sheet through owners’ equity?. | CHAPTER 4 THE BOOKKEEPING PROCESS AND TRANSACTION ANALYSIS McGraw-Hill/Irwin ©The McGraw-Hill Companies, Inc., 2002 Learning Objectives How can the basic accounting equation be expanded to include revenues and expenses? How does the expanded accounting equation stay in balance after every transaction? How is the income statement linked to the balance sheet through owners’ equity? What are the meanings of the terms journal, ledger, T-account, account balance, debit, credit, and closing the books? McGraw-Hill/Irwin ©The McGraw-Hill Companies, Inc., 2002 Learning Objectives How is the bookkeeping system a mechanical adaptation of the expanded accounting equation? How is a transaction analyzed, how is a journal entry prepared, and how is the effect of a transaction on working capital determined? What are the five questions of transaction analysis? McGraw-Hill/Irwin ©The McGraw-Hill Companies, Inc., 2002 Learning Objective 1 How can the basic accounting equation be expanded to include revenues and expenses? McGraw-Hill/Irwin ©The McGraw-Hill Companies, Inc., 2002 Bookkeeping/Accounting Process The process begins with transactions The transactions are reflected in the financial statements One must know the mechanical process to understand the effects of transactions on the financial statements McGraw-Hill/Irwin ©The McGraw-Hill Companies, Inc., 2002 The Balance Sheet Equations The basic equation is: Assets = Liabilities + Owners’ Equity Since Owners’ Equity consists of Paid-In Capital and Retained Earnings, the equation can be restated as: Assets = Liabilities + (Paid-In Capital + Retained Earnings) McGraw-Hill/Irwin ©The McGraw-Hill Companies, Inc., 2002 The Balance Sheet Equations Since Retained Earnings is computed as Beginning Retained Earnings plus Revenues and less Expenses, the basic equation can be restated as: Assets = Liabilities + (Paid-In Capital + Beginning Retained Earnings + Revenues – Expenses) McGraw-Hill/Irwin ©The McGraw-Hill Companies, Inc., 2002 . | CHAPTER 4 THE BOOKKEEPING PROCESS AND TRANSACTION ANALYSIS McGraw-Hill/Irwin ©The McGraw-Hill Companies, Inc., 2002 Learning Objectives How can the basic accounting equation be expanded to include revenues and expenses? How does the expanded accounting equation stay in balance after every transaction? How is the income statement linked to the balance sheet through owners’ equity? What are the meanings of the terms journal, ledger, T-account, account balance, debit, credit, and closing the books? McGraw-Hill/Irwin ©The McGraw-Hill Companies, Inc., 2002 Learning Objectives How is the bookkeeping system a mechanical adaptation of the expanded accounting equation? How is a transaction analyzed, how is a journal entry prepared, and how is the effect of a transaction on working capital determined? What are the five questions of transaction analysis? McGraw-Hill/Irwin ©The McGraw-Hill Companies, Inc., 2002 Learning Objective 1 How can the basic accounting equation be expanded to include .
