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What is the expanded accounting equation?
Assets = Liabilities + Owner’s Capital – Owner’s Withdrawals + Revenues – Expenses.
What happens to the accounting equation when a business earns revenue on account?
Assets (Accounts Receivable) increase, and Owner’s Equity (Revenue) increases.
Why is journalizing the first step in the accounting cycle?
It ensures that financial transactions are accurately recorded in chronological order.
What is the effect of issuing a check to pay for utilities?
Debit Utilities Expense, Credit Cash.
Why must transactions be posted to the ledger?
To update account balances and prepare financial statements.
How do revenues affect the accounting equation?
Revenues increase owner’s equity.
If a business repays a loan, which accounts are affected?
Assets (Cash) decrease, and Liabilities (Loan Payable) decrease.
How do you record the purchase of office supplies for cash?
Debit Supplies, Credit Cash.
How do you record the receipt of cash from a previous credit sale?
Debit Cash, Credit Accounts Receivable.
What is the relationship between journal entries and ledger accounts?
Journal entries are posted to ledger accounts to summarize financial activity.
How do expenses affect the accounting equation?
Expenses decrease owner’s equity.
How does recording depreciation affect the accounting equation?
Assets (Accumulated Depreciation) increase (contra asset), and Owner’s Equity (Expense) decreases.
How do you record a sale of services on account?
Debit Accounts Receivable, Credit Service Revenue.
What is the journal entry for paying rent in advance?
Debit Prepaid Rent, Credit Cash.
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What is the impact of an increase in liabilities on the accounting equation?
An increase in liabilities increases total assets if the liability is incurred to acquire an asset.
What type of account is capital, and how does it affect equity?
Capital is an equity account that represents the owner’s investment in the business. It increases owner’s equity.
How do you record an owner's additional investment in the business?
Debit Cash, Credit Owner’s Capital
How do you record an owner's withdrawal of cash?
Debit Owner’s Withdrawals, Credit Cash.
What is the normal balance of an asset account?
Debit
How does purchasing supplies on account affect the accounting equation?
Assets (Supplies) increase, and Liabilities (Accounts Payable) increase.
What is a journal entry?
A journal entry is the recorded financial transaction in the general journal using debits and credits.
What is the purpose of a compound journal entry?
To record transactions that affect multiple accounts in one entry.
What is the purpose of a general ledger?
To organize transactions by account and show balances.
What is the normal balance of an expense account?
Debit