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Rules of Debit and Credit

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In the previous lecture we learned about how different transactions affect the accounting equation. We will now go more in depth into these transactions, and learn how the effect different accounts and how to apply the rules of debit and credit in different situations. The accounts kept by a business depend upon the nature of its operation and the types of transactions it carries out. A business may hold numerous accounts which record and sort the different transactions that are conducted by the business. Before a business starts recording transactions, it sets up a chart of accounts in which different transactions are recorded. We earlier learned that these accounts can be classified as balance sheet or income statement accounts. On the balance sheet accounts the key accounts are assets, liabilities, and owner's equity. On the income statement accounts, the key accounts are revenue and gains and expenses and losses. Within each of these accounts there will be several accounts for different items such as cash, inventory, machinery, etc. Let's take a brief look at these accounts. The three balance sheet accounts are shown on the screen. As you can see, the common types of asset accounts include cash, accounts receivable, equipment, inventory, and prepaid expenses. Note that these are just examples of asset accounts. The accounts receivable refer to the money that you expect to receive from other businesses or individuals. In reality there will be many asset accounts. Common types of liability accounts include accounts payable, notes payable, unearned revenue, deferred taxes, long term debt, and so on. The accounts payable refers to the money that the business owes to other businesses or individuals. Notes payable is the money that a business promises to pay at a future date. And the unearned revenue is the money received in advance. The common types of owners equity accounts include capital and retained earnings. The capital account includes both the money invested by the owner and the money withdrawn for personal use. The retained earnings account represents the portion of net income retained by the business. The two income statement accounts are shown on screen. As you can see, within the revenue account there is one main account for revenue. This is where the company's primary revenue is recorded. Apart from that there can be other accounts for items such as dividend and interest earned, money earned from sale of assets, capital gains, etc.

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Duration: 13 minutes and 56 seconds
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Language: English
License: Dotsub - Standard License
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Views: 15
Posted by: christineward on Mar 2, 2016

Rules of Debit and Credit

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