Elementary Accounting CH 2

Account

Record of all transactions related to a particular item over a period of time

• 4 types:

• 1) Asset accounts - Cash, supplied, & equipment

• 2) Liability Accounts - accounts payable, salaries payable, & taxes payable

• 3) Stockholders Equity accounts - Common stock & retained earnings

• 4) Chart of Accounts - Lists all account names used to record transactions of a company

Expanding Accounting Equation

Main accounting equation

Assets = Liabilities + Stockholders Equity

Debits

Left side of the equal sign

• - assets increase with debit, but decrease with credits

Credit

Right side of equal sign

• - Credit normal balance

Debit & credit formula

Assets (D) = Liabilities (C) + Stockholders equity (C)

Memory aid: DEALOR

Dividends, Expenses, Assets, Liabilities, Owners’ equity, Revenue

Journal entry

Transactions in paper-based journals

• - For every transaction, debts MUST EQUAL credits

T- account

Includes the account title at the top, one side is for recording debits (left) and credits (right)

• - Set up: T-chart with account name + the item, with debits on the left & credits on right

How to find Retained Earnings

Retained Earnings = Revenue (C) - expenses (D) & Dividends (D)

• - Ending RE = beginning RE + net income - Dividends

Trial balance

List of all accounts & their balances at a particular date, showing total debits equal to total credits

• - All ending balances from the T accounts

• - Can only have a debit OR credit balance