Chapter 2, Problem 6QS

To determine

Accounting Equation: It refers to the equation that shows the relationship between assets, liabilities and equity of a company or a business. It shows that the assets of a company are financed by either the amount it borrows from outsiders or the amount invested by the owners.

Accounting equation is,

$\text{Assets}=\text{Liabilities}+\text{Equity}$

Journal Entry: It refers to the process of recording the data into books of accounts on continuous basis. It is a process of record keeping for every transaction by a company or a firm.

Rules of Journal Entry: The rules for journal entry are defined by five accounting components,

• Assets: Increase in asset should be debit and decrease should be credit.
• Liabilities: Increase in liabilities should be credit and decrease should be debit.
• Equity: Increase in Equity should be credit and decrease should be debit.
• Expense: Increase in expense should be debit and decrease should be credit.
• Revenue: Increase in revenue should be credit and decrease should be debit.

Ledger: It refers to that financial book of accounting that classifies and summarizes all the data recorded in the journal.

1.

To analyze: The transactions using accounting equation.

2.

To determine

To prepare: Journal entries.

3.

To determine

To prepare: T-accounts to represent ledger accounts.