Chapter 2 Debits and Credits Mortuary Management

Standard Chart of Accounts

· In accounting, a Standard Chart of Accounts is a numbered list of accounts that comprise a company's General Ledger. · Furthermore, the company Chart of Accounts is basically a filing system for categorizing all of a company's accounts as well as classifying all transactions according to the accounts they affect.

T-Account

The "T" Account is a skeleton/graphical version of a general ledger account, used for demonstration purposes. All T have this structure.

Debits and Credits

- debit means left, credit means right

Debit

A Debit is an entry made on the left side of an account. It either increases an asset, withdrawal or an expense account or decreases capital (OE), liability or revenue accounts. • For example, you would debit the purchase of a new hearse costing $85,000 by entering the asset gained the left side of your asset account.

Liability Account

A Liability is a debt of the business. Liabilities include the debts or obligations payable to creditors and other outsiders to which a business owes money. These can be loans, unpaid utility bills, bank overdrafts, car loans, salaries payable, mortgages, notes payable and more.

Transaction Analysis

Accounting Transaction Analysis is the process involving the first step in the accounting cycle which is to identify and analyze bookkeeping transactions. The analysis involves using information from the accounting source documents and then applying the basic bookkeeping rules of debit and credit to break down the transaction into its debit and credit components parts. As a whole, this is accomplished by implementing the entire 5 step process of transaction analysis. Remember that each transaction affects at least two accounts.

Asset Account

An Asset is a possession of a business that will bring the business benefits in the future. Assets are divided into tangible and intangible assets. Examples of tangible assets include desktop computers, laptops, cars, cash, equipment, buildings and more. Examples of intangible assets include trademark, logo, copyrights and other non-physical items.

Expense Account

An Expense is any product or service that a company purchase to generate income or from manufacturing goods. This may include advertising costs, utilities, rent, salaries expense and others.

The 5 Main Accounts in Accounting

Asşet Liability Equity Revenue Expense Their role is to define how a company's money is spent or received. The five major accounts relate to each other. If one changes, the others will change also. Each category can be further broken down several sub-categories.

Equity Account

Equity is the owner's share of the assets of a business. The Equity account defines how much a business is currently worth. It's the residual interest in your company's assets after deducting liabilities. Common stock, dividends and retained earnings are all examples of equity.

Debits and Credits are equal but opposite entries in accounting.

If a debit increases an account, you will decrease the opposite account with a credit. For all transactions, the total debits must be equal to the total credits therefore balance. In order to see these transactions accountant's, utilize the T-Account.

Revenue Account

Revenue includes the money your company earns from selling goods and services. Some examples of Revenue are Sales, Fees Earned, Interest Revenue, Interest Income and Rent Income.

General Ledger Accounting

To keep those accounts together, a general ledger account is used. A general ledger account is a formal account that includes columns for date, explanation, posting reference (PR), debit, and credit.

Balancing The "T" Account

When balancing a T account, no matter which individual account is being balanced, the procedure used to balance it is the same. If the balance is greater on the credit side, that is the side the ending balance would be on, and vice versa. Entries are the entered transactions. Footings are the totals of each side of a T account. Ending Balance is the difference between footings in a T account. The ending balance does not tell us anything about increase or decrease. It only tells us that we have ending balance of $4,700 on the debit side.

Standard Chart of Accounts are organized according to a numerical system having each major category number.

When charting, remember that all the sub- categories/accounts within that major category will all begin with the same number. For example, If assets are classified by numbers starting with the digit 1, then cash accounts might be labeled 101, accounts receivable might be labeled 102, notes receivable might be labeled 103 and so on. If liabilities accounts are classified by numbers starting with the digit 2, then notes payable might be labeled 201, accounts payable might be labeled 202 and so on.