Question

What is the accounting equation? How does it help an accounting student? What does the acronym ALORE stand for? One of the biggest concepts in chapter 2 is normal balances. The normal balance of an account is How does that account increase? I'll try to explain with this hint:

Assets increase with debits

Liabilities increase with credits

Owners Equity aka Stockholders Equity increase with credits

Revenues increase with credits

Expenses increase with debits

Last question, what is a trial balance and its primary purpose?

Answer 1

1. Accounting equation is a mathematical equation where in the assets are equal to the sum of liabilities and owners equity.

Simply put , Assets = Liabilities + owners equity

It helps an accounting student in double entry book keeping and is a fundamental accounting principle.

2. ALORE - Assets , Liabilities, Owners Equity, Revenue , Expenses

3. The normal balance of an account is the debit and credit classification of an account. Assets and expenses have debit balances, liabilities ,revenues and owners equity have credit balances. The reason being assets come in so must be debited and expenses involve cash outflow which has to be credited and expense is debited. Liabilities ,revenues and owners are credited since they all increase the capital of the firm.

4. A trial balance is a statement that has a debit and credit column consisting of the balances of the T accounts. It is primarily prepared to ensure mathematical accuracy of the basic accounting entries and is a initial step for preparing financial statements.