By Jeffry R. Haber
For brand new scholars of accounting, entry-level accounting execs, and company pros whose personal paintings relates on to the numbers at the ledger, a simple realizing of middle accounting features and records is necessary. Accounting Demystified presents an easy and simple description of common parts of the accounting approach, plus obtainable tutorials in developing, examining, and utilizing monetary statements. Haber's transparent language will permit readers: * comprehend accounting fundamentals * locate error fast * arrange actual monetary statements * research monetary records * make certain the monetary healthiness of a enterprise * arrange a monetary prospectus for power traders and creditors From the study room to the again room to the board room, Accounting Demystified serves as a invaluable primer at the fundamentals of accounting and the needs they serve."
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Then you subtract the total debits from the total credits or vice versa and write the difference on whichever side is larger. For example, if the Cash account had debits of $10,000, $20,000, and $5,000 and there was one credit of $15,000, the account would have a debit balance of $20,000. [The total debits are $10,000 ם$20,000 ם$5,000 ס$35,000, and the FIGURE 3-2 Cash 10,000 18 Accounting Demystified FIGURE 3-3 Sales 10,000 total credits are $15,000. ] The T account for this situation is shown in Figure 3-4.
If net credit sales for the year were $5,000,000 (notice that we do not include cash sales), then the amount to set up as the allowance is $50,000 (1 percent times $5,000,000). The entry to record the allowance is: XX/XX/XX Bad debt expense 50,000 Allowance for doubtful accounts 50,000 To record bad debt expense for the year The account called Allowance for doubtful accounts is a current asset. Remember what we said before: Assets are increased by debits and decreased by credits. In this case, however, we have an asset account that is increased by a credit.
The entry to record this is: 2/19/02 Petty cash 200 Cash 200 To set up the Petty cash account Remember, debits increase assets and credits decrease assets (both Petty cash and the checking account are current assets), so what the entry has done is increase the balance in Petty cash (it is now $200) and decrease the balance in the checking account (by $200). When the pizza arrives, the bill is $10 plus a $2 tip. So now the petty cash box has $188 in cash ($200 מ$12) and a receipt for $12, for a total of $200.