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Presentation transcript:

© 2014 Cengage Learning. All Rights Reserved. Learning Objectives LO1 Show the relationship between the accounting equation and a T account. LO2 Identify the debit and credit side, the increase and decrease side, and the balance side of various accounts. LO3 Restate and apply the two rules that are associated with the increase side of an account. © 2014 Cengage Learning. All Rights Reserved.

Analyzing the Accounting Equation Lesson 2-1 Analyzing the Accounting Equation LO1

Lesson 2-1 Accounts LO2 A record summarizing all the information affecting a single item in the accounting equation is known as an account. An accounting device used to analyze transactions is called a T account. Debit means an amount recorded on the left side of an account. Credit means an amount recorded on the right side of an account.

Lesson 2-1 Accounts LO2

Increases, Decreases, and Balances in Accounts Lesson 2-1 Increases, Decreases, and Balances in Accounts LO3 Assets On the left side of the accounting equation Increase on the left, or debit, side of the account Liabilities and the owner’s capital account On the right side of the accounting equation Increase on the right, or credit, side of the account Normal balance The side of the account that is increased is called the normal balance of the account. Assets have normal debit balances Liabilities and the owner’s capital account have normal credit balances

Increases, Decreases, and Balances in Accounts Lesson 2-1 Increases, Decreases, and Balances in Accounts LO3

Lesson 2-1 Audit Your Understanding 1. Draw the accounting equation on a T account. ANSWER

Lesson 2-1 Audit Your Understanding 2. What are the two accounting rules that explain increases of account balances? ANSWER (1) Assets are on the left side of the accounting equation. Therefore, assets increase on the left, or debit, side of the account. (2) Liabilities and the owner’s capital account are on the right side of the accounting equation. Therefore, liabilities and the owner’s capital account increase on the right, or credit, side of the account.