Unit 3 - Accounts, Business Transactions. The Double Entry System Flashcards
What are Business Transactions?
Activities that affect what a business owes and the ownership of the business.
What are the three kinds of information every business transaction should contain?
- The date of the transaction
- An explanation of the transaction (where necessary)
- The amount of the transaction and whether it represents an increase or a decrease
What is meant by ‘double entry’ in business transactions?
Every business transaction involves at least two changes.
What happens when cash is used to acquire equipment?
Equipment INCREASES and cash DECREASES.
Where are business transactions recorded?
In an ACCOUNT.
What is a LEDGER?
A separate account page where each asset, liability, and capital record is maintained.
What two accounts must be set up to record the purchase of equipment and cash payment?
- Cash
- Equipment
How is a ledger account structured?
Split by a T with debit on the LEFT and credit on the RIGHT.
What indicates a debit balance in a ledger?
If debit > credit.
What indicates a credit balance in a ledger?
If credit > debit.
What indicates a zero balance in a ledger?
If debit = credit.
What happens to the asset cash when it increases?
The account is debited.
What happens to furniture and fixture assets when they decrease?
The account is credited.
How is an increase in permanent capital recorded?
As a credit to the account.
How are revenues recorded in the ledger account?
As a credit.
How are expenses recorded in the ledger account?
As a debit.
What is the Rule of Double Entry Transactions?
For every debit entry, there must be a corresponding credit entry of the same amount.
Fill in the blank: An investment of 1000€ in the business is recorded as a debit to _______ and a credit to _______.
Cash/Bank Account; Owner’s Capital
What is the journal entry for a rent payment of 500€ by check?
- Debit: Rent Expense 500€ (Expense)
- Credit: Bank 500€ (Asset)
What is the journal entry for acquiring office furniture costing 1200€ and office supplies costing 75€?
- Debit: Office Furniture 1,200€ (Asset)
- Debit: Office Supplies 75€ (Asset/Expense)
- Credit: Bank 1,275€ (Asset)
