Accounting Cheat Sheet For Transactions (Page 2 of 6) in pdf

Page 2 of 6

The purpose of my cheat sheet is to serve as an aid for those needing help in determining how to record the

debits and credits for a transaction.

My "Cheat Sheet" Table begins by illustrating that source documents such as sales invoices and checks are

analyzed and then recorded in Journals using debits and credits. These Journals are then summarized and

the debit and credit balances are Posted (transferred) to the General Ledger Accounts and the amounts are

posted to the left side of the general ledger accounts for debit balances and to the right side of the general

ledger accounts for credit balances. The General Ledger Accounts are made up of Balance Sheet and Income

Statement Accounts.

At the end of a year (period), the revenue and expenses accounts (Ma's Kids) are set to zero and their

balances are transferred to a permanent equity account in the Balance Sheet such as Owner's Capital (Mom)

or Retained Earnings. This process is what is known as Closing The Books. Since the balances of these

accounts are set to zero (closed out) at the end of a period, these accounts are sometimes referred to as

temporary or nominal accounts. After closing the books for a year, the only accounts that have a balance are

the Balance Sheet Accounts. That's why the Balance Sheet Accounts are also referred to as Permanent

Accounts.

Of course my cheat sheet is based on the Accounting Equation ( Assets = Liabilities + Owner's Equity ) which

must be kept in balance and double-entry accounting, where for every debit to an account there must be an

equal credit to another account.

Account Definition

An Account is a separate record for each type of asset, liability, equity, revenue, and expense used to show

the beginning balance and to record the increases and decreases for a period and the resulting ending balance

at the end of a period.

All Accounts

You should be aware that

Can Be Debited and Credited

Have an Increase Side and a Decrease Side

Have a Debit Side and a Credit Side

Debit Side is the Left Side (Left Column)

Credit Side is the Right Side (Right Column)

Have a Normal Balance Amount that is normally a Debit Balance or a Credit Balance

Have a Type and are classified as an Asset, Liability, Equity, Revenue, Expense, or Draw

Are Either a Balance Sheet or Income Statement Account

Major Types of Accounts

Assets

Formal Definition:The properties used in the operation or investment activities of a business.

Informal Definition:All the good stuff a business has (anything with value). The goodies.

Additional Explanation: The good stuff includes tangible and intangible stuff. Tangible stuff you can physical

see and touch such as vehicles, equipment and buildings. Intangible stuff is like pieces of paper (sales

invoices) representing loans to your customers where they promise to pay you later for your services or

product. Examples of assets that many individuals have are cars, houses, boats, furniture, TV's, and

appliances. Some examples of business type assets are cash, accounts receivable, notes receivable,

inventory, land, and equipment.

Liabilities

Formal Definition:Claims by creditors to the property (assets) of a business until they are paid.

Informal Definition:Other's claims to the business's good stuff. Amounts the business owes to others.

Additional Explanation: Usually one of a business's biggest liabilities (hopefully they are not past due) is to

suppliers where a business has bought goods and services and charged them. This is similar to us going out

and buying a TV and charging it on our credit card. Our credit card bill is a liability. Another good personal

example is a home mortgage. Very few people actually own their own home. The bank has a claim against the

home which is called a mortgage. This mortgage is another example of a personal liability. Some examples of

business liabilities are accounts payable, notes payable, and mortgages payable.

Owner's Equity also called Owner's Capital

Comment:Both terms may be used interchangeably. In my tutorial lessons, I may refer to both terms or just

Accounting Cheat Sheet For Transactions Page 2

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