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An example of a cash account recorded in double-entry from 1926 showing a balance of 359.77. In the double-entry accounting system, at least two accounting entries are required to record each financial transaction. These entries may occur in asset, liability, equity, expense, or revenue accounts.
For instance, if ABC Company sells a laptop for $300 in cash, the journal entry would be a debit to the Cash account for $300 and a credit to the Sales account for $300. This follows the rule that an increase in assets (cash) is debited, and revenue from sales is credited.
For instance, if the starting balance of the petty cash fund is $100, and $90 is spent during the month, the fund is replenished by crediting $90 to the primary cash account, typically a bank account, and debiting the respective expense accounts based on the petty cash receipt dockets. The journal entry for replenishment typically includes ...
Adjusting entries for prepayments are necessary to account for cash that has been received prior to delivery of goods or completion of services. When this cash is paid, it is first recorded in a prepaid expense asset account; the account is to be expensed either with the passage of time (e.g. rent, insurance) or through use and consumption (e.g ...
The general ledger should include the date, description and balance or total amount for each account. Because each bookkeeping entry debits one account and credits another account in an equal amount, the double-entry bookkeeping system helps ensure that the general ledger is always in balance, thus maintaining the accounting equation:
There are certain advantages in tax planning when the cash method of accounting is used: for instance, payment of business expenses may be accelerated before year end, in order to maximize tax deductions, whereas billings for services may be postponed to after year end, so that payments won't be received until the new year, thus postponing tax ...
Accounts may also be assigned a unique account number by which the account can be identified. Account numbers may be structured to suit the needs of an organization, such as digit/s representing a division of the company, a department, the type of account, etc. The first digit might, for example, signify the type of account (asset, liability ...
[1] [2] Each transaction transfers value from credited accounts to debited accounts. For example, a tenant who writes a rent cheque to a landlord would enter a credit for the bank account on which the cheque is drawn, and a debit in a rent expense account. Similarly, the landlord would enter a credit in the rent income account associated with ...