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The Basics

First discern what a financial transaction is and what is not. Often, the text will include an interaction that is not a financial transaction and will not require a journal entry. Perform journal entries. Journal entries will affect two accounts (one debit; one credit) in the same dollar amount. Journal entries serve to make it easier to accurately produce T-Accounts. The basic equation in accounting is: Assets = Liabilities + Stockerholders' Equity. Debits are always on the left, and credits on the right. Assets are debit accounts, meaning whenever an asset (i.e. cash, equipment, receivables, supplies, etc.) is added the number is debited (increased) on the left. Liabilities are credit accounts, meaning whenever a liability (i.e. payable, unearned revenues, etc.) is added the amount is credited (increased) on the right. Stockholders' Equity accounts include common stock (credit), retained earnings (credit), dividends (debit), revenues (credit), and expenses (debit). The trail balance is then prepared to verify that total amount of debits and credits are equal. Afterward, the financial statements are prepared.