Business Transactions & the Accounting Equation
The accounting equation.
Assets=Liabilities+Owners Equity
This accounting system uses debits and credits to record transactions.
What is double-entry accounting?
These accounts are used to collect activity for one accounting period only, then reset to zero.
What are temporary accounts?
An account type whose balance rolls over from one period to the next (e.g. assets, liabilities, capital).
What are permanent accounts?
A graphic designer provides services and sends an invoice for $2,500. What is the journal entry?
Debit Accounts Receivable $2,500; Credit Service Revenue $2,500?
The effect on liabilities when a business buys supplies on account.
Liabilities increase
What is a “T-account” used for?
What is a tool to show increases and decreases on left (debit) vs right (credit) sides of an account?
Which rule applies: revenue accounts are increased on the _____ side and have a normal _____ balance.
What is credit; credit?
A revenue account normally has which kind of balance, debit or credit?
What is credit?
The owner invests $10,000 cash and also a computer worth $2,000 into the business. What is the transaction’s impact on assets & owner’s capital?
Assets increase by $12,000; Owner’s Capital increases by $12,000
When the owner takes cash or other assets from the business for personal use, what is that called?
withdrawel
In the chart of accounts, accounts that begin with “1” are generally these types.
What are asset accounts?
Expense accounts are increased on this side, and their normal balance is on that side.
What is debit; debit?
A withdrawal account normally has which kind of balance?
debit
The business pays $400 cash for utilities expense. What entries are made?
Debit Utilities Expense $400; Credit Cash $400
If a business provides services and receives cash, how do assets and owner's equity change?
What is Assets increase; Owner’s Equity (via Revenue) increases?
If a company purchases supplies paying with cash, which two accounts are affected and how?
What is Supplies (asset) increases; Cash (asset) decreases?
If the owner withdraws cash from the business, which temporary account is used and how does it affect owner's equity?
What is Withdrawals account is debited; Owner’s Equity decreases?
Which side (debit or credit) do you use to increase a liability account?
What is credit?
At period end, revenue is $15,000, expenses are $9,000, withdrawals are $2,000. How much does Owner’s Capital increase?
$15,000 − $9,000 = $6,000 net income; then minus withdrawals $2,000 = $4,000 increase in Owner’s Capital
Describe what happens in the accounting equation when an expense is paid in cash.
What is Assets decrease (cash goes out); Owner’s Equity decreases (expense reduces equity)?
A company receives cash from the owner’s investment. What is the entry?
What is Debit Cash; Credit Owner’s Capital?
Explain how a business records a service performed on account vs one where cash is received immediately.
What is For service on account: Debit Accounts Receivable, Credit Revenue; For cash service: Debit Cash, Credit Revenue?
If you make a credit entry to an asset account, what is the effect?
What is decrease to the asset account?
Owner invests $3,000: debit cash, credit ______.
owners equity