Accounting and Finance Foundations

Unit 5

Accounting and Finance Foundations Unit 5: Accounting Terminology 357

Accounting Terminology

Chapter 14

We see from the accounting equation that we increase the amount of money that Lisa Cook owes us by

$1000, and since Accounts Receivable, Lisa Cook is an asset and on the left side of the accounting equa-

tion, when we are using T accounts, we place the $1000 on the debit side (left side) of the Accounts

Receivable, Lisa Cook account as seen below. The second part of the transaction is an increase to Revenue

because we have sold more product than we had before. Notice on the T account below that Sales,

although classified as a Revenue, is under the Owner’s Equity side of the accounting equation. This is

because revenue increases Owner’s Equity. Since Revenue is an increase to Owner’s Equity, it is treated the

same way as the Owner’s Equity account; therefore, to increase Revenue, we place $1,000 on the credit

(right side) of the T account. Notice, we ALWAYS have equal debits and credits.

Assets = Liabilities + Owner’s Equity

Accounts Receivable, Lisa Cook Revenue (Sales)

Debit Credit Debit Credit

+ – – +

1000 1000

Student Guide