Accounting Chapter 2

Ledger-

Ledger- a record bolding all the accounts of a business, the changes in those accounts, and their balances.

Liabilities & Equity-

Liabilities & Equity-are always increased with a credit/ and decreased with a debit.

The Normal Balance of an account-

The Normal Balance of an account- the balance that appears on the increase side of an accounts. For example, assets are increased with a debit, so the normal balance is a debit. Liabilities and equity are increased with a credit, so the normal balance is a credit.

(Asset Accounts) a. b. c. d. e. f. g.

(Asset Accounts): a. Cash b. Accounts receivable- A customers promise to pay in the future for services or goods sold. Often described as "On Account" c. Notes Receivable- a written promise that a customer will pay a fixed amount of principal plus interest by a certain date in the future. d. Prepaid Expense- a payment of an expense in advance. e. Equipment, Furniture & Fixtures f. Building g. Land

(Liability Accounts): Accounts Payable Notes Payable Accrued Liability Unearned Revenue

(Liability Accounts): Accounts Payable- A promise made by the business to pay a debt in the future. Arises from a credit purchase Notes payable- a written promise made by the business to pay a debt, usually involving interest, in the future Accrued Liability- a liability for which the business knows the amount owed but the bill has not been paid Unearned Revenue- a liability created when a business collects cash from customers in advance of providing services or delivering goods.

An easy way to remember the rules of debits and credits is to memorize this helpful sentence: All elephants will love rowdy children-

-The first three words in the sentence will help you remember that asset, expenses and withdrawals all have normal debit balances. -The last three words in the sentence will remind you that liabilities revenues, and capital all have normal credit balances.

1. Account 2. Assets 3. Liability

1. Account- a detailed record of all increases and decreases that have occurred in an individual asset, liability, or equity during a specific period. 2. Assets- are economic resources that are expected to benefit the business in the future- something the business owns or has control of that has value 3. Liability- is a debt- that is something the business owes. A business generally has fewer liability accounts than assets accounts.

Expenses (Normal Balance)

An expense is increased because the business has more expenses now than before.

Assets-

Assets- are always increased with a debit/ and decreased with a credit

(Equity Accounts)- the owner's claim to the assets of the business is called equity or owners equity. As shown a company has separate accounts for each element of equity. Owner capital Owner Withdrawals Revenues- Expenses-

Equity Accounts: Owner capital- represents the net contributions of the owner in the business. Increases equity. Owner Withdrawals- distributions of cash or other assets to the owner. Decreases equity. Revenues- Earnings that results from delivering goods or services to customers. Increases equity. Examples include service revenues and rent revenue. Expenses- the costs of selling goods or services. Decreases equity. Examples include Rent expense, salaries expense and utilities expense.

Equity

Equity= Owners capital, Owner withdrawals, Revenues, Expenses

T-Account-

T-Account- a summary device that is shaped like a capital T with debits posted on the left side of the vertical line and credits on the right side of the vertical line. Debit- the left side of a T-account Credit- the right side of a T-account