6 The journalizing and posting process

The basic tool of accounting is the accounting equation. It measures the resources of a business (what the business owns or has control of) and the claims to those resources (what the business owes to creditors and to the owners). The accounting equation is made up of three parts— assets,liabilities, and equity— and shows how these three parts are related. Assets appear on the left side of the equation, and the liabilities and equity appear on the right side.Assets=Liabilities+Equity Part 2 :Transactions are first recorded in a journal, which is the record of transactions in date order. Journalizing a transaction records the data only in the journal— but not in the ledger (the record which holds all of the accounts of a business). The data must also be transferred to the ledger. The process of transferring data from the journal to the ledger is calledposting. We post from the journal to the ledger. Debits in the journal are posted as debits in the ledger and credits as credits— no exceptions. Part 3The journalizing and posting process has five steps: Step 1:Identify the accounts and the account type (asset, liability, or equity). Step 2:Decide if each account increases or decreases using therulesof debits and credits. Step 3:Record the transaction in the journal. Step 4:Post the transaction into the ledger. Step 5:Determine if the accounting equation is in balance. In this problem we will focus on the first three steps. We will analyze and then recordLanceWalker, M.D.'s transactions in the journal (journalize the transactions). Part 4: We'll begin with the first transaction on the 1st and will analyze the first few transactions in the context of the first three steps discussed above.Jan.1: The business received$34,000 cash and issued common stock toWalker. Step1:Identify the accounts and the account type (asset, liability, or equity). The two accounts involved are Cash (an asset) and Common Stock (an equity account). Step2:Decide if each account increases or decreases using therulesof debits and credits. Cash increases. The business has more cash than it had before. Common Stock increases. The business received a $34,000 contribution from the owner of the business in exchange for capital. An asset account (Cash) is recorded as a debit increase. An equity account (Capital) is recorded as a credit increase. Step3:Record the transaction in the journal. To record this transaction in the journal we must increase Cash with a debit for $34,000 and increase Common Stock with a credit for $34,000. Go ahead and prepare the entry. Be sure to select a description of the transaction on the last line of the journal entry table.(Record debits first, then credits. Select the explanation on the last line of the journal entry table.)