TransactionsEvery single activity in a business that

involves money needs to be recorded.

Something of value is received.

Something of value given.

TRANASACTION

TransactionsEach transaction will affect at least two

accountsEvery Asset & Liability is categorized into

accounts

Examples of accountsAssets

Cash, Building, Land, Accounts Receivable, Inventory, Office Supplies, Automobile, Equipment, Furniture

Liabilities Loans, Accounts Payable, Mortgage,

Debit/CreditThe most fundamental concept in accounting

Understanding debit/credit is vital to:recording daily transactionsPreparing Financial Statements

Debit/CreditDebits and Credits will increase and decrease

different accountsIt is important not to think of debits and

credits as “Increase & Decrease”This line of thinking will result in mistakes

being made for different accounts

Debit/CreditRecall Our Accounting Equaition

ASSETS = LIABILITIES + OWNER’S EQUITYLeft side of the equation – Debit AccountRight Side of the equation – Credit Accounts

Debit/ CreditThink of a debit card vs. a credit cardDebit Card – Taking from your cash in the

bank (ASSETS)Credit Card – Borrowing money with the

promise of future payment. (Liability)

Debit Credit

Assets Liabilities

Owner’s Equity

T - AccountDrawing a T – separates the debit side of an

account from the credit side

T - AccountASSETS

DEBIT CREDIT

Will Increase the value of the asset account

Ex. Receiving a building

Will Decrease the Value of the asset account

Ex. Paying out cash

Liability

DEBIT CREDIT

Will Decrease the Value of the Liability

Ex. Paying off a creditor

Will Increase the Value of the Laibility

Ex. Taking on more of a loan

OWNER’S EQUITY

DEBIT CREDIT

Will decrease the Worth of the business

Ex. Employee steals cash from the register

Will Increase the Worth Of the Business

Ex. Initial Investment in the Business

Recording TransactionsEvery Single Transaction will affect at least

two accountsFor every transaction

Debits = CreditsThis is referred to as “Balancing the Accounts”

Example: Purchase a desk for $100 CashAccounts Affected: 1) Cash (asset) – Credited 2) Office Furniture

(asset) - Debited

Recording TransactionsExample 2: Paid back a loan owing for $500.

Cash (asset) Loan (Liability)

$500 $500

Recording TransactionsExample 3: Was paid $330 for services

performed.What accounts are affected?

Recording TransactionsExample 3: Was paid $330 for services

performed.

Cash (asset) Owner’s Equity

$330 $330

ENVELOPE ACTIVITYGet together in groups of 3