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Accounting Terms Dictionary |
| Principles of Accounting, U.S. GAAP Financial Reporting Guide |
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| Accounting Terms Dictionary |
| Double-entry method |
| Double-entry method 1. Accounting transactions are recorded by preparing journal entries. 2. Journal entries have at least one entry on each of (A) and (B). (A) debit side (B) credit side 3. Debit side refers to the left side of a journal entry. 4. Credit side refers t the right side of a journal entry. 5. An example of journal entry Transaction --> $100,000 cash was invested to start a business. |
This journal entry records an increase in cash of $100,000 and an increase in owner's equity of $100,000. 6. Asset accounts, such as cash, have normal balances on debit side. --> an increase in asset accounts is recorded on debit side 7. Equity accounts, such as owner's equity, have normal balances on credit side. --> an increase in equity accounts is recorded on credit side 8. Liability accounts, such as borrowings, have normal balances on credit side. --> an increase in liability accounts is recorded on credit side 9. For all journal entries, total on debit side should be equal to total on credit side. --> a journal entry balances when debit = credit 10. Accounting equation --> assets = liabilities + equity 11. Revenue accounts, such as sales, have normal balances on credit side. --> an increase in revenue accounts is recorded on credit side 12. Expense accounts, such as cost of sales, have normal balances on debit side. --> an increase in expense accounts is recorded on debit side 13. An expanded version of accounting equation --> assets + expenses = liabilities + equity + revenue --> assets = liabilities + equity + revenue - expenses 14. Ending balance of equity = (C) + (D) - (E) (C) Beginning balance of equity (D) Revenue (E) Expenses 15. Net income = revenue - expenses 16. An expanded version of accounting equation --> assets = liabilities + equity + revenue - expenses --> assets = liabilities + equity + net income 17. An example of accounting equation Assets = $100,000 Liabilities = $30,000 Beginning balance of equity = ?? Revenue = $110,000 Expenses = $90,000 Net income = ??? assets = liabilities + equity + revenue - expenses 100,000 = 30,000 + ?? + 110,000 - 90,000 Beginning balance of equity = ?? = 50,000 net income = revenue - expenses = 110,000 - 90,000 = 20,000 assets = liabilities + equity + revenue - expenses 100,000 = 30,000 + 50,000 + 110,000 - 90,000 = 100,000 Ending balance of equity = beginning balance of equity + net income = 50,000 + 20,000 = 70,000 |
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