Research Lecture Accrual Accounting Process 1

Accrual Accounting Process:
Part I
15.511 Corporate Accounting
Summer 2004



Professor SP Kothari
Sloan School of Management
Massachusetts Institute of Technology


June 11, 2004
1

,An accountant’s functions include

ƒ Classifying and summarizing, made easier by the
repetitive nature of business transactions

ƒ All repetitive transactions of the same nature are
recorded and summarized in one account

ƒ An account is a storage unit used to classify and
summarize money measurements of business
activity of a similar nature

ƒ Each account has a title
2

,T-Account
ƒ Used for illustrative and pedagogical purposes
ƒ Has two sides
ƒ Debit means Left
ƒ Credit means Right
ƒ Created for each type of
ƒ Asset
ƒ Liability
ƒ Stockholders’ equity
3

, Recording changes in Assets and
Liabilities

ƒ Increases in assets are recorded on the left side of the T-
account
ƒ Decreases are recorded on the right side of the T-account

ƒ Reverse for liabilities and stockholders’ equity

ƒ Assets = Liabilities + Stockholders’ equity

ƒ Assets are on the left side of the Balance Sheet Equation

ƒ Liabilities and owners’ equity are on the right side
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