Nature of Accounts free essay sample

This is easily handled in T-accounts by designating that additions are to be recorded on one side of the vertical line and subtractions on the other. By convention, assets are increased by entries on the left side of the account and are decreased by entries on the right side of the account. Entries to liability and stockholders’ equity accounts are handled in the reverse manner. They are increased by entries on the right side and are decreased by entries on the left side. These rules may be summarized as follows: †¢Assets are increased by entries on the left side. †¢Assets are decreased by entries on the right side. Liabilities and Stockholders’ Equity are increased by entries on the right side. †¢Liabilities and Stockholders’ Equity are decreased by entries on the left side. All one has to remember is that increases for assets are reported on the left side of the account and are the opposite of increases for liabilities and stockholders’ eq uities, and that decreases for any account are the opposite of increases for that account. We will write a custom essay sample on Nature of Accounts or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The process of recording transactions consists of determining what accounts are affected, whether they are asset or liability and equity accounts, and whether they are to be increased or decreased. With this information, any transaction can be recorded. †¢Debits and Credits. It is awkward to speak of entries â€Å"to the left side of an account† and entries â€Å"to the right side of an account. † This difficulty can be eliminated by using a specialized terminology. Thus, instead of entries to the left side of an account, the accountant speaks of debits (abbreviated Dr. ); instead of entries to the right side of an account, the accountant speaks of credits (abbreviated Cr. ). These are the primary definitions of debits and credits. One is likely to run into confusion attempting to infer any other meaning for these terms. The most useful definition is that a debit is an entry to the left side of an account. It follows that a credit is an entry to the right side of an account. †¢Keying Transactions. When several transactions are involved, it is convenient to place a number identifying each transaction in the T-account near the dollar amount. This procedure is called keying the transaction. Keying facilitates cross-references and aids in checking the recording process. Transactions should always be keyed. Reference link: http://classof1. com/homework-help/accounting-homework-help