Bell Work -Are you enjoying this class so far? -Do you think it is easy or hard? -Is there anything that you don’t understand or are having troubles with? LESSON 2-1

Chapter 2- Analyzing Transactions into Debit & Credit Parts Objectives Define accounting terms related to analyzing transactions into debit and credit parts. Identify accounting practices related to analyzing transactions into debit and credit parts Use T accounts to analyze transactions showing which accounts are debited or credited for each transaction. Analyze how transactions to set up a business affect accounts. Analyze how transactions affect owner’s equity accounts. LESSON 2-1

LESSON 2-1 Using T Accounts 4/25/2018 LESSON 2-1 Using T Accounts

ANALYZING THE ACCOUNTING EQUATION The accounting equation can be represented as a T. The values of all things owned (assets) are on the left side of the accounting equation. The values of all equities or claims against the assets (liabilities and owners equity) are on the right side of the accounting equation. BOTH SIDES MUST ALWAYS EQUAL. LESSON 2-1

ANALYZING THE ACCOUNTING EQUATION page 28 LESSON 2-1

ACCOUNTS Transactions change the balances of accounts in the accounting equation. Accounting transactions must be analyzed to determine how account balances are changed. T account- an accounting device used to analyze transactions. Debit (dr.)- an amount recorded on the left side. Credit (cr.)- an amount recoded on the right side. LESSON 2-1

ACCOUNTS page 29 LESSON 2-1

Normal Balance- the side of the account that is increased. Account Balances Normal Balance- the side of the account that is increased. Assets have a normal debit balance. Liabilities & Owner’s Equity have a normal credit balance. LESSON 2-1

ACCOUNT BALANCES page 29 LESSON 2-1

INCREASES AND DECREASES IN ACCOUNTS Two basic accounting rules regulate increases and decreases of account balances: 1. Account balances increase on the normal balance side of an account. 2. Account balances decrease on the side opposite of the normal balance side of an account. Asset accounts have normal debit balances: therefore, asset accounts increase on the debit side and decrease on the credit side. Liability & O.E. accounts have normal credit balances: therefore, liability & O.E. accounts increase on the credit side and decrease on the debit side LESSON 2-1

INCREASES AND DECREASES IN ACCOUNTS page 30 LESSON 2-1

Draw the accounting equation on a T account. Review Draw the accounting equation on a T account. What are the two accounting rules that regulate increases and decreases of account balances? LESSON 2-1

Work Together 2-1 page. 31 We will do this one together on the board. You may want to copy the problem in your notes. LESSON 2-1

Work in groups or alone and turn it in for a class grade. On your own 2-1 page 31 Work in groups or alone and turn it in for a class grade. You can use one piece of paper per group to turn in. Although I suggest that everyone keep a copy for their notes. Write all group members names on the paper. LESSON 2-1

LESSON 2-1 Analyzing How Transactions Affect Accounts 4/25/2018 LESSON 2-2 Analyzing How Transactions Affect Accounts

RECEIVED CASH FROM OWNER AS AN INVESTMENT Before a transaction is recorded in the records of a business, the information is analyzed to determine which accounts are changed and how. Each transaction changes the balances of at least two accounts. Chart of accounts is a list of accounts used by a business. LESSON 2-1

RECEIVED CASH FROM OWNER AS AN INVESTMENT page 32 August 1. Received cash from owner as an investment, $5,000.00. 2 1 4 3 1. Which accounts are affected? STEPS FOR ANALYZING A TRANSACTION 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? LESSON 2-1

PAID CASH FOR SUPPLIES page 33 August 3. Paid cash for supplies, $275.00. 2 1 4 3 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? LESSON 2-1

In this transaction, two asset accounts are changed. PAID CASH FOR SUPPLIES In this transaction, two asset accounts are changed. These two changes are both on the left side of the accounting equation. When changes are made on only one side of the accounting equation, the equation must still balance. Therefore, if one account is increased, another account on the same side of the equation must decrease. LESSON 2-1

PAID CASH FOR INSURANCE page 34 August 4. Paid cash for insurance, $1,200.00. 2 1 4 3 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? LESSON 2-1

BOUGHT SUPPLIES ON ACCOUNT page 35 August 7. Bought supplies on account from Supply Depot, $500.00. 2 1 4 3 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? LESSON 2-1

BOUGHT SUPPLIES ON ACCOUNT In this transaction, one asset and one liability are changed. The asset account supplies increases by $500 for the amount of supplies bought (what we received). Supply Depot will have a claim against some of TechKnow Consulting’s assets until TechKnow Consulting pays for the supplies bought. The liability account: Accounts Payable- Supply Depot, increases by $500 (the amount owed for the supplies.) LESSON 2-1

PAID CASH ON ACCOUNT page 36 August 11. Paid cash on account to Supply Depot, $300.00. 2 1 4 3 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? LESSON 2-1

PAID CASH ON ACCOUNT The asset account, Cash, is decreased by $300, the amount of cash paid out. After this payment, TechKnow consulting owes less money to Supply Depot. Therefore, the liability account: Accounts Payable- Supply Depot, is decreased by $300, the amount paid on account. LESSON 2-1

State the four questions used to analyze a transaction. Review State the four questions used to analyze a transaction. 2. What two accounts are affected when a business pays cash for supplies? LESSON 2-1

Work Together 2-2 page. 37 We will work this problem all together on the board. You may want to copy the answers in your notes. LESSON 2-1

Work in groups or alone and turn it in for a class grade. On Your Own 2-2 page 37 Work in groups or alone and turn it in for a class grade. You can use one piece of paper per group to turn in. Although I suggest that everyone keep a copy for their notes. Write all group members names on the paper. LESSON 2-1

LESSON 2-1 Analyzing How Transactions Affect Owner’s Equity Accounts 4/25/2018 LESSON 2-3 Analyzing How Transactions Affect Owner’s Equity Accounts

RECEIVED CASH FROM SALES page 38 August 12. Received cash from sales, $295.00. 2 1 4 3 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? LESSON 2-1

RECEIVED CASH FROM SALES Revenue increases owner’s equity. The increases from revenue could be recorded directly in the owner’s capital account. However, to avoid a capital account with a large number of entries and to summarize revenue information separately from the other records, TechKnow Consulting uses a separate revenue account title Sales. Because revenue increases owner’s equity, increases in revenue are also recorded as credits. LESSON 2-1

SOLD SERVICES ON ACCOUNT page 39 August 12. Sold services on account to Oakdale School, $350.00. 2 1 4 3 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? LESSON 2-1

SOLD SERVICES ON ACCOUNT Cash is not received at this time; therefore, the cash account is not affected by this transaction. Instead, this transaction increases an accounts receivable account. LESSON 2-1

PAID CASH FOR AN EXPENSE page 40 August 12. Paid cash for rent, $300.00. 2 1 4 3 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? LESSON 2-1

PAID CASH FOR AN EXPENSE Expenses decrease owner’s equity. The decreases from expenses could be recorded directly in the owner’s capital account. However, to avoid a capital account with a large number of entries and to summarize expense information separately from other records. TechKnow Consulting uses separate expense accounts. The expense account Rent Expense is used to record all payments for rent. The owner’s capital account has a normal credit balance. Decreases in the owner’s capital account are shown as debits. Therefore, an expense account has a normal debit balance. Because expenses decrease owner’s equity, increases in expenses are recorded as debits. LESSON 2-1

RECEIVED CASH ON ACCOUNT page 41 August 18. Received cash on account from Oakdale School, $200.00. 2 1 4 3 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? LESSON 2-1

PAID CASH TO OWNER FOR PERSONAL USE page 42 August 12. Paid cash to owner for personal use, $125.00. 2 1 4 3 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? LESSON 2-1

PAID CASH TO OWNER FOR PERSONAL USE Withdrawals decrease owner’s equity. Withdrawals could be recorded directly in the owner’s capital account. However, to avoid a capital account with a large number of entries and to summarize withdrawal information separately from other records, TechKnow Consulting uses a separate withdrawal account title Kim Park, Drawing. LESSON 2-1

Review What two accounts are affected when a business receives cash from sales? What two accounts are affected when services are sold on account? What two accounts are affected when a business pays cash to the owner for personal use? Are revenue accounts increased on the debit or credit side? Explain Why. Are expense accounts increased on the debit side or the credit side? Explain why. LESSON 2-1

Work Together 2-3 page 44 We will work this problem all together on the board. You may want to copy the answers in your notes. LESSON 2-1

Work in groups or alone and turn it in for a class grade. On Your Own 2-3 page 43 Work in groups or alone and turn it in for a class grade. You can use one piece of paper per group to turn in. Although, I suggest that everyone keep a copy for their notes. Write all group members names on the paper. LESSON 2-1

Problems from chapter to work pages 46-47 Application Problems: 2-1, 2-2, 2-4 Master Problem 2-5 LESSON 2-1