Answer the following question in 3 to 4 paragraphs.
Your father runs a small auto body shop. He has decided to computerize his records and has asked you to explain the basics of accounting to him so that he can enter the data into his accounting software.
* Explain to him the rules of debits and credits for the balance sheet and income statement.
* Provide examples from the manufacturing industry of:
o a journal entry that would be recorded that impacts the balance sheet.
o a journal entry that would be recorded affecting the income statement.
* Please provide the assumptions behind the transactions and the full journal entries.
Debit and Credit Rules for Balance Sheet and Income Statement
The balance sheet is made up of three parts: Assets, Liabilities, and Owner's Equity. What you own for example cash, supplies, and equipment are called assets. What you owe are called liabilities. Examples of liabilities are accounts payable which are creditors, notes payable, and mortgage payable. When you subtract liabilities from assets you get owner's equity which is what your company is worth. Therefore the basic accounting equation is Assets - Liabilities = Owner's Equity or stated another way Assets = Liabilities + Owners Equity. For example if assets are $10,000 and liabilities are $4,000 then owner equity is $6,000 o assets 10,000 ...
This solution provides a basic understand of accounting, as well as the following information.
1) The rules of debit and credit for the balance sheet and income statement.
2) Journal entries that would be recorded that impact the balance sheet.
3) Journal entries that would be recorded that affect the income statement.
4) Assumptions behind the transactions and examples of full journal entries.
The attached MS Word document contains a step by step explanation of how each transaction is analyzed and journalized.