Study Guide for Advanced Accounting Entries
1
Introduction
The chart of accounts that you have setup for your business is an integral part of any accounting
package. Through these accounts, you track the flow of money in your business. It tells you
how much money you have, how much money you owe, where money is being spent, and how
much money is coming in. Transactions will fall under the following types of accounts: assets,
liabilities, equity, income, or expense. When coding your daily business, transactions will
increase or decrease these types of accounts. A group of accounts used by a business in
recording transactions is called a ledger. The specific accounts used by a business in recording
its transactions vary from one concern to another. In other words, your chart of accounts is
unique to your business and may not be the same as your neighbor’s.
When recording your transactions, the mechanics of double entry comes into play. Every
transaction affects two or more accounts with equal debits and credits. Transactions are so
recorded because equal debits and credits offer a means of proving the recording accuracy.
Running the trial balance in your accounting software shows equal debits and credits and is proof
of your work.
Are debits and credits a little “fuzzy” to you? Let’s review. Remember the basic balance sheet
formula: Assets equals liabilities plus equity. Here is how debits and credits affect this equation.
Assets = Liabilities + Equity
Debit Credit Debit Credit Debit Credit
Increase Decrease Decr. Incr. Decr. Incr.
Expense Income
Debit Credit Debit Credit
Incr. Decr. Decr. Incr.
The terms “to debit” and “to credit” should not be confused with “to increase” and “to decrease”.
To debit means to enter the amount on the left side of an account, to credit means to enter the
amount on the right side of the account. An account has a credit balance when its credits exceed
its debits. It is said to be in balance when its debits and credits are equal. With theses T-
accounts it is possible to formulate the rules for recording transactions using a double entry
accounting system.
Type Debit Credit
Asset Increases Decreases
Liability Decreases Increases
Equity Decreases Increases
Income Decreases Increases
Expense Increases Decreases
After entries are posted to the accounts, the total of all debit balances should equal the total of
credit balances. Adding all the debit balances, then adding all the credit balances, and finally
