ACCF 111 NOTES
Chapter 3: The Accounting Equation
1. The Fundamental Equation
• Assets = Equity + Liabilities
• This equation must always balance.
2. The Duality Concept
• Every business transaction has a dual (double) effect
on the accounting equation.
• Example: Buying a vehicle for cash increases assets
(vehicle) and decreases assets (cash).
3. The Account 4
• A record of all changes (increases and decreases) in a
speci c asset, liability, equity, income, or expense item.
4. Debits and Credits
• Debit (Dr): Left side of an account.
• Credit (Cr): Right side of an account.
• Rules for Increasing an Account:
o Debit to increase: Assets and Expenses.
o Credit to increase: Liabilities, Equity, and Income. • To
decrease an account, do the opposite.
Chapter 3: The Accounting Equation
1. The Fundamental Equation
• Assets = Equity + Liabilities
• This equation must always balance.
2. The Duality Concept
• Every business transaction has a dual (double) effect
on the accounting equation.
• Example: Buying a vehicle for cash increases assets
(vehicle) and decreases assets (cash).
3. The Account 4
• A record of all changes (increases and decreases) in a
speci c asset, liability, equity, income, or expense item.
4. Debits and Credits
• Debit (Dr): Left side of an account.
• Credit (Cr): Right side of an account.
• Rules for Increasing an Account:
o Debit to increase: Assets and Expenses.
o Credit to increase: Liabilities, Equity, and Income. • To
decrease an account, do the opposite.
