MUHASEBE I

An account is an individual accounting tool that shows the increases and decreases in a specific asset, liability, or owner’s equity item during a specified period.

Accounts Receivable. Companies might sell their goods and services on account and receives a
promise for future collection of cash. The Accounts Receivable account holds a customer’s promise
to pay in the future for services or goods sold on account.

Companies might pay certain expenses in advance, such as insurance and rent. A prepaid expense is considered as an asset because the prepayment provides a future benefit for the business. Prepaid Rent, Prepaid Insurance, and Supplies are examples of prepaid expenses.

Accounts Payable. The Accounts Payable account is the opposite of Accounts Receivable. A or The
company promises to pay a debt in the future. Arises from a credit purchase.

Companies might pay certain expenses in advance, such as insurance and rent. A prepaid expense is considered as an asset because the prepayment provides a future benefit for the business. Prepaid Rent, Prepaid Insurance, and Supplies are examples of prepaid expenses.

Owner’s Capital account represents the net contribution of the owner in the business.

A chart of accounts is a listing of the accounts and the account numbers which identify their location
in the ledger.

The ledger is a record of all the accounts that the company uses the changes in those accounts, and their balances. A ledger is often defined as a book of accounts.

Entering an amount on the left side of an account
is called debiting.

If the sum of the left side exceeds the sum of the right side of an account, a debit balance occurs. In other words, debit balance shows the difference between the total amounts of the left and the right side where the debit amount exceeds the credits.

The accounting equation expresses the basic relationships of accounting and contains three categories: assets, liabilities, and owner’s equity.

It describes typical owner’s equity accounts. The owner’s claims to the assets of the business is called owners’ equity. A company has separate accounts for each element of owner’s equity as owner withdrawals, Revenues and expenses.

The company will receive assets (for example, cash) in exchange for goods sold and services rendered. Therefore, company’s assets and owner’s equity will increase. The increase in owner’s equity created by delivering goods or services to customers is called revenue. The company uses as many revenue accounts as needed. Examples include Sales Revenue account, Service Revenue account, Interest Revenue account or Rent Revenue account.

For each transaction, one or more accounts must be debited, or entered on the left side of the account, and one or more accounts must be credited, or entered on the right side of the account, and the total monetary amount of the debits must equal the total dollar amount of the credits. The equality of debits and credits provides the basis for the double-entry system of recording transactions.

T-accounts have a title and include two sides: Debit (left) and credit (right). Debit represents the left side of an account. Credit represents the right side of an account.

The journal is the main book which includes the original entries of company’s transactions. Transactions are recorded in chronological order (following the order in which they occurred) by applying debit and credit procedure. In other words, journal entries include debit and credit effects of each transaction.

A trial balance is a list of all ledger accounts with their balances at a point in time. A trial balance summarizes the accounts by listing all the accounts with their balances—assets first, followed by liabilities, and then owner’s equity.

Dept account represents a company's obligation to pay off a short-term debt to its creditors or suppliers. It appears on the balance sheet under the current liabilities.