This week we will focus on steps 1 Analyzing business transactions, Step 2 Journalizing the transactions and Step 3 Posting Entries to general ledger accounts. We will start by learning about debits and credits.
As the bookkeeper of a new start-up company, you are responsible for keeping the chart of accounts up to date. At the end of each year, you analyze the accounts to verify that each account should be active for accumulation of costs, revenues, and expenses.
T accounts help us to visualize increases and decreases for an account. The left side of any account is always called the debit side and the right side of any account is always called the credit. We must determine the type of account before associating plus or minus.
1. What do you think of when you hear the word debit? What do you think of when you hear the word credit?
2. What does our textbook say about debits and credits?
3. How would you describe the left (debit) and right (credit) side of each of the four basic account types: Asset, Liability, Equity, Revenue and Expense? Can you share an example of each type?
4. Which account types are presented on the Balance Sheet? What about the Income Statement?
5. Our eBook describes how to calculate an account balance. Can you describe this process for the Cash account in your own words? How is this process different for a Liability or Owner’s Equity Account?
6. What does the term ‘normal balance’ mean?