This book will teach you how to prepare the income statement and the balance sheet of a company WITHOUT using debits, credits, or T accounts. You can use an Excel Template or this website’s accounting tool to visually see the income statement and balance sheet being constructed. No Debits, Credits, and T accounts Debits, credits,…

The primary goal of an accounting system is to record a company’s financial transactions and report its financial performance to all concerned parties. The accounting process starts with identifying transactions that a company enters into in the course of its business on a daily basis and ends with the presentation of its financial statements. We…

A company engages in a variety of transactions daily. These include buying equipment, buying inventory, manufacturing, advertising, selling goods and services, etc. The accounting process starts with identifying the activities of a company that need to be recorded in its accounting system. Any activity that has a financial impact on the company is a financial…

Once a transaction has been identified, the transaction needs to be analyzed to understand which part of the balance sheet or income statement the transaction impacts. Each transaction is analyzed to identify 1) which specific areas (accounts) are impacted, 2) if the transaction creates a benefit (asset) or an obligation (liability) to the company, 3)…

The Accounting Equation or Balance Sheet Equation (BSE) All assets must be paid for. Assets must be funded by someone. This funding comes primarily from two sources. Funding can come from the owners or from other sources. Funding from owners is referred to as shareholders’ equity. And funding from other sources is classified as liabilities.…

Transactions can be classified into two types of transactions by when they occur: 1) in-period transactions and 2) end-of-period transactions. In-period transactions are transactions that happen daily in the course of the company’s business activities. You have finished recording them on a daily basis throughout the accounting period. The end-of-period transactions are transactions that are…

At the end of the accounting period and after the end-of-period entries are completed, we sum up all the columns to get the balances in each account. The totals of each column give you the account balances of the trial balance at that point in time. In the traditional accounting process, this process is called…

We first select only the income statement accounts. Ordering the Income Statement Accounts The income statement shows revenues first, followed by expenses. Revenues The primary source of revenue is listed first in the revenue section of the income statement. Other streams of revenue are also listed separately if significant. Expenses The expenses side of the…

We first select all the balance sheet items. Three Lists that Form the Balance Sheet: Assets, Liabilities and Shareholders’ Equity The accounts and their balances are categorized into three categories: assets, liabilities, and shareholders’ equity. The sum of the asset accounts forms the total assets of the balance sheet. The sum of the asset accounts…