11/6/2016 1 Accounting Principles Lecture 5 Chapter 2 cont’d: the recording process 1 Dr. Mohamed Elmaghrabi Assets Liabilities = Basic Equation Expanded Basic Equation + Summary of Debits/Credits Rules Relationship among the assets, liabilities and owner’s equity of a business: The equation must be in balance after every transaction. For every Debit there must be a Credit . Owner’s Equity 2 Dr. Mohamed Elmaghrabi
11/6/2016 2 The Account • An account is an individual accounting record of increases and decreases in a specific asset, liability, or owner’s equity item. • There are separate accounts for the items we used in transactions such as cash, salaries expense, accounts payable, etc. 3 Dr. Mohamed Elmaghrabi Basic Form of Account • In its simplest form, an account consists of three parts: 1. the title of the account, 2. a left or debit side, and 3. a right or credit side. • The alignment of these parts resembles the letter T. Therefore, it is referred to as a T- account. 4 Dr. Mohamed Elmaghrabi
11/6/2016 3 5 Dr. Mohamed Elmaghrabi Debits and Credits • The term debit and credit mean in accounting left and right , respectively • Recording an amount on the left side of an account is called debiting the account. • Recording an amount on the right side is called crediting the account. • Debit is abbreviated as Dr. and credit is abbreviated as Cr. • The balance of an account is the difference between the total amount recorded on the debit side, and the total amount recorded on the credit side. • If the total of debit amounts is bigger than the total of the credit amounts, the account will have a debit balance . • If the total of credit amounts is bigger than the total of the debit amounts, the account will have a credit balance. 6 Dr. Mohamed Elmaghrabi
11/6/2016 4 Steps in the Recording Process • The basic steps in the recording process are: 1. Analyze each transaction in terms of its effect on the accounts (increase, or decrease). 2. Enter the transaction information in a journal (book of original entry).
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