B215 Financial Accounting - AC02: Double Entry

This set of flashcards covers the fundamental vocabulary and rules for double-entry bookkeeping, including the expanded accounting equation and the ALICE rule.

Duality of Effects

The principle that every financial transaction has two aspects where every debit transaction must have a corresponding credit transaction(s) and vice versa.

Assets (Accounting Rule)

A category where an increase is represented by a debit and a decrease is represented by a credit.

Liabilities and Equity (Accounting Rule)

Categories where an increase is represented by a credit and a decrease is represented by a debit.

Expanded Accounting Equation

$$\text{Assets} = \text{Liabilities} + \text{Share Capital} + [\text{Prior Years’ Retained Earnings} + (\text{Revenue} - \text{Expense})] - \text{Dividends}$$

Retained Earnings (Formula)

$$\text{Prior Years’ Retained Earnings} + \text{Current Year Net Profit} - \text{Dividend}$$

Current Year Net Profit (Formula)

$$\text{Revenue} - \text{Expense}$$

Dividends and Expense (Nature)

Accounts that are Debit in nature because an increase in these values decreases Equity.

Revenue (Nature)

Accounts that are Credit in nature because an increase in Revenue increases Equity.

ALICE Rule

An acronym used to determine recording nature: Assets (Dr), Liabilities (Cr), Income/Revenue (Cr), Capital (Cr), and Expenses (Dr).

Journal Entry

A record used to document business transactions into the accounting system, containing the date, account names and amounts to be debited/credited, and a description.

Business Event

A business occurrence which causes an impact on any of the financial statements of a business.

Double Entry

The rule that every business transaction should affect at least two accounts via a debit and a credit.

Examples of Assets

Land, Office Equipment, Cash, and Accounts Receivable.

Examples of Liabilities

Accounts Payable and Bank Loan.

Examples of Equity

Share Capital and Retained Earnings.