US Accounting Fundamentals: GAAP, Debits & Credits

US businesses report under Generally Accepted Accounting Principles (GAAP), established primarily by the Financial Accounting Standards Board (FASB) for nongovernmental entities. The conceptual foundation is the same worldwide:

Assets = Liabilities + Stockholders' Equity

• Assets — resources with future economic benefit (cash, accounts receivable, inventory, equipment).
• Liabilities — obligations to creditors (accounts payable, notes payable, accrued expenses).
• Stockholders' Equity — owners' residual claim (common stock, additional paid-in capital, retained earnings).

GAAP hierarchy (simplified): FASB Accounting Standards Codification (ASC) is the single source of authoritative literature. Public companies also follow SEC reporting regulations (Regulation S-X, etc.).

When a founder invests $100,000 cash to start an LLC taxed as a corporation:

Account	Debit ($)	Credit ($)
Cash	100,000
Common Stock		10,000
Additional Paid-In Capital		90,000

(Par value $10,000; remainder to APIC — common US presentation.)

The double-entry system requires every transaction to record equal debits and credits. Think in terms of the accounting equation, not "good/bad":

Account type	Increase	Decrease
Assets	Debit	Credit
Liabilities	Credit	Debit
Equity	Credit	Debit
Revenue	Credit	Debit
Expenses	Debit	Credit

DEALER mnemonic — Dividends, Expenses, Assets increase with Debits; Liabilities, Equity, Revenue increase with Credits.

Journal entry — purchased $5,000 office supplies on account:

Dr. Office Supplies         5,000
    Cr. Accounts Payable            5,000

T-account view (Cash):

        Cash
    -----------------
Dr. | 100,000 | 2,000 | Cr.
    -----------------
    Balance: 98,000 (debit = asset)

After posting to the general ledger, prepare an unadjusted trial balance to verify debits equal credits before adjusting entries.

US GAAP financial statements for external users typically include:

1. Income Statement (Statement of Operations) — revenues minus expenses for a period.

2. Balance Sheet (Statement of Financial Position) — assets, liabilities, and equity at a point in time.

3. Statement of Cash Flows — cash inflows/outflows (operating, investing, financing).

4. Statement of Stockholders' Equity — changes in equity accounts.

Simple service company example:

Income Statement (Year 1)	$
Service Revenue	200,000
Salaries Expense	(120,000)
Rent Expense	(24,000)
Net Income	56,000

Balance Sheet (End Year 1)	$
Cash	80,000
Accounts Receivable	40,000
Total Assets	120,000
Accounts Payable	20,000
Common Stock + RE	100,000
Total L + E	120,000

Net income flows into Retained Earnings on the balance sheet unless dividends are paid.

Work through typical small-business transactions:

1. Earned $15,000 for services; $10,000 collected, $5,000 on account

Dr. Cash                    10,000
Dr. Accounts Receivable      5,000
    Cr. Service Revenue             15,000

2. Paid $3,000 rent

Dr. Rent Expense             3,000
    Cr. Cash                        3,000

3. Received $12,000 from customer on prior invoice

Dr. Cash                    12,000
    Cr. Accounts Receivable        12,000

4. Declared and paid $4,000 dividend

Dr. Dividends                4,000
    Cr. Cash                        4,000

Practice check — after these four entries starting from the Year 1 balances above, Cash = $80,000 + $10,000 − $3,000 + $12,000 − $4,000 = $95,000.

Master the logic: identify affected accounts, classify them, determine increase/decrease, apply debit/credit rules. Software (QuickBooks, NetSuite) automates posting, but accountants must understand the underlying entries for reconciliations and error correction.