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Chap2 Class Notes 2010

# Chap2 Class Notes 2010 - C\Documents and...

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C:\Documents and Settings\katycck_acy\Desktop\TA assignment\ACCT 2111Victor\Chap2 Class Notes 2010.DOC Victor Leung ACY1111 2010 Chapter 2 1 CHAPTER TWO Understanding The Recording Process I. (Obj 01) Account A. An account is an individual accounting record of 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 and only 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 credi t are just mean left and right , respectively. 2. Debiting the account – entering an amount on the left side of an account. 3. Crediting the account – making an entry on the right side 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 balance when the debit amounts exceed the credits. 6. An account has a credit balance when the credit amounts exceed the debits. 7. An asset account normally has a debit balance while liability and stockholders’ equity accounts normally have credit balances . 8. Normal balance of 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 entries must equal the dollar total of the credit entries . 3. Thus, the total debits sum will always equal the total credits sum in the general ledger . 4. This rule and its relationship to the accounting equation are illustrated as follows. C . The rules of debit and credit 1. Asset accounts are increased by debit entries and decreased by credit entries. 2. Liability and stockholders’ equity accounts are increased by credit entries and 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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