Question

Can someone please explain to me the steps in journalizing events in accounting and then turning them into income statements. Like which assets and liabilities are credits and which are debits?

Answer 1

For each event, there is double entry one is credited and other is credited.

Any event journalized should satisfy the following equation:

Assets = Liabilities + Equity

When assets or expenses increase, it is credited and when liabilities and equity increases it is credited and vice versa.

Thus if cash sales are $5000 then since cash which is asset increases, therefore, there will be debit in cash account for $5000. Also, since the revenue is equity account and it increases, therefore, the revenue account will be credited by $5000.

In this way, all the events are recorded and at the end of the period, all the entries are entered into the respective ledger account. The balance of all the ledger account are calculated and put it together in trial balance. The adjusted trial balance is prepared for events which have not been recorded. The final adjusted trial balance is used to prepare the income statement. Thus the income statement and balance sheet are prepared.