MGAB01H3 Chapter 3.2: Chapter 3.2

• School: UTSC
• Department: Financial Accounting
• Course: MGAB01H3
• Professor: Liang Chen

Document Summary

Debiting means inserting an amount on the left side, crediting means inserting an amount on the right side. The equality of debits and credits is the basis for the double-entry accounting system, in which the dual effect of each transaction is recorded in appropriate accounts. Therefore, a debit entry would increase the account and a credit entry would decrease the account. Liability and equity accounts normally show credit balances. Therefore, a credit entry would increase the account and a debit entry would decrease the account. Equity accounts are more difficult as they have a variety of accounts. The five main equity accounts include common shares, dividends, revenue, expense, retained earnings. Common shares, revenue and retained earnings move in the general equity description, whereas dividends and expenses are more similar to asset accounts. Evidence of the transaction comes from a source document, providing objectivity. Transactions are first recorded in chronological order in a journal and then transferred to the accounts.