Chapter 4 Terms & Notes

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Chapter 4
 T-Account-An accounting device used to
analyze transactions.
 Debit-An amount recorded on the left side
of a T-Account.
 Credit-An amount recorded on the right side
of a T-Account.
 Chart of Accounts-A list of accounts used
by a business.
 Contra Account-An account that reduces a
Notes for 4
 The values of all things owned(assets) are
on the left side of the accounting equation.
The values of all equities or claims against
the assets(liabilities and owner’s equity) are
on the right side of the accounting equation.
Assets= Liabilities+Owner’s Equity must
always be in balance or there is an error.
Balance Side of Accounts
 Assets have a normal
balance side on the left
side of a t-account
 You increase an
account on the balance
side. You decrease an
account on the side
opposite the balance
side.
 Liabilities and the
Owner’s Capital
Account have a
balance side on the
right side of a taccount.
 These accounts
increase on the credit
side and decrease on
the debit side
Two Basic Accounting Rules
 Account balances increase on the normal
balance side of an account.
Assets balance side is left
 Account balances decrease on the side
opposite the normal balance side.
Liabilities, Owners Capital balance side is
right.
Father of Accounting
 Fra Luca Pacioli, an Italian mathematician.
 The first person to explain an accounting
system in writing.
 His book was called “The Method of
Venice” which describes the double-entry
accounting system. Published in 1494.
The Four Steps to Analyzing a
Transaction
 What accounts are affected?
 How is each account classified?
 How is each account balance changed?
 How is each amount entered?
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