Southern New Hampshire University ACC 318 T Accounts Infographic Text-Only Version Steps in the Accounting Process 1. Analyzing 2. Classifying 3. Recording 4. Summarizing 5. Interpreting The Accounting Equation Assets equal liabilities plus owner's equity, which include drawings plus revenue and minus expenses. The following are rules for analyzing accounting transactions to record journal entries. These accounts are called T accounts to help you remember the formulas. Assets When assets increase, it is recorded on the left side of the T account as a debit. When assets decrease, it is recorded on the right side of the T account as a credit. Liabilities When liabilities decrease, it is recorded on the left side of the T account as a debit. When liabilities increase, it is recorded on the right side of the T account as a credit. Owners' Equity When owners' equity decreases, it is recorded on the left side of the T account as a debit. When owners' equity Increases, it is recorded on the right side of the T account as a credit. Drawing (under the umbrella of Owner's Equity) When drawings increase, it is recorded on the left side of the T account as a debit. When drawings decrease, it is recorded on the right side of the T account as a credit. Revenue When revenue decreases, it is recorded on the left side of the T account as a debit. When revenue increases, it is recorded on the right side of the T account as a credit. Expenses When expenses increase, it is recorded on the left side of the T account as a debit. When expenses decrease, it is recorded on the right side of the T account as a credit. Financial Reports Assets equal liabilities plus owners' equity, as shown on a financial report (balance sheet). Revenues minus expenses equal net income or loss, as shown on a financial report (income statement).
Southern New Hampshire University To Summarize Debits and Credits, Increases and Decreases Debits signify: Increases in assets, drawing, and expenses and decreases in liabilities, capital, and revenue. Credits signify: Decreases in assets, drawing, and expenses and increases in liabilities, capital, and revenue. Assets The left side is the increase side. Liabilities The right side is the increase side. Owners' Equity The right side is the increase side. Revenue The right side is the increase side. Expenses The left side is the increase side. Steps in Analyzing a Transaction 1. What accounts are involved? 2. What are the classifications of the accounts involved? 3. Are the accounts increased or decreased? 4. Is the equation in balance after the transaction has been recorded?