In addition to expenses relating to the sale of inventory, other expenses are also incurred in operating a business (wages paid to others, utilities paid, or expenses invested into the business). The following journal entries illustrate how these expenses would be accounted for.
- In addition to expenses relating to the sale of inventory, … other expenses are also incurred in operating businesses. … Examples in our business include gas for the lawnmower, … and your truck, and the wages you agreed to pay … for your little brother for working for you. … After all, mom said you had to hire him. … The following journal entries illustrate … how these expenses would be accounted for. … Gasoline expense is a debit for $50, … recognizing that owner's equity is decreasing. … And cash is created to show that cash went down. … The cash paid for wages … is treated the same way, … a debit to the expense account … and a credit to cash. … The effect on the accounting equation … of the gasoline as expense … is that it decreases assets by 50 … and decreases my owner's equity by $50 as well. … Now the entry for wage expense … affects the equation in the same manner, … the only difference being the amount: $60. … Obviously, once merchandise or services … are sold on account, the receivable must be collected. …
- Identify how a balance sheet reflects the accounting equation.
- Name the account where debits are increases and credits are decreases.
- Define a journal.
- List the three things, in order, that you must address when making journal entries.
- Explain the function of financial statements that is most important for entrepreneurs.
- Assess the purpose of a trial balance.
Skill Level Beginner
1. Review of the Financial Statements
2. Fours Steps in the Bookkeeping Process
3. How Transactions Affect the Accounting Equation
4. The General Ledger
5. Illustration of the First Three Steps in the Accounting Cycle
The role of computers3m 44s
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