Lesson 1, Chapter 4

Question 1

What is Double-entry Bookkeeping?

Answer 1

• It is a fundamental process that all accountants need to use

Question 2

What is the Accounting Equation?

Answer 2

Capital = Assets - Liabilities

Question 3

What Is The Expanded Accounting Equation?

Answer 3

Assets - Liabilities = Capital - Drawings + Income - Expenditures

Question 4

Rearranged Equation

Answer 4

Assets + Drawings + Expenditures = Capital + Liabilities + Income

Question 5

What is a double entry?

Answer 5

• For every accounting transaction there will be two impacts

Example:
• Debit: Asset
• Credit: Bank

Question 6

Which account should I debit or credit?

Answer 6

Debit:
Debit to increase:

• Expenditure
• Asset
• Drawing

Credit to increase:
• Liability
• Income
• Capital

Question 7

Debits and Credits Summary

Answer 7

The effect of debits and credits is summarized in the following table:

Category:

ASSET:

• Debit Entry: increase an asset
• Credit Entry: decrease an asset

DRAWING:
• Debit Entry: increase drawings
• Credit Entry: decrease drawings

EXPENDITURES:
• Debit Entry: Increase an expense
• Credit Entry: Decrease an expense

CAPITAL:
• Debit Entry: Decrease a capital
• Credit Entry: Increase a capital

LIABILITY:
• Debit Entry: Decrease a liability
• Credit Entry: Increase a liability

INCOME:
• Debit Entry: Decrease an Income
• Credit Entry: Increase an Income