Accounting Principles and Practices

The accounting cycle concludes with the post-closing trial balance, which verifies that the ledger is in balance after all closing entries have been made.

When posting to the ledger, the first step is to record the date of the transaction as it appears in the journal.

The first step in the closing process is to close revenue accounts (like Sales) to the Income Summary account.

The Adequate Disclosure concept requires that all information necessary for a reader to understand the financial condition of a business be included in the financial statements.

Sales is a revenue account, which is a temporary account. It appears on the income statement, not the balance sheet, which only contains permanent accounts (assets, liabilities, and equity).

Permanent accounts are balance sheet accounts that carry their balances into the next accounting period. Revenue is a temporary account because it is closed to the income summary at the end of each period.

Temporary accounts are those that are closed at the end of the period, such as sales, income summary, and rent expense. Accounts Receivable is a permanent asset account that remains on the balance sheet.

In double-entry bookkeeping, the left side of any T-account is designated as the debit side. The right side is designated as the credit side.

In standard chart of accounts numbering, assets typically start with 100, liabilities with 200, owner's equity with 300, revenue with 400, and expenses with 500.

The going concern concept assumes that a business will continue to operate indefinitely. This allows for the deferral of expenses and the capitalization of assets.

The business entity concept requires that the financial affairs of the business be kept separate from the personal financial affairs of the owner.

A sales invoice is the primary source document used to record a sale made on credit (on account). It provides evidence of the transaction terms and amount.

The normal balance of an account is the side (debit or credit) on which increases are recorded. For example, assets have a normal debit balance because they increase with debits.

Accounts Payable is a liability account used to record amounts owed to suppliers or creditors for goods or services purchased on credit.

The fundamental accounting equation is Assets = Liabilities + Owner's Equity. This equation must always remain in balance for every transaction.