Core double-entry bookkeeping concepts including debits, credits, ledgers, and the accounting cycle.
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- What is double-entry bookkeeping?
- A system where every transaction is recorded with at least two entries: a debit and a credit, maintaining the accounting equation.
- State the basic accounting equation.
- Assets = Liabilities + Equity
- What are the three main components of the accounting equation?
- Assets, Liabilities, and Equity.
- What is a debit?
- An entry made on the left side of a T-account that increases assets, expenses, or drawing accounts, or decreases liabilities and equity accounts.
- What is a credit?
- An entry made on the right side of a T-account that decreases assets, expenses, or drawing accounts, or increases liabilities and equity accounts.
- For asset accounts, which side of the T-account increases the balance?
- The debit (left) side.
- For liability accounts, which side of the T-account increases the balance?
- The credit (right) side.
- For equity accounts, which side of the T-account increases the balance?
- The credit (right) side.
- What is a T-account?
- A simple visual representation of an account shaped like the letter T, with debits on the left and credits on the right.
- Why is it called double-entry bookkeeping?
- Because every transaction affects at least two accounts: one account is debited and another is credited.
- What is a journal entry?
- The initial recording of a transaction showing the date, accounts affected, amounts debited and credited, and an explanation.
- What is a ledger?
- A collection of accounts showing all debits and credits for each account and the account balance.
- What is posting?
- The process of transferring journal entry amounts to the corresponding accounts in the ledger.
- What is a general ledger?
- The main ledger that contains all the accounts used by a business.
- What is a subsidiary ledger?
- A ledger that contains detailed transactions for a specific category of accounts, such as accounts receivable or accounts payable.