What is the fundamental principle of double-entry bookkeeping?
Assets = Liabilities + Equity
A debit increases asset accounts or decreases liability and equity accounts.
The accounting equation expresses the fundamental relationship between assets, liabilities, and equity.
What is the accounting equation in double-entry bookkeeping?
Assets = Liabilities + Equity
The accounting equation provides a clear understanding of a company's financial position.
True
What type of account increases equity when recorded?
Revenue
Income earned from selling goods or services is called revenue
Match the account type with its definition:
Assets ↔️ Resources owned or controlled by a company
Liabilities ↔️ Obligations to pay others in the future
Equity ↔️ Owner's stake in the company
Revenue ↔️ Income earned from selling goods
Expenses ↔️ Costs incurred to operate the business
Arrange the following steps in the process of recording a financial transaction in double-entry bookkeeping:
1️⃣ Identify the transaction
2️⃣ Determine the affected accounts
3️⃣ Apply the debit and credit rules
4️⃣ Record the transaction
In double-entry bookkeeping, total debits must always equal total credits.
True
The accounting equation ensures that assets are balanced with liabilities and equity.
True
A debit increases liabilities or decreases equity.
False
A debit increases assets or decreases liabilities and equity.
Match the account type with its definition and example:
Assets ↔️ Resources owned by a company ||| Cash, inventory
Liabilities ↔️ Obligations to pay others ||| Loans, accounts payable
Equity ↔️ Owner's stake in the company ||| Capital, retained earnings
Retained earnings are an example of an equity account.
True
Expenses decrease equity in a business.
True
In double-entry bookkeeping, five main types of accounts are used, including assets, liabilities, equity, revenue, and expenses
In double-entry bookkeeping, revenue increases equity
Credits increase liability and revenue accounts.
Double-entry bookkeeping ensures that total debits equal total credits
The accounting equation is used to ensure that financial records remain balanced
A debit increases asset accounts and decreases liability, equity, and revenue accounts, whereas a credit decreases asset accounts and increases liability, equity, and revenue accounts.balance
What effect does a debit have on asset accounts?
Increases
What is the purpose of debit and credit entries in double-entry bookkeeping?
Maintain accounting equation
Each account type in double-entry bookkeeping has a normal balance where increases are recorded.
True
What is the normal balance for equity accounts?
Credit
Receiving cash from a customer for services provided results in a debit to cash and a credit to service revenue
The accounting equation states that Assets = Liabilities + Equity.
True
What are the five main types of accounts used in double-entry bookkeeping?
Assets, Liabilities, Equity, Revenue, Expenses
What is an example of an asset account?
Cash
What is the accounting equation?
Assets = Liabilities + Equity
A debit increases liability, equity, and revenue accounts.
False
Assets and expenses increase with a debit
What is the journal entry when a company purchases equipment for $2,000 with cash?
Debit Equipment $2,000; Credit Cash $2,000
What is the normal balance for asset accounts?
Debit
Steps in recording a transaction using double-entry bookkeeping
1️⃣ Identify the accounts affected
2️⃣ Determine whether to debit or credit each account
3️⃣ Record the transaction in the journal
4️⃣ Verify the accounting equation
T-accounts are visual tools used to track changes in individual accounts through debits and credits
What happens to the cash account when a company buys equipment for cash?
It decreases
The accounting equation states that Assets = Liabilities + Equity.
True
What is used in double-entry bookkeeping to record changes in financial accounts?