D EBITS, C REDITS, AND T A CCOUNTS, O H M Y !. K EY V OCABULARY Ledger Chart of Accounts Double-Entry Accounting T Account Debit Credit Normal Balance.

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Presentation transcript:

D EBITS, C REDITS, AND T A CCOUNTS, O H M Y !

K EY V OCABULARY Ledger Chart of Accounts Double-Entry Accounting T Account Debit Credit Normal Balance

R EVIEW Assets = Liabilities + Owner’s Equity CashAcct. Pay Capital A/R Equipment Computer Inventory

C HART OF A CCOUNTS 100’s for Assets 200’s for Liabilities 300’s for Owner’s Equity 400’s for Revenue 500’s for Expenses

T-A CCOUNTS So called because of its shape. Is a helpful tool in analyzing a transaction. Top of the T has room for the account name. The left side is for debit The right is for credit Account Name Debit Credit

D EBIT AND C REDIT Debit = left side Credit = right side There is no other meaning for debit and credit, the words only represent left and right, and have NO indication of increase or decrease.

R ULES OF D EBIT AND C REDIT - A SSETS 1. Is increased (+) on the debit (left) side. 2. Is decreased (-) on the credit (right) side. 3. The normal balance is the increase side, debit. Asset Accounts Debit Credit + - Increase Decrease Normal Balance

R ULES OF D EBIT AND C REDIT - L IABILITY 1. Increased on the credit (right) side. 2. Decreased on the Debit (left) side. 3. Normal balance is the increase, credit side. Liability Debit Credit - + Decrease Increase Normal Balance

R ULES OF D EBIT AND C REDIT – O WNER ’ S E QUITY 1. Increased on the credit (right) side. 2. Decreased on the Debit (left) side. 3. Normal balance is the increase, credit side. Owner’s Equity Debit Credit - + Decrease Increase Normal Balance

P UT IT ALL TOGETHER Assets = Liabilities + Owner’s Equity Debit Credit Debit Credit Debit Credit Inc. Dec. Dec. Inc. Dec. Inc. N.B. N.B N.B

A NALYSIS - R EVIEW Analysis Identify Classify +/- Balance 1. Identify the accounts affected. 2. Classify the accounts affected. 3. Determine the amount of increase or decrease for each account affected. 4. Make sure the accounting equation remains in balance. How do we analyze a business transaction?

“N EW ” B USINESS TRANSACTION ANALYSIS Analysis Identify Classify +/- Debit-Credit Rule T - Accounts 1. Identify the accounts affected. 2. Classify the accounts affected. 3. Determine the amount of Inc. or Dec. 4. Which account is debited? Amount? 5. Which account is credited? Amount? 6. What is the entry in T- account form?