| LO2 – Analyze transactions using double-entry accounting. |
In Chapter 1, transactions for Big Dog Carworks Corp. were analyzed to determine the change in each item of the accounting equation. In this next section, these same transactions will be used to demonstrate double-entry accounting. Double-entry accounting means each transaction is recorded in at least two accounts where the total debits always equal the total credits. As a result of double-entry accounting, the sum of all the debit balance accounts in the ledger must equal the sum of all the credit balance accounts. The rule that debits = credits is rooted in the accounting equation:
|
ASSETS |
= |
LIABILITIES |
+ |
SHAREHODLERS’ EQUITY |
|
Debits |
= |
Credits |
+ |
Credits |
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