CH.2 The Recording Process Flashcards
In Chapter 1, we analyzed business transactions in terms of the accounting equation and presented the cumulative effects of these transactions in tabular form. In this chapter, we will introduce and illustrate the basic procedures and records that are used.
Explain what an account is and how it helps the recording process.
An account is an individual accounting record of increases and decreases in a specific asset, liability, or stockholders’ equity item.
In its simplest form, an account consists of (a) the title of the account, (b) a left or debit side, and (c) a right or credit side. The alignment of these parts resembles the letter T, and therefore the account form is called a T-account.
Define debits and credits and explain their use in recording business transactions.
The terms debit and credit mean left and right, respectively.
A. The act of entering an amount on the left side of an account is called debiting the account and making an entry on the right side is crediting the account.
B. When the debit amounts exceed the credits, an account has a debit balance; when the reverse is true, the account has a credit balance.
In a double-entry system, equal debits and credits are made in the accounts for each transaction. Thus, the total debits will always equal the total credits.
Explain the effects of debits and credits on assets and liabilities and the normal balances
Accounts Debits Credits Normal Balance
Assets Increase Decrease Debit
Liabilities Decrease Increase Credit
