3 5 Use Journal Entries to Record Transactions and Post to T-Accounts Principles of Accounting, Volume 1: Financial Accounting


Take a small coffee shop that sells a $5 latte for example. When the http://noblit.ru/forum/index.php/topic,1017.0.html pays in cash, cash increases and so does revenue. To record the transaction, increase cash $5 with a debit and increase sales revenue $5 with a credit. Increases and decreases of the same account type are common with assets.


Both activities http://atrex.ru/press/p225395.html the accounting equation and require proper categorization to keep business finances balanced. Fortunately, advertising is typically bundled into a few simple accounts and recording the changes rarely poses a challenge. A useful tool for analyzing how transactions change an accounting equation is the T-account. The left side of a T-account is for debits, whereas the right side is credits.

How an Expense Affects the Balance Sheet

In this case, both sides of the equation decrease. An expense decreases equity because we are using up resources in the business which decreases the value of the business. The business pays $400 cash for the current month’s office rent. Let’s go back to the example we used above for contributed capital. You start a business by contributing $1,000 cash and a computer worth $500.

However, the effect of http://www.lyricsworld.ru/lyrics/Insane-Clown-Posse/helllaighlula-119990.htmls and credits on the balance in a T account depends upon which side of the accounting equation an account is located. Retained earnings decreases when there is a loss for the accounting period or when dividends are declared.

Calculating Account Balances

The corresponding $950,000 debit is made to the income summary account, which closes the income statement for the period. The closing records income statement activity for the period on the balance sheet, using retained earnings.

Decreases assets and stockholders’ equity. Increases assets and decreases liabilities. Decreases assets and increases liabilities. For example, the Cash account is an asset.

Recording Transactions

Unearned revenue represents a customer’s advanced payment for a product or service that has yet to be provided by the company. Since the company has not yet provided the product or service, it cannot recognize the customer’s payment as revenue, according to the revenue recognition principle. Thus, the account is called unearned revenue. The company owing the product or service creates the liability to the customer. Say, your business earns $400 sales and only $200 in expenses for the year and all of this has been paid. The sales will go in the cash account to increase it, and the expense will go into reducing cash.

What Is an Asset in the Accounting Equation?

An asset is anything with economic value that a company controls that can be used to benefit the business now or in the future. They include fixed assets such as machinery and buildings. They may include financial assets, such as investments in stocks and bonds. They also may be intangible assets like patents, trademarks, and goodwill.

Under cash basis accounting, expenses are recorded when cash is paid. Take the example of a cash purchase for a client lunch. Cash is going to go down and an expense goes up. Meals and entertainment expense account is increased with a debit and the cash account is decreased with a credit. Expense increases are recorded with a debit and decreases are recorded with a credit. Transactions to expense accounts will be mostly debits, as expense totals are constantly increasing. The ending balance for an expense account will be a debit.

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