Introduction

Do you remember the expanded accounting equation? It is:

Expanded Accounting Equation
Assets
=
Liabilities
+
Owner's Equity
Assets
=
Liabilities
+
Capital
+
Revenue
–
Expenses
–
Drawing

In this lesson, we will analyze the sale of merchandise, which is how revenue is earned. A service business charges a fee for their services and their revenue account is called Fees. A merchandising business sells goods, and their revenue account is entitled Sales.

While we are going down memory lane, let's look at the accounting cycle again. In this unit, you will learn about the first 3 steps in the accounting cycle for a merchandising business.

Graphic of the accounting cycle. As a reminder, the first three steps are: Step 1 Collect source documents, Step 2 Analyze and journalize transactions and Step 3 Post to th ledger

Following successful completion of this lesson, students will be able to:

  • Apply steps of the accounting cycle for service and merchandising businesses using manual and electronic methods.
  • Analyze the accounting equation for the purpose of relating it to the accounting cycle.

The above objectives correspond with the Alabama Course of Study: Accounting: Objective: 4 and 5.

 

 

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