Principles of Accounting

[ahwriter]

Principles of Accounting

In 2-3 paragraphs (Example):

Needed to show if my uncle runs a motorcycle body shop. He has decided to computerized his rocords and has asked me to explain the basics of accounting to him so that he can enter the data in his accounting software.

1. Explain to him the rules of debits and credits for the balance sheet and income statement.

2. Provide examples from the manufacturing industry of :

A journal entry that would be recorded that impacts the balance sheet and

A journal entry that would be recorded affecting the income statement.

[ahwriter]

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[john Smith]

Here’s an explanation of the rules of debits and credits for the balance sheet and income statement, along with examples from the manufacturing industry:

1. Rules of Debits and Credits: In accounting, the double-entry system is used, where every transaction affects at least two accounts: one is debited, and the other is credited. The basic principle is that debits and credits must balance out. For the balance sheet, assets and liabilities have specific rules. An increase in assets is recorded as a debit, while a decrease is recorded as a credit. On the other hand, an increase in liabilities is recorded as a credit, and a decrease is recorded as a debit. For the income statement, revenues are recorded as credits, while expenses are recorded as debits.

2. Examples from the Manufacturing Industry: a) Journal Entry Impacting the Balance Sheet: Let’s say your uncle purchases raw materials to produce motorcycle parts for his body shop. The raw materials are considered an asset. The journal entry would be: Debit: Raw Materials Inventory (Increase in asset account) Credit: Cash/Bank or Accounts Payable (Decrease in asset or increase in liability account)

b) Journal Entry Affecting the Income Statement: Now, let’s assume your uncle incurs labor costs to manufacture the motorcycle parts. Labor costs are considered an expense. The journal entry would be: Debit: Labor Expense (Increase in expense account) Credit: Cash/Bank or Accounts Payable (Decrease in asset or increase in liability account)

By following these principles and recording transactions accurately, your uncle can keep track of his business’s financial health and enter the data into his accounting software systematically. This will also enable him to generate accurate financial statements and make informed business decisions.

[Author]

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