Tabular analysis helps you understand how each business transaction requiring a journal entry impacts the underlying balance sheet accounts and categories. It is also a good method to utilize as you supplement your learning of how debits and credits work in the accounting information system. This tutorial covers the basics of how debits and credits work in double-entry accounting with a discussion of “normal” balances and follows up with an example demonstrating tabular analysis that can be performed in a spreadsheet.
Tabular Analysis Background Information: Debits and Credits – What are they?
Debits & Credits are the terms used to describe transactions that are recorded to a journal and posted to a general ledger. For every transaction that takes place, there is at least one entry to debit an account and at the very least, a corresponding equally valued, entry to credit another account . Note that journal entries are never recorded with a negative number. A debit or a credit, depending on the account, can increase OR decrease the value of the account. The entry, however, is always a positive one. In Tabular Analysis, the worksheet will contain both positive and negative numbers. What sign you use (+ or -) will depend on what side of the accounting equation your transaction falls under (more on this later).
Example 1: Assume you paid office rent for the amount of $2,000 on July 15th. The journal entry for this transaction would look like:
July 15 Business Transaction Debit Credit Rent Expense 2,000
Example 2: Let’s assume that you issued stock and received money from investors for the amount of $10,000 on August 5th. You sold 1,000 shares of stock for $10 a share. The par value of your stock is $1 a share. The journal entry for this transaction would look like:
Aug. 5 Business Transaction Debit Credit Cash 10,000 Common Stock 1,000 Paid in Capital 9,000
In example 2, Common stock = 1,000 shares x $1 per share par value + Remaining amount attributed to Paid in Capital. This is a common example of how a transaction can have 1 debit or credit entry and multiple corresponding entries to its counterpart.
Tabular Analysis Background Information: Normal Balances – What are they?
The Balance Sheet identity or accounting equation is represented by Assets on the left side and Liabilities + Shareholders’ Equity on the right side.
All asset accounts (with the exception of Contra accounts like accumulated depreciation) have a normal balance of “Debit”. Meaning, a debit entry to an asset account like cash or accounts receivable will increase the account’s value. A credit entry on the other hand, will decrease the account’s value.
By the same token, Liabilities have a normal “Credit” balance. Meaning, a credit entry to a liability account like accounts payable will increase the account’s value. A debit entry on the other hand, will decrease a liability account’s value.
Shareholder Equity accounts have a normal “Credit” balance also since they are on the right side of the equation. However, this section is a little more involved since it include accounts pertaining to the income statement. Anything that would increase equity (i.e., revenue) will have a normal credit balance. On the other hand, expenses, which would reduce equity, has a normal debit balance. The other formidable accounts from this section follow the same principle – Gains and Losses will have a normal credit and debit balance respectively and Dividends, which reduces equity, will have a normal debit balance.
Here is a summary of what is described above, in case it was not immediately clear.
Normal Debit Balance
Normal Credit Balance
Hopefully, you’ve understood how double-entry accounting works and idea behind normal balances. For Tabular Analysis, the rules are a little bit different. Remind yourself of what was said earlier:
Journal entries are never recorded with a negative number. A debit or a credit, depending on the account, can increase OR decrease the value of the account. The entry, however, is always a positive one. In Tabular Analysis, the worksheet will contain both positive and negative numbers. What sign you use (+ or -) will depend on what side of the accounting equation your transaction falls under.
Here are the basic rules to follow for tabular analysis. A side by side comparison of example journal entries and tabular journal entries are also provided: (You will find an exercise to work through. The spreadsheet below is downloadable.)
TABULAR ANALYSIS EXAMPLE:
Below is a tabular analysis example that will help you become more familiar with the topics discussed. Let’s begin with a list of business transactions that will impact the accounts in the ledger.
List of Transactions for Tabular Analysis
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