- An account is a detailed record of the changes in a particular asset, liability or owners' equity.
- The ledger is a book containing details of all accounts.
- The journal is a chronological record of the transactions of the business.
- A list of all accounts with their balances from the ledger is the trial balance.
Doube-Entry AccountingThere is always a giving side and a receiving side and at least two accounts are affected by any one transaction.
Examples of Double-Entry Accounting/Bookkeeping:
- Buy Land for Cash, $100,000: Giving Cash, Receiving Land
- Sale Inventory on Account, $20,000: Giving Inventory, Receiving an Account Receivable
- Purchase Equipment for Cash, $250,000: Giving Cash, Receiving Equipment
Normal Balance of AccountsAccounts are said to have a normal balance when the balance is on the side that causes that type of account to increase. Recording Transaction in the Journal: Journalizing
- Identify each account affected and its type (i.e. assets, liabilities, owners' equity)
- Determine whether each account is increased or decreased (use the rules of debits and credits)
- Record the transaction in the journal, including a brief explanation
Journal entry format:Date Accounts and Explanation Debit Credit
3/4 "Debited Account Title" $ XX
"Credited Account Title" $ XX
short description/explanation of the transaction
* Debited accounts are always listed first and Credited accounts (including the dollar amount) are indented.
Journal entry examples:On April 1, Cougar Cookie Company received $30,000 cash and issued common stock.
4/1 Cash 30,000
Common Stock 30,000
Issued stock for cash
On May 15, Cougar Cookie Company paid dividends of $10,000.
5/15 Dividends 10,000
Recording Business Transactions Review Game
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