C:\Documents and Settings\katycck_acy\Desktop\TA assignment\ACCT 2111Victor\Chap2 Class Notes 2010.DOC Victor Leung ACY1111 2010 Chapter 2 1CHAPTER TWO Understanding The Recording Process I. (Obj 01) Account A.An accountis an individual accountingrecordof increases and decreases in specific asset, liability, and stockholders’ equity items.[p. 48] B. Components of an account 1.Consists of (a) the title of the account, (b) a left (debit) side, and (c) a right (credit) side. 2.T account is a simplified form andonly in the textbook. 3.Standard form of account has three money columns: (a) a left (debit) side, and (b) a right (credit) side and (c) Balance column. [p. 58]II. (Obj 02) A. Debit (Dr.) and credit (Cr.) 1.The terms debit and credit are just mean left and right, respectively. 2.Debitingthe account – entering an amount on the left side of an account. 3.Creditingthe account – making an entry on the rightside of the account. 4.The balance of an account is the difference between the total increases and decreases recorded in the account. 5.An account has a debit balancewhen the debit amounts exceed the credits. 6. An account has a credit balancewhen the credit amounts exceed the debits. 7. Anasset accountnormally has a debit balance while liabilityand stockholders’ equity accountsnormally have credit balances. 8. Normal balanceof an account: An account has a positive balance(increase sum larger than decrease sum) at a given point of time. B. Double-entry rule (system)1. Each transaction affects at least two accounts 2. For a transaction, the dollar total of the debit entriesmust equalthe dollar total of the credit entries. 3. Thus, the total debits sumwill always equal the total credits sum in the general ledger. 4. Thisruleand its relationship to the accounting equation are illustrated as follows. C. The rules of debit and credit 1. Assetaccounts are increasedby debit entriesand decreased by credit entries. 2. Liabilityand stockholders’ equityaccounts areincreased by credit entriesand decreased by debit entries. Asset Accounts = Liability Accounts + Stockholders’ Equity Accounts Accounting Equation (debit) (credit) (debit) (credit) (debit) (credit) Rule of debit and Credit Increase Decrease Decrease Increase Decrease Increase D. The expanded basic equation [p. 52]
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