SMARTLY

ACCOUNTING FUNDAMENTALS

THE PRACTICE OF ACCOUNTING

Account Types
T-accounts: Charts used to record increases and decreases of
individual accounts found on the balance sheet.
Debits: Represent an increase in an asset but a decrease in a
liability or equity.
Credits: Represent a decrease in an asset but an increase in a
liabilty or equity.
Asset accounts will normally have debit balances.
Liability & Equity accounts will normally have credit balances.
Two special equity accounts are Revenues and Expenses.
Revenues are increases in equity and usually have a credit balance.
Expenses are decreases in equity and usually have a debit balance.
Revenues are debited and credited like other equity accounts, but
Expenses are debited and credited like asset accounts.

Left side:
Debit
Increase:
Assets
Expenses
Decrease:
Liabilities
Equity
Revenues

Right side:
Credit
Increase:
Liabilities
Equity
Revenues
Decrease:
Assets
Expenses

2015 Pedago, LLC. All rights reserved

ACCOUNTING FUNDAMENTALS

SMARTLY

THE PRACTICE OF ACCOUNTING

Accounting Transactions
Income Statements are used to calculate net income.
Net Income: The difference between total revenues and total
expenses.

Net Income = Total Revenues Total Expenses

Balance Sheets record one point in history and show a companys

financial position.
Income Statements measure a companys financial performance
over a period of time.
General Journal: The chronological record of every transaction. A
journal uses the same rules as a T-account.
General Ledger: The collection of all T-accounts.
Revenues and Expenses are temporary accounts. At the end of a
period they are closed out and their balances are transferred to the
income statement. Other asset, liability, and equity accounts are
permanent accounts. They are not closed out, and their balances
are transferred to the balance sheet.

2015 Pedago, LLC. All rights reserved