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Introduction

In Lesson 1, you were introduced to several accounting concepts, including the basic accounting equation and the effects of a business transaction on this equation. As you would imagine, businesses usually enter into many transactions on a daily basis. Naturally, the basic accounting equation (financial statements) would be affected by each of these transactions. It would be very costly and time-consuming to prepare financial statements after each transaction takes place. Therefore, in this lesson, you will learn how the effects of business transactions may be recorded and stored efficiently in the accounting records. More specifically, you will learn the double-entry process of recording the effect of business transactions on the basic accounting equation. This process involves

1. preparing a chart of accounts,
2. journalizing the transactions in a general journal,
3. posting to the proper ledger account (T-Account) to determine the balance of each account, and
4. preparing a trial balance by using the current balance of each ledger account.

You will also learn the role of the journal and the ledger in this process.

The process continues in the next two lessons, where we

1. journalize required adjusting entries in a general journal, post the adjusting entries to the proper ledger account (T-Accounts) to determine the balance of each account, and prepare an adjusted trial balance using the current balance of each ledger account;
2. journalize required closing entries in a general journal, post the closing entries to the proper ledger account (T-Accounts) to determine the balance of each account, and prepare a post-closing trial balance by using the balance of each ledger account; and
3. prepare the financial statements, including the income statement, statement of retained earnings, and balance sheet. We would also prepare the statement of cash flows at this point. In this class, preparation of the statement of cash flows is explained in a later lesson.

Lesson 1 showed you some basic transactions for MM TAX and how these transactions affected the accounts for the company. We used the ending balances in the accounts to prepare the financial statements. Lesson 2 will show you transactions for MM TAX and how these transactions affect the balances in the accounts (Sound familiar?). In this lesson, we will use debits and credits to show increases and decreases in the account balances.

Learning Objectives

After completing this lesson, you should be able to do the following things:

• prepare a chart of accounts,
• journalize transactions using the rules of debit and credit,
• post journal entries to a T-Account, and
• prepare an unadjusted trial balance.

Lesson Readings & Activities

By the end of this lesson, make sure you have completed the readings and activities found in the Lesson 2 Course Schedule.