Accounting Equation & Double-Entry: Quick Reference

Accounting Equation

• $Assets = Liabilities + Equity$
• Asset examples: cash, supplies, equipment
• Each transaction affects at least two accounts; the equation must stay in balance.

Double-Entry Rules

• Debits and credits; total debits = total credits for every transaction
• Increases:
  • Assets and Expenses: Debit to increase
  • Liabilities, Equity, and Revenue: Credit to increase
• Decreases:
  • Assets and Expenses: Credit to decrease
  • Liabilities, Equity, and Revenue: Debit to decrease
• For any transaction, the effects on the left (Assets) must balance with the effects on the right (Liabilities + Equity).

Journal Entry Format (quick reference)

• Debit first, then credit; include the dollar amounts
• Example format:
  • Debit: $amount$, Credit: $amount$
• Use a brief description to explain the transaction

Worked Example: Flint Company (key transactions)

1) Shareholders invested cash

• Debit Cash: $25{,}000$
• Credit Common Stock: $25{,}000$

2) Paid rent in cash

• Debit Rent Expense: $900$
• Credit Cash: $900$

3) Advertising on account

• Debit Advertising Expense: $200$
• Credit Accounts Payable: $200$

4) Pay what you owe (accounts payable)

• Debit Accounts Payable: $200$
• Credit Cash: $200$

5) Revenue recognition (cash and receivables)

• Debit Cash: $1{,}000$
• Debit Accounts Receivable: $9{,}000$
• Credit Revenue: $10{,}000$

6) Salaries and utilities expenses (two entries)

• Debit Salaries Expense: $200$
• Credit Cash: $200$
• Debit Utilities Expense: $200$
• Credit Cash: $200$

Balancing Worksheet (quick check)

• After posting, total debits must equal total credits
• Left-hand side (Assets) total should match Right-hand side (Liabilities + Equity)
• Example balancing hint: verify that the Cash column total equals the sum of cash-related debits and credits across transactions, and that Retained Earnings (via Revenue and Expenses) reflects the net effect on Equity

Quick recap for exam

• Always start from the accounting equation $A = L + E$
• Record every transaction with at least two accounts
• Use debits and credits properly to keep the equation balanced
• Revenue and expenses flow into Equity through Retained Earnings
• Practically, prepare entries for investments, expenses, payables, revenues, and various asset/liability changes to see the balance hold across the worksheet