THE ACCOUNTS
“3 types”
ASSETS= LIABILITIES
+ OWNERS EQUITY
Revenue
- Expenses
= (net income)
Drawings / dividend (-)
Investments (+)


A company will have separate accounts for each item (ex: cash, salaries
expense, accounts payable)
an individual accounting record of increases and decreases in dollar amounts
DEBITS AND CREDITS
Debit = left side
Credit = right
ASSET
ASSET =
=
L
+ OE
OE
L+
INCREASE
INCREASE
Debit
Credit
(delightful!) (crappy!)
DECREASE
Credit
Debit
(crappy!) (delightful!)
DR
CR
ILLUSTRATION 2-1: BASIC FORM
OF ACCOUNT (T-account)


In its simplest form, an account consists of
1. the title of the account,
2. a left or debit side
3. a right or credit side.
The alignment of these parts resembles the letter T, and
therefore the account form is called a T account.
Title of Account
Left or debit side
Right or credit side
Debit balance
Credit balance
ILLUSTRATION 2-2
TABULAR SUMMARY COMPARED TO
ACCOUNT FORM
Tabular Summary
Account Form
Cash
$15,000
- 7,000
1,200
1,500
- 600
- 900
- 200
- 250
600
- 1,300
Cash
$8,050
Debit
15,000
1,200
1,500
600
Balance
8,05
0
Credit
7,000
600
900
200
250
1,300
DEBITING AN ACCOUNT
Cash
15,000
Owners Equity
15,000
Example: The owner makes an initial investment of
$15,000 to start the business. Cash is debited
and the owner’s Capital account is credited.
CREDITING AN ACCOUNT
Cash
7,000
Rent Exp.
7,000
Example: Monthly rent of $7,000 is paid. Cash is credited
and Rent Expense is debited.
DEBITING AND CREDITING
AN ACCOUNT
Cash
15,000
8,000
7,000
Example: Cash is debited for $15,000 and credited for
$7,000, leaving a debit balance of $8,000.
DOUBLE-ENTRY SYSTEM


Value of debit entry
the value of
the credit entries in every transaction
Thus, total debits will always equal the
total credits  accounting equation will
always stay in balance.
Assets
Liabilities
Equity
ILLUSTRATION 2-7
DEBIT/CREDIT RULES AND EFFECTS,
and Normal act. Balances
Assets
Assets
Dr.
+
Cr.
-
= Liabilities
=
Liabilities
Dr.
-
Owner’s Equity
+
+
Cr.
+
Owner’s
Capital
Dr.
-
+
Cr.
+
Revenues
Dr.
-
-
Cr.
+
Owner’s
Drawings
Dr.
+
-
Cr.
-
Expenses
Dr.
+
Cr.
-
ILLUSTRATION 2-9
THE RECORDING PROCESS
JOURNAL
JOURNAL
LEDGER
1. Analyze each transaction.
2. Enter transaction in a journal.
3. Transfer journal information to ledger accounts.
ILLUSTRATION 2-10
TECHNIQUE OF JOURNALIZING
What is significant about all of the circled info on the
General Journal below?
J1
GENERAL JOURNAL
Date
2002
Sept. 1
1
Account Titles and Explanation
Cash
M. Doucet, Capital
Invested cash in business.
Equipment
Cash
Purchased equipment for cash.
Ref.
Debit
Credit
15,000
15,000
7,000
7,000
ILLUSTRATION 2-14
POSTING A JOURNAL ENTRY
General Journal
Account Title and Explanation
Date
2002
01-Sep Cash
M. Doucet, Capital
Invested cash in business.
Date
2002
01-Sep
Ref
101
301
General Ledger
Cash
Account Title and Explanation Ref
J1
Debit
J1
Credit
15,000
Debit
15,000
15,000
Credit
101
Balance
15,000
In the ledger, enter in the appropriate columns of the account(s)
debited the date, journal page, and debit amount shown in the journal
and the account number to which the journal was posted.
THE TRIAL BALANCE
A list of accounts and their balances at a given time.
 Shows that debits and credits are equal after posting.
 May uncover errors in journalizing and posting.
 The procedures for preparing a trial balance consist of
1. listing the account titles and their balances,
2. totaling the debit and credit columns, and
3. proving the equality of the two columns.
What problems and limitations are there with a trial balance?

ILLUSTRATION 2-28
A TRIAL BALANCE
PIONEER ADVERTISING AGENCY
Trial Balance
October 31, 2002
Cash
Advertising Supplies
Prepaid Insurance
Office Equipment
Notes Payable
Accounts Payable
Unearned Revenue
C. R. Byrd, Capital
C. R. Byrd, Drawings
Service Revenue
Salaries Expense
Rent Expense
The total debits
must equal the
total credits.
Notice the order
of the accounts
BS then IS
accounts
Debit
$ 15,200
2,500
600
5,000
Credit
$ 5,000
2,500
1,200
10,000
500
10,000
4,000
900
$ 28,700
$ 28,700