Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

In the context of recording journal entries, which formula correctly represents the fundamental accounting equation that must be maintained when entering debits and credits?

Assets = Liabilities - Equity

Assets - Liabilities = Revenue

Assets + Liabilities = Equity

Assets = Liabilities + Equity

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Verified step by step guidance

Understand the fundamental accounting equation: The equation is the foundation of double-entry bookkeeping and ensures that the financial statements are balanced. It states that the total assets of a company are equal to the sum of its liabilities and equity.

Break down the components of the equation: Assets represent resources owned by the company, liabilities are obligations owed to external parties, and equity represents the owner's residual interest in the company after liabilities are subtracted.

Recognize the relationship between debits and credits: In journal entries, debits increase assets and expenses, while credits increase liabilities, equity, and revenue. This ensures the accounting equation remains balanced.

Apply the equation to journal entries: When recording transactions, ensure that any change in assets is matched by an equal change in liabilities and/or equity. For example, if cash (an asset) increases, it might be due to a loan (a liability) or an investment (equity).

Verify the equation after each transaction: After recording debits and credits, check that the total assets still equal the sum of liabilities and equity. This confirms the accuracy of the journal entry and maintains the integrity of the financial statements.