ch.4 Transactions affecting Assets, Liabilities, and Owners Equity
Terms in this set (...)
A location within an accounting system in which the increases and decreases in a specific assets, liability, or owner's equity is recorded and stored.
Place where a business groups its accounts together. Grouping accounts in a ledger make finding information easier.
The chart of accounts
an "official" list of all the accounts used by a business to record its transactions.
Is there a limit to the number of accounts in the chart of accounts?
Assets begin with 1, Liabilities, owner's equity 3, revenue begin with 4, expense accounts 5.
Double entry accounting
a system of record keeping in which each business transaction affects at least two accounts.
What does double entry accounting require?
a debit and credit for each transaction.
What happens with each transaction?
total debit must equal total credit.
a tool used to analyze transactions effect on an account.
an amount entered on the left side of an account.
an amount on the right side on an account.
is always on the side used to record increases to the account.
the difference between the debit and credit amounts in an account.
Rules for Assets Accounts
1. Is increased (+) on the Debit. 2. Is decreased (-) on the Credit. 3. Normal balance is on the debit side.
Rules for Liability and Owner's equity Accounts
1. Is increased (+) on the Credit side. 2. Is decreased (-) on the Debit side. 3. Normal balance is on the credit side.
6 rules for analyzing business transactions
1. Identify the accounts affected. 2. Classify the accounts affected. 3. Determine the amount of increase or decrease for each account. 4. Which account is debited? For what amount. 5.Which account is credited? For what amount. 6.What is the entry in the T-account form?
Rules to remember for accounts
1. Debit and credit rules for accounts on one side of the accounting equation are mirror images of those on the other side. 2.Debit means left, credit means right. Debit/Credit does not mean increase or decrease. The type of account determines increase or decrease.
Debits ALWAYS Equal credits
the accounting equation is - Assets= Liabilities+ Owner's Equity.
A business transaction can affect 2 accounts on the same side of the accounting equation and still leave the equation in balance.