Accounting & auditingLesson 1 of 5 in the course Double-entry bookkeeping

Double-Entry Bookkeeping: Account Rules, Ledgers, and Trial Balances

5 flashcards · 5 quiz questions · 5 match pairs · 5 fill-in sentences · English

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Summary

Double-entry bookkeeping is a system for recording financial transactions in a consistent, balanced way. This lesson introduces the system’s central principle, the accounting equation, and the reasons businesses use it.

In double-entry bookkeeping, every financial transaction is recorded in at least two accounts. One account receives a debit entry and another receives a credit entry. The amounts are equal, so the total debits for a transaction equal its total credits.

All flashcards

What is double-entry bookkeeping?
A method that records each transaction in at least two accounts with equal debit and credit amounts.
What is the accounting equation?
Assets = Liabilities + Equity; it relates a business’s resources, obligations, and owners’ residual interest.
What is a normal balance?
The side on which an account type typically increases.
What does a trial balance check?
Whether the total debit balances in ledger accounts equal the total credit balances.
Why is Luca Pacioli associated with double-entry bookkeeping?
His 1494 publication gave a detailed account of the method; he did not invent it.

Quiz questions

  1. Under the traditional approach, what is the rule for personal accounts?Answer: Debit the receiver and credit the giver.
  2. Which account groups are used in the accounting equation approach described here?Answer: Assets, capital, liabilities, revenues, and expenses.
  3. Why should a business preserve links between ledger entries and supporting documents?Answer: They let reviewers trace recorded transactions back to evidence of what happened.
  4. What can a trial balance’s agreement fail to reveal?Answer: A transaction may have been omitted or classified incorrectly.
  5. Where are debits and credits conventionally entered in a ledger account?Answer: Debits on the left and credits on the right.

Based on the Wikipedia article Double-entry bookkeeping, licensed CC BY-SA 4.0. Adapted into a summary, flashcards and quizzes.

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