Accounting 1 Chapter 4
T-Account
A tool used by accountants to analyze business transactions; Efficient way to apply double-entry; Shows dollar increase and decrease to an account
Normal Balance
Always on the side used to record increases to an account
The left side of a T-Account is always the credit side.
False
Assets are increased on the debit side.
True
6 Steps for T-Accounts
1. Identify accounts affected. 2. Classify the accounts affected. 3. Determine which accounts are increased or decreased. 4. Determine which accounts are debited. 5. Determine which accounts are credited. 6. Compute T-Account. Make sure it balances and credits=debits normal balances.
Chart of Accounts
A list of all accounts used by a business; Number needed varies based on company size
Account
A location within an accounting system in which the increases and decreases are recorded and stored
Asset Accounts
Begin with 1
Liability Accounts
Begin with 2
Owner's Equity Accounts
Begin with 3
Revenue Accounts
Begin with 4
Expense Accounts
Begin with 5
A credit to a liability account decreases the account balance.
False
Asset accounts are increased on the credit side.
False
Credit means to decrease a liability.
False
Double-Entry Accounting
The financial record keeping system in which each business transaction affect at least two accounts
Debit
The left side of a T-Account; Increases for Assets, Decreases for Liability and Owner's Equity
Credit
The right side of a T-Account; Increases for Liability and Owner's Equity, Decreases for Assets
A credit is an amount entered on the right side of the T-Account.
True
Ledger
Where accounts are grouped together
A debit to one asset account and a credit to another asset account will result in the basic accounting equation being out of balance.
False
Double-entry accounting is the record keeping system in which business transactions affect at least one account.
False
Every business transaction affects at least two accounts that are on different sides of the basic accounting equation.
False
Liability and capital accounts are increased on the debit side.
False
The normal balance side of an owner's capital account is the debit side.
False
The right side of a T-Account is always the debit side.
False
Capital is increased on the credit side.
True
Debits and credits are used to record increases and decreases in each account affected by a business transaction.
True
Each account has a specific side that is its normal balance side.
True
For every debit there must be an equal credit.
True
If the accounting equation is not in balance after a transaction has been recorded, one reason may be that debit or credit was not reported.
True
The basic accounting equation may be expressed as A - L = O
True
The normal balance side of an account is the same side used to increase the account.
True
Debit means to increase an account balance.
False
For every debit made in one account, a credit entry must be made in another account.
True
The T-Account is an inefficient method for analyzing many business transactions.
False
When analyzing business transactions, you should ask yourself which accounts are affected.
True
Liabilities are decreased on the credit side.
False
The normal balance side for an asset account is the debit side.
False
Rules for Asset Accounts
1. An asset account is increased on the debit side (left). 2. An asset account is decreased on the credit side (right). 3. The normal balance for an asset is the increase side, or the debit side.
Rules for Liability and Owner's Equity Accounts
1. Liability and owner's equity accounts are increased on the credit side (right). 2. Liability and owner's equity accounts are decreased on the debit side (left). 3. The normal balance for liability and owner's capital accounts is the increase side, or credit side.
