Using T Accounts / Analyzing the Accounting Equation CHAPTER 2-1 Using T Accounts / Analyzing the Accounting Equation

Assets = Liabilities + OE Accounting Equation Assets = Liabilities + OE LEFT SIDE RIGHT SIDE DEBIT CREDIT

Assets = Liabilities + OE Account Balances Assets = Liabilities + OE Any Liability Any Asset Debit Credit Normal Balance Debit Credit Decrease Normal Balance Increase Decrease Any Owners Equity Increase Debit Credit Normal Balance Decrease Increase

Definitions T Account: An accounting device used to analyze transactions. Debit: The number recorded on the left side of the equation. Credit: The number recorded on the right side of the equation. Normal Balance: The side of the account that is increased .

ANALYZING HOW TRANSACTIONS AFFECT ACCOUNTS CHAPTER 2-2 ANALYZING HOW TRANSACTIONS AFFECT ACCOUNTS

Assets = Liabilities + OE Account Balances Assets = Liabilities + OE Any Liability Any Asset Debit Credit Normal Balance Debit Credit Decrease Normal Balance Increase Decrease Any Owners Equity Increase Debit Credit Normal Balance Decrease Increase

Chart of Accounts A list of all accounts used by a business is called a Chart of Accounts

Steps for Analyzing a Transaction into Debit and Credit Parts Which accounts are affected? Cash, Supplies, Capital, Accounts Payable, etc. How is each account classified? Asset, Liability, or Owner’s Equity How is each classification changed? Increases or Decreases? How is each amount entered into the account? Debit Side or Credit Side? Increase or Decrease? DEBITS MUST EQUAL CREDITS ON EACH TRANSACTION! TOTAL DEBITS MUST EQUAL TOTAL CREDITS!

August 1. Received Cash from owner as an investment, $5,000 Assets = Liabilities + OE CASH Kim Park, Capital Debit Credit Debit Credit Normal Balance Normal Balance $5,000 $5,000

August 3. Paid Cash for Supplies, $275.00 Assets = Liabilities + OE Supplies Debit Credit Normal Balance $275.00 Cash Debit Credit Normal Balance $275.00

August 4. Paid Cash for Insurance, $1,200.00 Assets = Liabilities + OE Prepaid Insurance Debit Credit Normal Balance $1,200.00 Cash Debit Credit Normal Balance $1,200.00

August 7. Bought Supplies on account from Supply Depot, $500.00 Assets = Liabilities + OE Supplies AP – Supply Depot Debit Credit Debit Credit Normal Balance Normal Balance $500.00 $500.00

August 11. Paid Cash on account to Supply Depot, $300.00 Assets = Liabilities + OE Cash AP – Supply Depot Debit Credit Debit Credit Normal Balance Normal Balance $300.00 $300.00

DO NOW: On Your Own Pg. 37 Home Work: Application problem 2-2 Pg. 46

ANALYZING HOW TRANSACTIONS AFFECT OWNER’S EQUITY ACCOUNTS CHAPTER 2-3 ANALYZING HOW TRANSACTIONS AFFECT OWNER’S EQUITY ACCOUNTS

SALES ACCOUNTS Revenue increases Owner’s Equity HOWEVER, to avoid a Capital account with a large number of entries and to summarize revenue records separately, TechKnow Consulting uses a separate revenue account titled SALES.

August 12. Received cash from sales, $295.00 Assets = Liabilities + OE Cash Sales Debit Credit Debit Credit Normal Balance Normal Balance $295.00 $295.00

August 12. Sold services on account to Oakdale School, $350.00 Assets = Liabilities + OE Sales AR - Oakdale School Debit Credit Debit Credit Normal Balance Normal Balance $350.00 $350.00

EXPENSE ACCOUNTS Expenses decrease Owner’s Equity HOWEVER, to avoid a Capital account with a large number of entries and to summarize information separately, TechKnow Consulting uses separate Expense Accounts. Expense Accounts have NORMAL DEBIT BALANCES!! Debit Credit Normal Balance

August 12. Paid cash for rent, $300.00 Assets = Liabilities + OE Capital Cash Debit Credit Normal Balance Debit Credit Normal Balance $300.00 Rent Expense Debit Credit Normal Balance $300.00

August 18. Received cash on account from Oakdale School. Assets = Liabilities + OE Cash Debit Credit Normal Balance $200.00 AR – Oakdale School Debit Credit Normal Balance $200.00

PAID CASH TO OWNER FOR PERSONAL USE Withdrawals decrease Owner’s Equity HOWEVER, to avoid a Capital account with a large number of entries and to summarize information separately, TechKnow Consulting uses a separate Withdrawal account titled, Kim Park, Drawing. Withdrawal Accounts have NORMAL DEBIT BALANCES!! Debit Credit Normal Balance

August 18. Paid cash to owner for personal use, $125.00. Assets = Liabilities + OE Capital Cash Debit Credit Normal Balance Debit Credit Normal Balance $125.00 Kim Park, Drawing Debit Credit Normal Balance $125.00