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Chapter 2: The Accounting Cycle During the Period

About 45 minutes of reading and working. Read in order, and stop at every Pause and work box. The problems are the point, the prose is the setup.

The question this chapter answers

A Chipotle restaurant rings up a few thousand transactions a day. Every one of them changes the company's financial position, and every one has to be captured the same way so that 3,500 restaurants add up to one set of statements. This chapter is the machine that does that.

What you'll be able to do

  • LO2.1. Identify what counts as an external transaction and the steps used to measure and record it.
  • LO2.2. Analyze a transaction's effect on the accounting equation (which accounts, which direction, how much) and show the equation still balances. (we'll spend class time here)
  • LO2.3. Translate an increase or decrease in any account into a debit or a credit, using the account's normal balance. (we'll spend class time here)
  • LO2.4. Record transactions as journal entries with debits equal to credits.
  • LO2.5. Post journal entries to T-accounts in the general ledger and compute ending balances.
  • LO2.6. Prepare a trial balance and explain what it does and does not prove. (we'll spend class time here)

Sections

  1. What counts as a transaction
  2. Every transaction, two effects
  3. Debits and credits, finally
  4. Recording in the journal
  5. Posting to the ledger
  6. The trial balance and what it can't tell you
  7. Summary, practice, and an exam-style warm-up

How to read this chapter

  • Check yourself boxes are ungraded. Answer before you reveal, then read the explanation even if you were right.
  • Pause and work boxes come in three flavors: a worked example, a faded example where you finish the last step, and a your turn with fresh numbers. Hit New numbers until it feels routine.
  • Nothing you type here is recorded anywhere. Practice as much as you like.
  • The last section has a practice set and a five-question, closed-book warm-up. Do the warm-up with no notes and a timer. It's the best predictor of how the exam will feel.