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The equation must be in balance after every recorded transaction in the system.
Two-sided effect
Decrease in one asset Increase in another asset Increase in an asset Increase in a liability
Note that the accounting equation equality is maintained after recording each transaction.
Liability
Credit
Equity
Credit
Expense Debit
Revenue Credit
Balance decreases
Credit entries in an asset account Credit entries in an expense account Debit entries in a liability account Debit entries in equity account Debit entries in a revenue account
Dividends or Withdrawals
Net Loss
Owners Equity
End
Unadjusted Trial Balance
Closing Entries
Dividends
Income Summary
4
Expense 1
3 Revenue 2
Using a Worksheet
A worksheet is a multiple column form that may be used in the adjustment process and in preparing financial statements. The use of a worksheet is optional and not a permanent accounting record. The worksheet does not replace the financial statements.
Prepare a trial balance on the worksheet. Enter the adjustments in the adjustments column. Enter adjusted balances in the adjusted trial balance columns. Extend adjusted trial balance amounts to appropriate financial statement columns. Total the statement columns, compute net income (loss), and complete the worksheet.
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