Analyzing Transactions into Debit and Credit Parts Chapter 2

Today’s Objectives Engage prior knowledge using critical thinking skills Demonstrate where a debit/credit is placed in a T-Account Become familiar with the key elements and terms associated with analyzing transactions into Debit and Credit parts

Prior Knowledge Take out a sheet of paper Open Books: Read about AAA Page 27 Read about AAA When finished: Discuss Critical Thinking #1 & #2 with people sitting near you

Possible Answers… #1 What asset and liability account might AAA use to record transactions? Assets = Cash, Accounts Receivable, Supplies, etc. Liability = Accounts Payable #2 List at least two (2) transactions AAA might record Buying supplies for cash Buying supplies on account Paying cash for salaries Receiving cash for memberships

Introduction New Vocabulary T Account Debit Credit Normal Balance Chart of Accounts

Section 2-1: Using T Accounts Assets = Liabilities + Owner’s Equity T Account Debit Side Credit Side

Accounts Record summarizing all the information pertaining to a single item…. Transactions change the balances of these accounts T account is an accounting device used to analyze transactions. Debit – amount recorded on left Credit – amount recorded on right

Account Balances Normal balance – the side of the account that is increased is called the normal balance Assets = left side of equation/ normal debit balance Liabilities = right side of equation/ normal credit balance Owner’s Equity= right side of equation/ normal credit balance

Rules – Two basic accounting rules regulate increases and decreases in account balances Account balances increase on the normal balance side of the account Account balances decrease on the side opposite of the normal balance.

Debit & Credit Assets Liabilities Owner’s Equity Debit Credit Debit Normal Balance Normal Balance Normal Balance

LET’S LEARN A CHEER! Everyone on the LEFT SIDE of the room: “DEBITS ON THE LEFT!” Everyone of the RIGHT SIDE of the room: “CREDITS ON THE RIGHT” EVERYONE TOGETHER: “STAND UP. SIT DOWN. FIGHT, FIGHT, FIGHT!”

Practice Handout Working Together On Your Own Homework: Application Problem 2-1

Bell Quiz What new accounting device did you learn about? What side is the debit? What side is the credit? What does normal balance mean? What is the normal balance for each of the following: Assets, Liabilities, & Owner’s Equity?

Bell Quiz - Answers T – Account Left Right Side the account increases on Debit, Credit, Credit

Review Creating T Accounts – Cheat Sheet Go over Homework Crossword Puzzle Review

Creating a Cheat Sheet Using the color paper make the following T accounts One large one Small Assets Small Liabilities Small Owner’s Equity Follow Teacher Direction

2:2 – Analyzing How Transactions Affect Accounts Steps to Analyzing a Transaction into Debit and Credit Parts Which accounts are affected? How is each account classified? How is each classification changed? How is each amount entered in the accounts?

Received Cash From Owner Received cash from owner as an investment, $5,000. Remember: Debits must equal credit DEBITS = CREDITS Total Debits = Total Credits What accounts? - Cash and Capital Assets & Owner’s Equity Increased, Increased Debit, Credit A list of accounts used by a business is called a chart of accounts…..(page 3) Cash OE $5,000 $5,000

Paid Cash for Supplies Paid Cash for Supplies, $275 Cash & Supplies Asset, Asset Decreased, Increased Credit, Debit

Paid Cash for Insurance Cash and Insurance Asset & Asset Decrease(Cash) Increase(PP Insurance) Credit Cash Debit PP Insurance

Bought Supplies on Account Bought Supplies on account from Supply Depot, $500.00 Supplies & A/P Suppy Depot Asset Liability Increase(Supplies) Increase (A/P) Debit Supplies Credit Cash

Paid Cash on Account Paid Cash on account to Supply Depot, $300.00. Cash & A/P Supply Depot Asset Liability Decrease Decrease Credit Debit

Practice Working Together On Your Own Application 2-2

Pass Out Note cards INCREASE INCREASE SIDE Debit Credit A D E = L O R s r x I . e s a p a E v e w e b . e t I n I n n s l u g e i e t y

FLIP THE CARD OVER L O R A D E DECREASE SIDE I . e s r x A E v s a p Debit Credit L O R A D E I . e s r x A E v s a p B . e e w e I n t i n L u n s I e g e T Y

Analyzing How Transactions Affect Owner’s Equity Received Cash from Sales, $295 Revenue increases OE Separate account for revenue: Sales OE has a Credit normal balance Therefore, Revenue has a credit normal balance OE, Capital Cash Sales $295 $295

Sold Services on Account Sold services on account to Oakdale School, $350. Which accounts are affected? Accounts Receivable-Oakdale Schools & Sales How is each account classified? Asset Account Owner’s Equity How is each classification changed? Increases Increases How is each amount entered in the accounts? Debit A/R Credit Sales A/R Oakdale School Sales $350 $350

Paid Cash for an Expense Paid cash for Rent, $300 Expenses decrease OE Separate expense accounts are used to summarize these decreases Rent Expense O.E. has normal credit balance Therefore, Rent Expense has a normal debit balance since it decreases OE Rent Expense Cash $300 $300

Received Cash on Account Received cash on account from Oakdale School, $200. Which accounts are affected? Cash & Accounts Receivable-Oakdale Schools How is each account classified? Asset Asset How is each classification changed? Increases Decreases How is each amount entered in the accounts? Debit Cash A/R Oakdale Schools A/R Oakdale School Cash $200 $200

Paid Cash to Owner for Personal Use Withdrawals decrease OE Normal Debit balance Which accounts are affected? Kim Park, Drawing & Cash How is each account classified? O.E. Asset How is each classification changed? Decreases Decreases How is each amount entered in the accounts? Debit Kim Park, Drawing Cash Cash Kim Park, Drawing $125 $125

ADE=LOR vs. LOR=ADE SIMPLY stated: ADE=LOR for the POSITIVE/normal balance side (and vice versa); LOR=ADE for the DECREASE side. Make a note card!

Practice Working Together On Your Own Application Problem 2-3

Group Exercise Analyzing T- Account Share Based on the information recorded on your t-accounts, Determine the transaction by analyzing the way it was recorded. Share

Individual Review Audit your Understanding p. 37 and 44 Audit Test Go over Homework Introduce DEAD COIL Application Problems 2-4, 2-5, 2-6

Review Day – Preparing for Test In the Life of a Credit Union Class Cheer Cases and Auditing for Errors Study Guide – Pairs Catch Phrase Review Game

A Life With A Credit Union Activity In your group listen to the following story When I say debit pass your pencils to the left! When I say credit pass your pencils to the right!

Debits on the Left Credits on the Right Stand up, Sit Down Class Cheer Debits on the Left Credits on the Right Stand up, Sit Down Fight Fight Fight!

Practice/ Assignments Cases page 50 Auditing for errors Study Guide – Pairs Catch Phrase Review Game