Recording Business Transactions
1. Identify the three categories of the accounting equation, and list at least four accounts
associated with each category.
The three categories of the accounting equation are assets, liabilities, and equity. Assets
include Cash, Accounts Receivable, Notes Receivable, Prepaid Expenses, Land, Building,
2. What is the purpose of the chart of accounts? Explain the numbering typically associated
with the accounts.
Companies need a way to organize their accounts so they use a chart of accounts. Accounts
3. What does a ledger show? What’s the difference between a ledger and the chart of accounts?
A chart of accounts and a ledger are similar in that they both list the account names and
4. Accounting uses a double-entry system. Explain what this sentence means.
5. What is a T-account? On which side is the debit? On which side is the credit? Where does the
account name go on a T-account?
6. When are debits increases? When are debits decreases?