Download - Debit and Credit ( Using “T” Accounts) Chapter 2 Analyzing Transactions into Debit and Credit Parts
Let’s Break the Accounting Equation Down
Assets = Liabilities + Owner’s EquityRemember how we named OE transactions as Investment, Withdrawal, Revenue and Expense
The owner gave her own cash to the business for the business to useWe increased cash We increased Owner’s Equity, because the owner has a right to that moneyWe called it INVESTMENT
The owner took money out of the business to pay for something for herself– not business relatedWe decreased cash We decreased Owner’s Equity, because this $ wasn’t there for her to have the right to itWe called it Withdrawal
Let’s Break the Accounting Equation Down
Assets = Liabilities + Owner’s EquityRemember how we named OE transactions as Investment, Withdrawal, Revenue and Expense
A sale occurs We increased either cash or accounts receivableWe increased Owner’s Equity, because the owner has a right to that money received or coming inWe called it REVENUE
ORWe pay cash for a service (telephone bill, repairs, rent) that isn’t an assetWe decrease cash We decrease Owner’s Equity, because the owner is losing the rights to the cashWe called it EXPENSE
Let’s Break the Accounting Equation Down
Assets = Liabilities + Owner’s EquityRemember how we named OE transactions as Revenue and Expense?Let’s practice some of these:
Paid cash for charity:Decrease cash (asset), decrease Capital (OE) Expense
Sold services for cash: Increase cash (asset)Increase Capital (OE)
Revenue
Sold services to customerOn account:
Increase accounts receivable (asset),Increase Capital (OE)
Revenue
Paid cash for cleaning service to clean office:
Decrease cash (asset)Decrese Capital (OE)
Expense
The Expanded Accounting Equation
Assets = Liabilities + Owner’s Equity
Assets = Liabilities + Investment – Withdrawal + Revenue - Expense(Capital)
Accounting Terms
T account – Temporary account; an accounting device used to analyze transactions
Debit – an amount recorded on the left side of the T account
Credit – an amount recorded on the right side of the T account
T Account and Debits and Credits: The Increase-Decrease Secret
http://www.youtube.com/watch?v=DfX_mbbBsYo
– WITT
The Accounting Equation Debits & Credits Using T Accounts
http://www.youtube.com/watch?v=99LTqkxzBpA
Learning on the closet door
Increases and Decreases for the “T” Account
Two sides of an account are used to record increases and decreases to that account.
Any Asset Debit side increases (Left side and normal balance) Credit decreases (Right side)
Any Liability and OE Debit side decreases (left side) Credit side increases (right side and normal balance)
Account Balances
Normal Balance– The side of the account that increases
Assets – On the left side of the T – Have normal debit balances
Liabilities and OE– On the right side of the T– Have normal credit balances
TRANSACTION ANALYSIS
Step by step– Which accounts are affected?– How is each account classified?
Asset, liability, or owner’s equity account
– How is each classification changes? Increase or decrease
– How is each amount entered in the accounts? Debit or credit side
Received cash from owner as an investment $5000
1. Which accounts are affected?– Cash and Capital
2. How is each account classified?– Cash is an asset– Capital is an OE
3. How is each classification changed?– Assets: increase– OE: Increase
4. How is each amount entered in accounts?– Assets increase on the debit side
Debit the asset account cash– OE increase on the credit side
Credit the OE account capital
Paid cash for supplies $275.00
1. Which accounts are affected?– Supplies and Cash
2. How is each account classified?– Supplies is an Asset– Cash is an Asset
3. How is each classification changed?– One asset (supplies): increase– One asset (cash): decrease
4. How is each amount entered in accounts?– Assets increase on the debit side
Debit the asset account supplies– Assets decrease on the credit side
Credit the asset account cash
Paid cash for insurance $1,200
1. Which accounts are affected?– Prepaid insurance and cash
2. How is each account classified?– Prepaid insurance is an Asset– Cash is an Asset
3. How is each classification changed?– One asset (prepaid insurance): increase– One asset (cash): decrease
4. How is each amount entered in accounts?– Assets increase on the debit side
Debit the asset account prepaid insurance– Assets decrease on the credit side
Credit the asset account cash
Bought supplies on account $500
1. Which accounts are affected?– Supplies and Accounts Payable (Supply Depot)
2. How is each account classified?– Supplies is an Asset– Accounts Payable is a Liability
3. How is each classification changed?– Assets: increase– Liabilities: increase
4. How is each amount entered in accounts?– Assets increase on the debit side
Debit the asset account supplies– Liabilities increase on the credit side
Credit the liability account Accounts payable
Paid cash on account $300
1. Which accounts are affected?– Cash and Accounts Payable (Supply Depot)
2. How is each account classified?– Cash is an Asset– Accounts Payable is a Liability
3. How is each classification changed?– Assets: decrease– Liabilities: decrease
4. How is each amount entered in accounts?– Assets decrease on the credit side
Credit the asset account cash– Liabilities decrease on the debit side
debit the liability account Accounts payable
Practice
Work Together – WP p.23– Textbook p. 27
HOMEWORK: Study Guide 2: WP p. 17 Study Guide Part Three: WP p. 19, #’s 1 – 8 On Your Own
– WP p. 24– Textbook p. 37`
Receive cash from sales $295
1. Which accounts are affected?– Cash and Sales
2. How is each account classified?– Cash is an asset– Sales is an OE (revenue)
3. How is each classification changed?– Assets: increase– OE: Increase
4. How is each amount entered in accounts?– Assets increase on the debit side
Debit the asset account cash– OE increase on the credit side
Credit the revenue account sales
Sold services on account $350
1. Which accounts are affected?– Accounts receivable and Sales
2. How is each account classified?– AR is an asset– Sales is an revenue account that affects OE
3. How is each classification changed?– Assets: increase– OE: Increase
4. How is each amount entered in accounts?– Assets increase on the debit side
Debit the asset account AR– OE increase on the credit side
Credit the revenue account sales (OE)
Paid cash for an expense (Rent) $300
1. Which accounts are affected?– Cash and Rent Expense
2. How is each account classified?– Cash is an asset– Rent Exp is an OE
3. How is each classification changed?– Assets: decrease– OE: decreases
4. How is each amount entered in accounts?– OE decrease on the debit side
Debit the rent expense account– Assets decrease on the credit side
Credit the asset account cash
Received cash on account $200
1. Which accounts are affected?– Cash and Accounts receivable
2. How is each account classified?– Cash is an asset– AR is an asset
3. How is each classification changed?– Assets: (cash) increase– Assets: (AR) decreases
4. How is each amount entered in accounts?– Assets increase on the debit side
Debit the asset account cash– Assets decrease on the credit side
Credit the asset account AR
Paid cash to owner for personal use $125
1. Which accounts are affected?– Cash and Owner, Drawing
2. How is each account classified?– Cash is an asset– Owner Drawing is an OE
3. How is each classification changed?– Assets: decrease– OE: decreases
4. How is each amount entered in accounts?– OE decreases on the debit side
Debit the OE account Owner Drawing– Assets decrease on the credit side
Credit the asset account cash