This is for AC1420: Week 2 trial balance (ITT Tech) not sure exactly where to start if someone can help

Based on the lesson presentation and readings for this week, prepare a one- to two-page document listing a minimum of five adjusting entries to a trial balance, explaining the purpose of each of these entries. Make sure you include both the debit and credit entry for each adjusting entry. Specify in your response whether these entries will increase or decrease the profits in the current period.

Accounting Information Systems Throughout the chapters of this book, you have been keeping track of Team Shirts transactions using an accounting equation work sheet. We can do that in a simple world with a small number of transactions. In the real world, that wouldnt work very well. A company in the real world needs a better system to keep track of the large number of transactions represented in the four basic financial statements. A company may have an accounting system that gathers only accounting informationjust recording the information that applies to the financial statementsand other information systems gathering information for marketing, production, and other parts of the company. Alternatively, a company may have a single, integrated information system in which all company information is recordeddata about suppliers, employees, operations; and the accounting information is simply a small part. The firms accounting information is kept in the firms general ledger. The general ledger is the collection of a companys accounts where the amounts from the firms transactions are organized and stored. You can think of it as a big book with a page for every asset, liability, equity, revenue, and expense account. Later in this appendix, you will learn how transactions get recorded in a companys general ledger. For years, the general ledger system was maintained by the accounting department as a separate information system; and the other functional areas of the businessmarketing, production, sales, etc.each had its own system for keeping track of the information it needed. Since the development of computers and software programs that can manage large amounts of information, more and more companies are using a single, integrated information system. Thus, instead of keeping their data separately, accountants may get rprise-wide resource planning system (ERP). No matter how it is related to the rest of a firms information system, the accounting system is still called the general ledger system. The same financial statements are produced with both the general ledger and the integrated types of information systems. In this appendix, we will use the general ledger system, which was designed as a manual system, to demonstrate how transactions are recorded, classified, and summarized for the financial statements. The General Ledger Accounting System Keeping track of financial information with a traditional record-keeping system is often called bookkeeping. As transactions occur, they are recorded chronologically by a bookkeeper in a book called a journal. When we prepare an accounting equation work sheet showing the effect of each transaction on the accounting equation, we are doing something similar to recording a transac- tion in a journal. The resources exchanged are shown with their dollar amounts. The journal con- tains a record of each transaction as it occurs. An example is shown in Exhibit B.1. In the next section, youll learn how the debits and credits columns are used. For now, just notice that all of the accounts affected by the transaction are used in a journal entry. Most companies use more than one journal; each department may have its own journal. Common journals are the (1) sales journal, (2) cash receipts journal, and (3) cash disbursements journal. For simplicity, well use a single, general journal for all our transactions.

ge 4: General Journal Ref. J-1 J-2 Date Journal entry Debits Credits June 1 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,000 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,000 To record the collection of cash for sales. June 4 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,600 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,600 To record the purchase of equipment for cash. The journal entries are recorded chronologically. Then, the individual items are regrouped by account as they are posted to the general ledger. Trace the cash amounts in the journal entries to the general ledger cash account shown in Exhibit B.2 on page 566. The amounts for sales and equipment will be posted to their own general ledger accounts

Because a company may have hundreds or even thousands of transactions during an account- ing period, it would be difficult, probably impossible, to try to gather and use the information from a chronological record such as the journal. To be useful, the information needs to be reorganized, grouping together transactions that involve the same account. For example, when all the transac- tions that involve cash are grouped together, then the companys cash balance can be easily deter- mined. As you can see from that example, it is useful for similar transactions to be grouped together. The transactions from the journal or journals are transferred to another book called the general ledger through a process called posting the transactions to the general ledger. Posting is done periodically; it could be daily, weekly, or monthly, depending on the size of the company. The general ledger is the primary record of the financial information of the business. It is organized by accounts. As you read earlier in this book, an account is the basic classification unit of accounting information. You can think of each financial statement item as an account, and each account as a page in the general ledger. On the page for a particular account, we record all the additions to, and deductions from, that account. For example, one account in the general ledger is cash. On the cash page in the general ledger, we find every cash collection and every cash disbursement made by the company. If there are more disbursements or collections than can fit on one page, they will be recorded on as many following pages as needed, all comprising the cash account. To make it easy to find the amount of cash on hand, the cash account has a running balance. That means a new balance is calculated after every entry. Think about your own checkbookthats the record you keep of each check you write (a subtraction); each deposit you make (an addition); and the resulting total remaining in your checking account (thats your running balance). If you keep a running balance, it is much faster to find out how much cash you have in your account. (Have you discovered what happens when you fail to keep your checkbook balance current?) Accounts in the general ledger include cash, accounts receivable, inventory, prepaid insurance, equipment, accumulated depreciation, accounts payable, notes payable, contributed capital, and retained earnings. (Notice, these are given in the order in which they appear on the balance sheet.) How many accounts does a company have? Every company is different, and the number of accounts depends on the detail the company wants in its financial records. For example, one company could have an account called utilities expenses in which many different utility-related expenses could be accumulated. Another company might prefer to have a separate account for each type of utility expensea separate page in the general ledger for electricity expense, gas expense, water expense, etc. The number of accounts is determined by the amount of detail a company wants to be able to retrieve from its records. If a company uses very little gas or water, it would be a waste of time and space to keep a separate account for those expenses. A company that uses water in its production process, on the other hand, would definitely want to keep a separate account for water purchases. Companies also have subsidiary ledgers. These are detailed records that support the bal- ances in the general ledger. For example, the accounts receivable subsidiary ledger will have details about the credit customerssales, receipts, and account balances for every customer. The total dollar amount of accounts receivable in the accounts receivable subsidiary ledger will be the total in the general ledger. Most companies have a large number of accounts, and they combine the similar ones for the financial statements. When we look at the financial statements, we cant really tell how many individual accounts a company has in its general ledger. Many smaller accounts may be com- bined for financial statement presentation. Anyone in the firm with access to the accounting records who wants to know the balance in any account at any time can find it by looking in the general ledger. A list of the balances in all the accounts of a company is called a trial balance. Before the financial statements can be prepared, adjustments to the records must be made. We discussed those adjustments and how to make them in Chapter 3. Adjustments are needed because of the nature of accrual accounting. On the financial statements, we need to include revenues that have been earned and expenses that have been incurred, even if we have not yet received the cash earned or paid the cash for the expenses incurred during the accounting period. These adjustments are called accruals. The action has taken place, but the dollars have not been exchanged. We also need to be sure to include on the income statement for the period any revenue weve earned or expenses weve incurred for which the dollars were exchanged at a previous time. These are called deferrals. The dollars were already exchanged, and we recorded the receipt of the cash when we received the cash. However, we did not recognize any revenue or expense at that time. At the end of the accounting period, we have to recognize any revenue we have earned and any expenses that weve incurred. No matter what kind of accounting system a company uses, the information produced by that system must be adjusted before the financial statements can be prepared. After the adjustments are made, the financial statements are prepared. We have actually done all thisrecording the transac- tions, making the adjustments, and preparing the financial statementsusing the accounting equation work sheet. The general ledger system is simply a more feasible way to do it in an actual business. Debits and Credits To use the general ledger system and to understand the information it makes available, we must learn a bit more accounting language. Dont panic over the terms debit and credit. You will find them easy to understand, but only if first you get rid of any notions of what you already think debit and credit mean. In accounting, each term has a very specific meaning that should not be confused with its more general meaning. In accounting, when we say debit, we mean the left side; when we say credit, we mean the right side. (This should be easy to remember.) Left is the only thing that the word debit means and right is the only thing that the word credit meansunless we apply the terms to specific accounts.

A general ledger has been traditionally composed of a multicolumn page, similar to the one shown in Exhibit B.2. The Debit column on the right shows the running balance in the cash account. You would almost never see a credit balance in this account. The general ledger is often computerized in a similar format. In the balance columns, the column on the left is called the debit (DR) column, and the column on the right is called the credit (CR) column. As a shortcut to using formal preprinted two-column paper, accountants often draw a T-account to represent a page in the general ledger. T-accounts shown in Exhibit B.3 are our representation of the general ledger shown in Exhibit B.2. One T-account such as cash, shown next, represents a single page in the general ledger. The left side of a T-account is the debit side, and the right side of a T-account is the credit side. Cash Debit Credit Numbers we put on the left side of the account are called debits, and putting a number in the left column is called debiting an account. Debit is a wonderful word that can be an adjective, a noun, or a verb. The same goes for the word credit. The right side of the account is called the credit side, the numbers we put on the right side are called credits, and putting a number in the right column is called crediting an account. In the fifteenth century, a monk named Fra Luca Paccioli wrote about a system that uses debits and credits with the accounting equation. In his system, the accounting equation stays in balance with each transaction and the monetary amounts of debits and credits are equal for each transaction. Heres how it works: 1. For the accounting equation, the balance in the accounts on the left side of the equa- tion (assets ) will increase with debits; and the balance in the accounts on the right side of the equation (liabilities and shareholders equity ) will increase with credits. It follows that the balance in an asset account will decrease with credits. Liability and equity account balances decrease with debits. Putting that together, asset accounts are increased with debits and decreased with credits. liability and shareholders equity accounts are increased with credits and decreased with debits. This means that when we want to add an amount to our cash balance, we put the number of that amount on the left (in the left column of the two columns in the general ledger account for cash)so thats a debit. When we disburse cash and want to subtract the amount disbursed from the cash account, we put the number of that amount on the right sideso thats a credit. The increase side of an account is called its normal balance. Cash has a normal debit balance. Because we put the cash we receive on the debit side and the cash we disburse on the credit side, it makes sense that our cash account will normally have a debit balance. (Its not normal to dis- burse more cash than you haveits pretty unusual.) In accounting, we do not literally add and subtract from an account balancewe debit and credit an account to accomplish the same thing. If we make an error, we do not erase the mistake and replace it with the correct answer. Instead, we debit or credit the account to cor- rect the error and make the account balance correct. When accounting records are kept by hand, all entries are made in ink so that no entries can be erased or changed. This has been traditional in accounting to keep the records from being altered. Recording every increase to, and decrease from, an account balance gives a complete record of every change made to the account. 2. Because shareholders equity is increased with credits, all accounts that increase share- holders equity will increase with credits. Revenue accounts increase with credits and decrease with debits. When we make a sale, we credit the sales account. 3. Because shareholders equity is decreased with debits, all accounts that decrease share- holders equity work in the opposite way as revenue accounts work. For example, expense accountswhere a list of our expenses is keptincrease with debits. As we incur expenses, we put the amounts on the left side of expense accounts.

The Accounting Cycle The process that starts with recording individual transactions, produces the four basic financial statements, and gets our general ledger ready for the next accounting period is called the accounting cycle. Some of the steps in the accounting cycle wont make any sense to you yet, but this appendix examines each in detail. By the end of this appendix, you should be able to explain and perform each step. The steps in the accounting cycle follow: 1. Record transactions in the journal, the chronological record of all transactions, from source documents such as invoices. These are called journal entries. 2. Post the journal entries to the general ledger. 3. At the end of the accounting period, prepare an unadjusted trial balance. 4. Prepare adjusting journal entries and post them to the general ledger. 5. Prepare an adjusted trial balance. 6. Prepare the financial statements. 7. Close the temporary accounts. 8. Prepare a postclosing trial balance. Lets look at each of these steps in detail. Step 1: Recording Journal Entries In the normal course of business, many transactions must be recorded in the accounting system. Lets look at how the transactions for a companys first year of business would be recorded in a jour- nal. The transactions for the first year of Clints Consulting Company, Inc., are shown in Exhibit B.4.

Step 1: Recording Journal Entries In the normal course of business, many transactions must be recorded in the accounting system. Lets look at how the transactions for a companys first year of business would be recorded in a jour- nal. The transactions for the first year of Clints Consulting Company, Inc., are shown in Exhibit B.4. The first transaction in Clints first year of business is his own contribution of