Dr and Cr Bookkeeping

Question 1

What are the three Bookkeeping equations?

Answer 1

1. Assets = Liabilities + Equity (=B.S. equation)
2. Sum of Dr = sum of Cr
3. Beg Account Balance + Increases - Decreases = Ending Account Balance

Question 2

What is the expanded balance sheet equation?

Answer 2

1. Assets = Liabilities + Equity
2. Assets = Liability + Contributed Capital + Retained Earnings
3. Assets = Liability + Contributed Capital + (prior retained earnings + net income - Dividends)
4. Assets = Liability + Contributed Capital + (prior retained earnings + (Revenue - Expenses) - Dividends)

but we can’t have a negative! So we subtract dividends from retained earnings and move Expenses over to Assets

A+E = L + Capital + R. E. + R

Expenses is a Dr because it is a reduction in retained earnings!

Question 3

Three bookkeeping rules

Answer 3

1. Each transaction must have minimum 1 debit and 1 credit
2. debits must equal credits
3. no negative numbers

Question 4

Definition of T Accounts

Answer 4

Record of all changes in an accounting quantity

Question 5

When an EE borrows money from the business, which account is used?

Answer 5

Notes Receivable. AR is for customers only. Book it for the date that cash was withdrawn, even if ee has a year to pay it back.

Interest is not part of Notes Receivable. Interest is something accrued over time.

Question 6

Something special about Retained Earnings

Answer 6

In order to get BS to stay in balance, need an account that can have either a Dr or Cr balance. RE is that account! (in event company has more liabilities than assets).

If RE has a debit balance for prolonged period, name will be changed to Accumulated Defecits or Accumulated Losses.