AC 210 Lecture Notes - Lecture 5: Promissory Note, Accounting Equation, Bookkeeping
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Double‐Entry Bookkeeping
Under the double‐entry bookkeeping system, the full value of each transaction is
recorded on the debit side of one or more accounts and also on the credit side of one or
more accounts. Therefore, the combined debit balance of all accounts always equals
the combined credit balance of all accounts.
Suppose a new company obtains a long‐term loan for $50,000 on August 1. The
company's cash account (an asset) increases by $50,000, so it is debited for this
amount. Simultaneously, the company's notes payable account (a liability) increases by
$50,000, so it is credited for this amount. Both sides of the accounting equation
increase by $50,000, and total debits and credits remain equal.
Some transactions affect only one side of the accounting equation, but the double‐entry
bookkeeping system nevertheless ensures that the accounting equation remains in
balance. For example, if the company pays $30,000 on August 3 to purchase
equipment, the cash account's decrease is recorded with a $30,000 credit and the
equipment account's increase is recorded with a $30,000 debit. These two asset‐
account entries offset each other, so the accounting equation remains in balance. Since
the cash balance was $50,000 before this transaction occurred, the company has
$20,000 in cash after the equipment purchase.
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Document Summary
Under the double entry bookkeeping system, the full value of each transaction is. Suppose a new company obtains a long term loan for ,000 on august 1. The recorded on the debit side of one or more accounts and also on the credit side of one or more accounts. Therefore, the combined debit balance of all accounts always equals the combined credit balance of all accounts. company"s cash account (an asset) increases by ,000, so it is debited for this amount. Simultaneously, the company"s notes payable account (a liability) increases by. ,000, so it is credited for this amount. Both sides of the accounting equation increase by ,000, and total debits and credits remain equal. Some transactions affect only one side of the accounting equation, but the double entry equipment account"s increase is recorded with a ,000 debit. These two asset bookkeeping system nevertheless ensures that the accounting equation remains in balance.