Account= an individual record or form used to record and summarize information related to each asset, each liability, and each aspect of owner’s equity.

Common Accounts

Asset (A) = CASH, Account Receivables, Office Supplies, Office Equipment, Truck etc.

Liabilities (L) = Account Payables (buying merchandise on credit- short term), Note Payables (Mortgage- long term).

Owner’s Equity (OE) = Capital, Drawing, Revenue, Expense.

4 ways to change the OE:
1. cash in- Putting personal money into the business- Capital
2. cash out- Taking money out of the business for personal use- Drawing
3. Revenue
4. Expense- Rent Expense, Salary Expense.

T account: Rule in Accounting: Debit is on the left side of the column. Credits are on the right side.

Another rule: A is on the left side of the equation, so the increase of A is recorded in the debit (left) column. L & OE is on the right side of the equation, so the increase of L & OE is recorded in the credit (right) column. left                   right A = L + OE To help remember this, think about it this way: Accounts usually increase in money. That’s why A which is on the left side of the equation, the increase is on the left side. L & OE is on the right side, so the increase is on the right. Another thing to remember is that when you owe money, your liabilities increase.

As we said before, in A, L & OE there can be many accounts.

There are 3 steps when recording a transaction:

1. Which account is affected?
2. Did the account go up or down?
3. Is it a debit or a credit?