The basics of accounting 2

Debits versus Credits By Michael Reimer Left Side is Right side the debit is the credit side side  This is where all the daily transactions of a business are recorded  The general journal entries are posted here  The account balances are updated each day  Assets = Liabilities + Owner’s Equity  Left side of the balance sheet equation  Normal asset balance is a debit  Assets go up with a debit  Assets go down with a credit Assets Debit Credit  Properties or economic resources  Provision of future company benefits  Cash  Receivables  Supplies  Machinery  Land  Inventory held for sale  Right side of the balance sheet equation  Normal liability balance is a credit Accounts Payable Notes Payable Bank Loan Payable Mortgage Payable  Two Accounts:  Capital: records the owner’s investment in the business  Withdrawals: records the owner’s personal drawings from the business  Capital goes up with a credit  Capital goes down with a debit M Reimer, Capital Debit Credit M Reimer,  Withdrawals goes Withdrawals up with a debit Debit Credit  Withdrawals goes down with a credit  Is linked with another account  Has an opposite balance to its counterpart  Reduces the value of its counterpart  Revenues – Expenses = Profit or Loss  Revenues go up with a credit  Revenues go down with a debit Revenue Debit Credit  Two different types:  Service based:  Work provided to customers (Chapters to 5)  Retail based:  Sales of inventory to customers (Chapter 6)  Sales  Commissions Earned  Professional Fees Earned  Rent Revenue  Interest Earned  Expenses go up with a debit  Expenses go down with a credit Expenses Debits Credits  Incur costs while doing daily business  Show a consumption of assets to generate revenues  Advertising Expense  Supplies Expense  Telephone Expense  Utilities Expense  Wages Expense  Rent Expense  Insurance Expense Left side is the debit side Right side is the credit side  Assets  Withdrawals  Expenses  Liabilities  Capital  Revenues [...]... down with a debit Liabilities Debit Credit  Debts or payables owed by the business  A reduction of future assets of the business Accounts Payable Notes Payable Bank Loan Payable Mortgage Payable  Two Accounts:  Capital: records the owner’s investment in the business  Withdrawals: records the owner’s personal drawings from the business  Capital goes up with a credit  Capital goes down with... down with a credit  Is linked with another account  Has an opposite balance to its counterpart  Reduces the value of its counterpart  Revenues – Expenses = Profit or Loss  Revenues go up with a credit  Revenues go down with a debit Revenue Debit Credit  Two different types:  Service based:  Work provided to customers (Chapters 3 to 5)  Retail based:  Sales of inventory to customers (Chapter... Earned  Professional Fees Earned  Rent Revenue  Interest Earned  Expenses go up with a debit  Expenses go down with a credit Expenses Debits Credits  Incur costs while doing daily business  Show a consumption of assets to generate revenues  Advertising Expense  Supplies Expense  Telephone Expense  Utilities Expense  Wages Expense  Rent Expense  Insurance Expense Left side is the debit... assets to generate revenues  Advertising Expense  Supplies Expense  Telephone Expense  Utilities Expense  Wages Expense  Rent Expense  Insurance Expense Left side is the debit side Right side is the credit side  Assets  Withdrawals  Expenses  Liabilities  Capital  Revenues ... Side is Right side the debit is the credit side side  This is where all the daily transactions of a business are recorded  The general journal entries are posted here  The account balances... payables owed by the business  A reduction of future assets of the business Accounts Payable Notes Payable Bank Loan Payable Mortgage Payable  Two Accounts:  Capital: records the owner’s investment... with a credit  Is linked with another account  Has an opposite balance to its counterpart  Reduces the value of its counterpart  Revenues – Expenses = Profit or Loss  Revenues go up with