Accounting Essentials: Debits, Credits, Journals, Ledgers, and the Accounting Equation

Vocabulary flashcards covering core introductory accounting concepts including debit/credit rules, the basic accounting equation, financial accounts, journals, ledgers, posting, and trial balances.

Debit Side

The left side of an account.

Credit Side

The right side of an account.

DEA Mnemonic

An acronym standing for Dividends, Expenses, Assets, which are the accounts that increase with a debit.

LER Mnemonic

An acronym standing for Liabilities, Equity, Revenue, which are the accounts that increase with a credit.

Basic Accounting Equation

The formula stating that $\text{Assets} = \text{Liabilities} + \text{Stockholders' Equity}$.

Assets

Resources owned by a business, such as Cash, equipment, supplies, buildings, land, and accounts receivable.

Liabilities

Amounts the business owes to others, such as Accounts Payable and Notes Payable.

Stockholders' Equity

The owners' claim on the company's assets, which includes Common Stock and Retained Earnings.

Journal

The place where transactions are first recorded in accounting, coming before the ledger.

Journal Entry

The formal record of a business transaction, normally including the date, accounts, debit amounts, credit amounts, and an explanation, where total debits must equal total credits.

Ledger

A collection of all the company's individual accounts used to see the increases, decreases, and balance of each account.

Posting

The process of transferring information from the journal to the ledger.

Trial Balance

A list of all accounts and their balances at a specific time, created primarily to check that total debits equal total credits.

Golden Rule of Debits and Credits

The fundamental accounting rule stating that total debits must equal total credits.

Asset Debit/Credit Rules

Asset accounts increase with a debit and decrease with a credit.

Liability Debit/Credit Rules

Liability accounts increase with a credit and decrease with a debit.

Revenue Increase

Recorded as a credit.

Expense Increase

Recorded as a debit.

Common Stock Increase

Recorded as a credit.

Unbalanced Trial Balance

Occurs when total debits do not equal total credits, signaling that there is an error somewhere in the accounting records that needs to be found.