Balance Sheet Accounts Recording Transactions in T-Accounts Chapter 2 Unit 3

The Ledger Accounts are individual records showing increases and decreases. Cash Accounts Payable The entire group of accounts is kept together in an accounting record called a ledger. Capital Stock

The Use of Accounts Increases are recorded on one side of the T-account, and decreases are recorded on the other side. Title of Account Left or Debit Side Right or Credit Side

Debits and credits affect accounts as follows: Debit and Credit Rules Debits and credits affect accounts as follows: A = L + OE ASSETS Debit for Increase Credit for Decrease LIABILITIES Debit for Decrease Credit for Increase EQUITIES Debit for Decrease Credit for Increase 13

Debit and Credit Rules The total amount of the debit MUST EQUAL the total amount of the credit Accounts increase on the same side as they appear on the balance sheet and they decrease on the opposite side 13

Double Entry Accounting A = L + OE = Debit balances Credit balances In the double-entry accounting system, every transaction is recorded by equal dollar amounts of debits and credits. 13

Double Entry Accounting Recording the Transaction: Which Accounts (eg. Cash, Equipment) What type of Account (Asset, Liability, OE) Increase or a Decrease Debit or Credit

Transaction Analysis Pages 48-51

Transaction Analysis Accounting Rap Song Learn the Dance Four Rules to Remember If assets increase, amount recorded on _____ side If ______ decrease, amount recorded on credit side If liabilities or Owners Equity increase, amount recorded on the _______ side If liabilities or Owners Equity ________, amount recorded on the debit side Accounting Rap Song Learn the Dance http://www.youtube.com/watch?v=j71Kmxv7smk

Let’s see how debits and credits are recorded in the Cash account for JJ’s Lawn Care Service.

Debit and Credit Entries Receipts are on the debit side. Payments are on the credit side. The balance is the difference between the debit and credit entries in the account.

Let’s record selected transactions for JJ’s Lawn Care Service in the accounts. 9

Will Capital (Equity) increase or decrease? May 1: Jill Jones and her family invested $8,000 in JJ’s Lawn Care Service and received 800 shares of stock. Will Capital (Equity) increase or decrease? Will Cash increase or decrease? Debits or Credits? 3

Cash increases $8,000 with a debit. May 1: Jill Jones and her family invested $8,000 in JJ’s Lawn Care Service and received 800 shares of stock. Cash increases $8,000 with a debit. Capital increases $8,000 with a credit. 3

May 2: JJ’s purchased a riding lawn mower for $2,500 cash. Will Tools & Equipment increase or decrease? Will Cash increase or decrease? Debits or Credits? 3

May 2: JJ’s purchased a riding lawn mower for $2,500 cash. Cash decreases $2,500 with a credit. Tools & Equipment increases $2,500 with a debit. 3

Will Truck increase or decrease? May 8: JJ’s purchased a $15,000 truck. JJ’s paid $2,000 down in cash and issued a note payable for the remaining $13,000. Will Cash and Notes Payable increase or decrease? Will Truck increase or decrease? Debits or Credits? 3

Truck increases $15,000 with a debit. May 8: JJ’s purchased a $15,000 truck. JJ’s paid $2,000 down in cash and issued a note payable for the remaining $13,000. Truck increases $15,000 with a debit. Cash decreases $2,000 with a credit. Notes Payable increases $13,000 with a credit. 3

May 11: JJ’s purchased some repair parts for $300 on account. Will Tools & Equipment increase or decrease? Will Accounts Payable increase or decrease? Debits or Credits? 3

May 11: JJ’s purchased some repair parts for $300 on account. Tools & Equipment increases $300 with a debit. Accounts Payable increases $300 with a credit. 3

Will Tools & Equipment increase or decrease? May 18: JJ’s sold half of the repair parts to ABC Lawns for $150, a price equal to JJ’s cost. ABC Lawns agrees to pay JJ’s within 30 days. Will Tools & Equipment increase or decrease? Will Accounts Receivable increase or decrease? Debits or Credits? 3

Tools & Equipment decreases $150 with a credit. May 18: JJ’s sold half of the repair parts to ABC Lawns for $150, a price equal to JJ’s cost. ABC Lawns agrees to pay JJ’s within 30 days. Tools & Equipment decreases $150 with a credit. Accounts Receivable increases $150 with a debit. 3

Video http://www.youtube.com/watch?v=j71Kmxv7smk

Trial Balance A list of the ledger account balances The total of the debits balances MUST EQUAL credit balances. Proves the mathematical accuracy of our ledger Page 54

Trial Balance

Trial Balance Heading Page 54 Who – Company Name What - Trial Balance When – The date Page 54

Trial Balance Limitations Does not indicate if the wrong accounts were used in the transaction

New Balance Sheet Balances are taken from the Trial Balance Remember the format – page 56

GAAP (Generally Accepted Accounting Principles) Double Entry Accounting – Debits MUST Equal Credits Assets increase on the debit side (left) and decrease on the credit side (right) Liabilities and Owners Equity increase on the credit side (right) and decrease on the debit side (left) A trial balance proves the mathematical accuracy of the ledger. It does NOT indicate that the transactions were all correctly recorded

The FLOW Page 57

Assignment Do exercises 1and 3, 13 PAGES 59-67