One finance person's reduction of accounting........
Rules and Definitions:
Every financial transaction (something that involves or might involve money) must be recorded by two accounting entries (double-entry accounting)
Caveat: Some transactions may involve several combinations of two entries
One of those entries must be a debit, the other must be a credit
"Debit" means "left" on the ledger, "credit" means "right" on the ledger
Accounting entries are recorded on either the income statement ledger, or balance sheet ledger, or both (cash flow statements are derived from the IS and BS)
Don't get stuck on the meaning of debits/credits, its just a great system first known to have been used by Amatino Manucci in Florence in the 1200s....it's survived for a reason...just use the system!
The income statement ledger is divided into two columns: income, and expense
The balance sheet ledger is divided into two columns: assets, and liabilities+equity
Each of those two columns is further divided into two, a left side (debit) and right side (credit)
A debit entry will either increase an expense, increase an asset, or decrease a liability.......it's just the way the ledger works as divined by Manucci
A credit entry will either increase revenue/income, or decrease an asset, or increase a liability.....it's just the way the ledger works
So: each of the two entries associated with every transaction must have a debit and a credit going into one of those 8 columns either on the Income Statement (C,D,E, F), or Balance Sheet(H,I,J, K)
Accountants are reponsible for making these entries correctly, and preparing the financial statements that result
Each of the columns below is pre- labelled Increase [INC], or Decrease [DEC], and debit [d], or credit [c]
ABC Company Monthly Activity
	Income Statement					Balance Sheet
	Expense		Income (Rev)		Asset
	INC [d]	DEC [c]	DEC [d]	INC [c]		INC [d]	DEC [c]
Transaction
Sale of goods for $1000 cash				1000		1000
Cost of goods sold is $600	600						600
Purchase $2000 inventory for cash						2000	2000
Sale of goods for $1000 on credit				1000		1000
Cost of goods sold is $600	600						600
Pay $200 monthly salaries via ADP
Pay $100 rent on facility
Purchase new computer system $50
Monthly asset depreciation charge $10
Pay monthly estimated income taxes $20
Purchase $1000 inventory on credit
Pay merchandise supplier per terms $1000
Total Income Statement	1200			2000
Change in Balance Sheet						4000	3200

Answer rating: 100% (QA)

Based on the provided transactions and the rules of doubleentry accounting lets record the entries a... View the full answer