Accounting Theory

 Matching expenses with revenue ◦ Recording revenue from business activities and expenses associated with earning that revenue in the same accounting period ◦ Making adjustments to general ledger accounts is an application  Consistent reporting ◦ Accounting procedures must be followed the same way in each accounting period ◦ Reports must be done the same way from one period (year) to another  Accounting period cycle ◦ Reporting changes in financial information for a specific period of time in the form of financial statements

 Supplies adjustment ◦ The balance of the supplies account – the value of supplies on hand = the amount of the adjustment  Debit Supplies Expense  Credit Supplies  Insurance adjustment ◦ The balance of the insurance account – the value of the insurance still remaining = the amount of the adjustment  Debit Insurance Expense  Credit Prepaid Insurance

 Rule of 1 ◦ If the trial balance columns are a difference of 1, the error often is addition  Rule of 2 ◦ If the error in the trial balance equals $50, the error most likely is an amount of $25 being put in the wrong column (debit v. credit)  Rule of 9 ◦ If the error is divisible by 9, the error is most like a transposition (inverting numbers) not addition ◦ If a pair of worksheet columns do not balance (equal) and the difference appears elsewhere on the worksheet, the error is probably an amount that has not been extended  If an amount is written incorrectly on the worksheet, the error can be erased and fixed  Worksheets are not permanent records (can be changed)

 Two financial statements (income statement & balance sheet) are prepared from the info on a worksheet ◦ Net income is calculated by subtracting the income statement debit column from the income statement credit column (Net loss is the opposite) ◦ The net income amount is entered in the worksheets income statement debit and balance sheet credit columns (Net loss is the opposite) ◦ The balance of expenses are in the income statement debit column (revenue is in the credit) On a trial balance, all general ledger account titles are listed

Income Statement Info from Worksheet Income Statement

Balance Sheet Info from Worksheet Balance Sheet