Double-entry method

1. Accounting transactions are recorded by preparing journal entries.

2. Journal entries have at least one entry on each of (A) and (B).
(A) debit side
(B) credit side

3. Debit side refers to the left side of a journal entry.

4. Credit side refers t the right side of a journal entry.

5. An example of journal entry

Transaction
--> $100,000 cash was invested to start a business.

	debit	credit
cash	100,000
owner's equity		100,000

This journal entry records an increase in cash of $100,000 and an increase in owner's equity of $100,000.

6. Asset accounts, such as cash, have normal balances on debit side.
--> an increase in asset accounts is recorded on debit side

7. Equity accounts, such as owner's equity, have normal balances on credit side.
--> an increase in equity accounts is recorded on credit side

8. Liability accounts, such as borrowings, have normal balances on credit side.
--> an increase in liability accounts is recorded on credit side

9. For all journal entries, total on debit side should be equal to total on credit side.
--> a journal entry balances when debit = credit

10. Accounting equation
--> assets = liabilities + equity

11. Revenue accounts, such as sales, have normal balances on credit side.
--> an increase in revenue accounts is recorded on credit side

12. Expense accounts, such as cost of sales, have normal balances on debit side.
--> an increase in expense accounts is recorded on debit side

13. An expanded version of accounting equation
--> assets + expenses = liabilities + equity + revenue
--> assets = liabilities + equity + revenue - expenses

14. Ending balance of equity = (C) + (D) - (E)
(C) Beginning balance of equity
(D) Revenue
(E) Expenses

15. Net income = revenue - expenses

16. An expanded version of accounting equation
--> assets = liabilities + equity + revenue - expenses
--> assets = liabilities + equity + net income

17. An example of accounting equation

Assets = $100,000
Liabilities = $30,000
Beginning balance of equity = ??
Revenue = $110,000
Expenses = $90,000
Net income = ???

assets = liabilities + equity + revenue - expenses
100,000 = 30,000 + ?? + 110,000 - 90,000

Beginning balance of equity = ?? = 50,000
net income = revenue - expenses = 110,000 - 90,000 = 20,000

assets = liabilities + equity + revenue - expenses
100,000 = 30,000 + 50,000 + 110,000 - 90,000 = 100,000

Ending balance of equity = beginning balance of equity + net income
= 50,000 + 20,000 = 70,000