Accounting Chap 3 Flashcards
are the most effective way to learn the double-entry system.
Further, practicing accountants use them frequently when analyzing business
transactions.
T accounts
represents the fact that every transaction has a dual effect on the accounting equation.
Double-entry accounting
A separate account records the increases and decreases in each type of asset, liability, owner’s equity, revenue, and expense
T account gets its name from the fact it resembles the letter T.
are totals on the debit and credit sides.
Footings
The difference between the footings is called the
balance of the account.
The balance is written on the side with the ____ footing.
larger
3 Major Parts of an Account:
- Each account has a ___ .
- The left side is the ___ of each account.
- The right side is the ___ of each account.
- title
- debit side
- credit side
means to enter an amount on the left side
Debit
means to enter
an amount on the right side
credit
- Are on the left side of the accounting equation.
- Increases are entered on the debit, or left, side.
- Decreases are entered on the credit, or right, side.
Assets
- Are on the right side of the accounting equation.
- Increases are entered on the credit, or right, side.
- Decreases are entered on the debit, or left, side.
Liabilities and Owner’s Equity
- The accounting equation is Assets = Liabilities + Owner’s
Equity. - The “umbrella” expands owner’s equity.
- The owner’s equity “umbrella” includes capital, revenue, expense, and drawing accounts.
The Owner’s Equity Umbrella
Since drawing and expenses decrease owner’s equity, they are shown on the debit side of the umbrella. (Debits decrease owner’s equity).
As expenses and drawing increase (debits), owner’s equity decreases. Revenue increases owner’s equity and is shown on the credit side.
- Is the owner’s investment in the business.
- Increases are recorded on the credit side.
- Decreases are recorded on the debit side.
Owner’s Capital
- Are the owner’s asset withdrawals for personal reasons.
- Increases are recorded on the debit side.
- Decreases are recorded on the credit side.
Drawing
- Are the earnings of the business.
- Increases are recorded on the credit side.
- Decreases are recorded on the debit side.
Revenues
- Are the costs of doing or being in business.
- Increases are recorded on the debit side.
- Decreases are recorded on the credit side.
Expenses
Is on the same side of an account that is increased the account.
Normal balances
Asset accounts’ normal balances are on the ___ side;
therefore, they have a ___ balance
debit
debit
Liability accounts’ and owner’s equity normal balances are on
the ____ side; therefore, they have a ___ balance.
credit
credit
Expense and drawing accounts are ___ ; therefore, their
normal balance is a ____ .
debited
debit
Steps in Transaction Analysis
- What happened?
- Which accounts are affected?
a) Identify the accounts.
b) Classify the accounts.
c) Locate the accounts in the expanded accounting
equation—left or right. - How is the accounting equation affected?
a) Determine whether the accounts have increased or
decreased.
b) Determine whether the accounts should be debited or
credited.
c) Make certain the accounting equation remains in balance after the transaction has been entered.
i) Assets = Liabilities + Owner’s Equity
ii) Debits = Credits for every transaction
Transaction Analysis
It is important to go through the three steps when analyzing transactions. The transaction must be fully understood before it can be accounted for correctly. Transactions in this chapter are easy to understand. Transactions in business can become quite complex, making this first step very important.
double-entry framework transactions
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