Lecture 2 - Recording Business Transactions (Chapter 2) Flashcards
"Does x increase or decrease y?", the double-entry system
Does income increase or decrease equity?
It increases equity.
Do expenses increase or decrease equity?
They decrease equity.
True or false: pre-paid expenses are a liability.
False (it’s an asset)
Does revenue increase or decrease retained earnings?
It increases retained earnings.
Do expenses increase or decrease retained earnings?
They decrease retained earnings.
Does debit increase or decrease assets?
It increases assets.
Does credit increase or decrease assets?
It decreases assets.
Does debit increase or decrease liabilities?
It decreases liabilities.
Does credit increase or decrease liabilities?
It increases liabilities.
Does debit increase or decrease equity?
It decreases equity.
Does credit increase or decrease equity?
It increases equity.
Does debit increase or decrease income?
It decreases income.
Does credit increase or decrease income?
It increases income.
Does debit increase or decrease expenses?
It increases expenses.
Does credit increase or decrease expenses?
It decreases expenses.
Account for the double-entry system.
Every debit has a credit and every credit has a debit (i.e. all business transactions have two effects on a company’s financial statements).
Provide examples of revenues.
Sales revenue, service revenue, interest revenue.
Provide examples of expenses.
Operating expenses (e.g. rent, wages, and utilities), COGS, amortization expenses.
What does the trial balance show?
Whether or not total debits equal total credits.
