In double entry accounting system, transactions are recorded in terms of:
To be in balance, the total of debits and credits for a transaction must be equal.
A debit may increase one account while decreasing another.
For example, a debit increases asset accounts but decreases liability and equity accounts, which supports the general accounting equation of Assets = Liabilities + Equity.
On the income statement, debits increase the balances in expense and loss accounts, while credits decrease their balances. Debits decrease revenue account balances, while credits increase their balances.
Is also called "Ledger Account"
For the revenue account,
Expense Account
Asset account
liability and shareholders’ equity
Example:
If Barnes & Noble Inc. sold $20,000 worth of books,
A company that issues shares worth $100,000 will have its T-account
Cash Account
Accounts Payable Account
Accounts Receivable Account
Notes Payable Account
Equipment Account
Prepaid Expenses Account
Expenses Account
Owner's Equity or Capital Account
Revenue Accounts
assets, liabilities, equity
revenue, expenses and withdrawals /dividends (all of these feeds to equity)
Assets
Liabilities
Common Account Types in Accounting
Why is accounts payable not expenses and instead a a liability?
When you think about it, when you're paying a supplier $100, then it should be in accounts payable which is correct but then it should be labeled as expenses right, and not a liability.
But the statement here said "the car wash pays a supplier $200 in cash". It didn't say, "oh i'm gonna pay the supplier later with $200 but I'm gonna get the item first"
Revenue Recognition Principle: Revenue is recognized when it is earned. (Credits and future received payments will be recognized as revenue and not accounts receivable) regardless of when cash is received or paid
Matching Principle: Expenses are recognized when they are incurred and matched to the revenue they help generate.
"A customer gets their car washed for $10. They pay on account with 30 day credit terms. Which account is credited?
a) Revenue
b) Cash
c) Accounts receivable
Hmm, revenue because we're using the revenue recognition principle. So what makes a transaction "Accounts receivable"
Created: 2023-10-14