Accounting 101
What is the basic accounting equation?
Assets = Liabilities + Shareholders Equity
What is petty cash used for?
Small daily cash expenses (postage, snacks, treats, coffee, taxi rides, supplies).
Which statement shows Assets, Liabilities, and Equity?
Balance Sheet
A business pays off a $2,000 loan. How does this affect the equation?
Assets ↓ (cash), Liabilities ↓ (loan payable).
Which side (debit or credit) increases an Asset?
Debit
A = L + SE
d c d c d c
+ - - + - +
What are T-Accounts? Why do we use them?
T shaped chars collecting all debit and credit history in 1 account
A way to separate accounts and to visualize increases and decreases in each account.
What category is Accounts Receivable: Asset, Liability, or Equity?
Asset! More money to ya
What is the purpose of a Trial Balance?
To check that total debits = total credits.
If Assets = $50,000 and Liabilities = $18,000, what is Owner’s Equity?
$28,000
Which side increases a liability?
credit
A = L + SE
d c d c d c
+ - - + - +
What is a ledger?
Organizes all accounts used by a business. (Where all T-account balances get posted)
Classify: Accounts Payable
Accounts Payable → Liability
What is the purpose of the Income Statement?
Shows revenues, expenses, and net income.
Paying rent affects which two accounts?
debit rent expense, credit cash
A = L + SE
d c d c d c
+ - - + - +
To establish petty cash, what accounts are debited and credited?
Debit Petty Cash, Credit Cash
What are the 4 things that each journal entry must have?
1. date
2. accounts affected
3. debit and credit amounts
4. brief description
Classify: Unearned Revenue
Unearned Revenue → Liability
What makes a Retained Earnings increase?
When a company profits (remember, it's the left over amount after everything is paid off... cash to use for next accounting cycle.)
Assets increase by $5,000 and Liabilities increase by $5,000. Does the equation stay balanced? (in a Balance Sheet)
Yes, what happens to 1 side must happen to the other -- in a balance sheet
Paying off a accounts receivable owing would debit _____ and credit _____
debit AR, credit cash
A = L + SE
d c d c d c
+ - - + - +
What does the dual-aspect principle mean?
Every transaction has two sides that keep the equation balanced.
Classify: Owner’s Capital
Owner’s Capital → Owner’s Equity
When posting, do you update the balance after every entry?
Yes, every time there's a new transaction is should be properly classified, journaled and posted.
True or False: Owner’s Equity increases when the owner withdraws money.
False — withdrawals decrease equity.
debit
A = L + SE
d c d c d c
+ - - + - +