Recording Transactions in the T Account Form

Now let’s see how Guangli Services records its transactions in the T account form. (pp.20-21)
Rules for Debit and Credit
Recording Business Transactions

To start the operation of house-moving service, Guangli Services buys a house which costs 360 000 yuan.
Recording Business Transactions
Recording Business Transactions
Recording Revenues and Expenses

Soon after the opening of the business, Guangli Services renders house-moving services for its customers, resulting in the first inflow of revenue. Revenues are the amounts of assets that a business earns as a result of selling goods or rendering services. They may be in the form of cash or creditcard receipts or receivables.
Recording Business Transactions
Recording Business Transactions

Guangli Services pays 3 600 yuan for a oneyear insurance policy on the trucks and equipment. We record it as an asset with an account name, Prepaid Insurance.
Recording Revenues and Expenses
Double-entry Bookkeeping


Double-entry bookkeeping is an accounting system by which each business transaction is recorded in at least two accounts and the accounting equation is kept in balance. It also helps us to check whether we have made any arithmetic mistakes in recording business transactions

Guangli Services buys three trucks which costs 240 000 yuan from an auto dealer. The business pays the auto dealer 200 000 yuan in cash. The balance of 40 000 yuan will be paid 90 days later. This is a liability called Accounts Payable.
Chapter 1 The Accounting Equation and Double-entry Bookkeeping
The Fundamental Accounting Equation

Assets = Liabilities + Owner’s Equity
Liabilities = Assets - Owner’s Equity Owner’s Equity = Assets - Liabilities

As a result of receiving a cash revenue of 2000 yuan, the accounting equation is changed as follows:
Recording Revenues and Expenses

After a week’s operation, the trucks run out of gasoline. Guangli Services pays the gas station 200 yuan for the gasoline filled. This is the first expense of the business. Expenses are the amounts of assets that a business uses up in the process of generating revenues.
The Trial Balance

A trial balance is a list of all the account balances at a given point of time. The balances of the accounts are recorded in a trial balance in the following order: Assets, Liabilities, Owner’s Equity, Revenue, and Expenses.

The amount recorded on the debit side of one account (or accounts) always equals the amount recorded on the credit side of another account (or accounts).
Recording Business Transactions
Recording Business Transactions

Guangli Services buys house-moving equipment in cash from Haima Equipment Company, 9 000 yuan.
The T Account Form

The columnar form takes space, so the T account form is used.
Placement of T accounts

Assets = Liabilities + Owner’s Equity + Revenue - Expenses
Guangli Services Trial Balance January 31, 200×


Recording Business Transactions

Suppose that Mr Li initially invests 1 000 000 yuan of his own in Guangli Services by depositing the money in the name of the business.