Analyzing Transactions into Debit & Credit Parts

UNIT STANDARDS 15.1.12.C. Analyze business transactions using T-accounts to determine their impact on a business. 1.1.11 D – Identify, describe, evaluate and synthesize the essential ideas in the text. 1.1.11F – Identify and apply key terms. 2.2.11 A – Develop and use computation concepts, operations, and procedures with real numbers.

LEARNING OBJECTIVES List and apply the rules of debit and credit for asset, liability, and stockholder’s equity accounts. Use T accounts to analyze a business transaction into its debit and credit parts. Analyze transactions into debit & credit parts

New Accounting Terms: T-account Debit Credit Normal Balance Contra account

The T Account Def. - Used to show increase or decrease in an account. A helpful tool used to analyze transactions. Left side amounts must always = right side amounts

The T Account Assets = Liabilities + Stockholder’s Equity Credit Debit Debit (Dr)– the amount entered on the left side of the T account. Credit (Cr) – the amount entered on the right side of the T account.

The Rules of Debit & Credit For every debit entry made in one account, a credit of an equal amount MUST be made in another account. Normal balance – (balance side)- is the side of an account, whether debit or credit, to which increases to the account are recorded. Liability and SE are opposite of assets because they are on the opposite side of the equation. A = L + SE

Rules for Asset accounts… Debit Credit + - Normal Balance

Liability & Stockholder’s Equity Accounts Liability & SE Accounts Debit Credit - + Normal balance

Revenue (Sales & Fees Earned) Debit Credit Normal Balance

Expenses: Expenses Debit Credit Normal Balance

Dividends Dividends D C + - Normal Balance *is opposite of Retained Earnings bc it decreases the account Dividends D C + - Normal Balance

Analyzing Transactions into its Debit and Credit Parts: Which accounts are affected? How is each account classified? How is each classification changed? (is it an increase or decrease?) How is each amount entered in the accounts? (debit or credit?)

DEAD COIL DEBITS CREDITS Expenses Owner’s Equity/Capital Assets Income/Revenue Dividends Liabilities All expenses, assets, dividends – increase on the debit side &have a normal debit balance. Capital, Revenue & liability increase on the credit side & have a normal credit balance.

Contra Accounts Def. - Accounts that offset a normal balance of its related account “contra asset” Ex.: Accumulated Depreciation decreases an asset account (equipment, building, etc) Dr. Cr. Balance Accum. Dep

How Much Do You Know? What is the normal balance side of an asset account? Liabilities increase on which side of the T? If office equipment is bought on account, which account is credited? Does a credit to capital increase or decrease the account? If a liability is paid on account, which account is debited? If an asset is purchased with cash, which account is credited?