Assets: Future economic benefit

Liability: Future economic sacrifice

Account: Store of transactions for a group of items (e.g. supplies, cash, accounts receivable/payable)

General Ledger: Store of all financial transactions & accounts

Debited: When money is taken out of an account

Debits: Money going into an account

• Dividends, Expenses, Assets
• Increase when debited, decrease when credited

Credited: When money is added to an account

Credits: Money coming out of an account

• Liabilities, Equity, Revenue
• Decrease when debited, increase when credited

Example transaction: From accounts receivable (credits) to cash (debits)

T-Account: Visualization of an account

• Debits on left
• Credits on right

Double-Entry Bookkeeping: For every transaction entry, there is an equal and opposite entry

• Each transaction will affect at least two T-Accounts
• One credit, one debit
• Recall the accounting equation, A = L + E
  • Two things can happen if an Assets decreases/increases (e.g. $50 is removed from Cash):
    • Liabilities or Equity change by the same amount (e.g. Shareholders’ Equity decreased by $50), or
    • Another Asset changes by the opposite amount (e.g. Inventory increases by $50)

Adjusting Entries

Accrual Basis of Accounting: Revenue is recognized when it is earned (i.e. when we finish providing the good/service), not when cash changes hands

Accrued Revenue: Revenue that has been earned but not invoiced yet

• We provided a good/service for a client, but we haven't billed them yet (i.e. we haven't been paid yet)
• When the job is done: Revenue → Accrued Revenue (Credit → Debit)
• When you send the invoice: Accrued Revenue → Accounts Receivable
• When the client pays the invoice: ****Accounts Receivable → Cash