Using T-Accounts to Analyze Transactions Chapter 4 Cash Using T-Accounts to Analyze Transactions DEBIT CREDIT Normal Balance - + Vocabulary: T-Account Debit Credit

What you already (should) know! Chapter 4 What you already (should) know! Basic Accounting Equation Assets = Liabilities + Owner’s Equity Assets Anything of value owned by a business. Cash, Supplies, Prepaid Insurance Liability Anything owed by a business Accounts Payable (Tractor Supply Company) Owner’s Equity The rights the owner has to the things owned by the business. Capital—investment from the owner Drawing—paid to the owner for personal use Revenue Money received from the operation of the business Sales, Fees Expenses Money paid out from the operation of the business. Rent Expense, Uttilities Expense,

What you are going to learn Chapter 4 What you are going to learn T-Accounts A simple tool used to aid in the analysis of business transactions. Represents the left and right side of an account Debit—Left side of an account Credit—Right side of an account Every transaction: Changes at least 2 accounts Involves 1 Debit entry and 1 Credit entry Account Balances Are increased on the same side as an account’s normal balance Are decreased on the opposite side of an account’s normal balance

Right Side of an Account Chapter 4 Account Title Debit: Left Side of an Account Credit: Right Side of an Account

Chapter 4 Normal balance of Accounts are determined by their placement on the basic Accounting Equation Debit Credit ASSETS Accounts have DEBIT balances LIABILITIES And OWNER’S EQUITY Accounts have CREDIT balances

Chapter 4 Going back to our new rule: --Increase on SAME side as normal balance --Decrease on OPPOSITE side of normal balance Asset Increases on the debit (left) side Decreases on the credit (right) side Liability Increases on the credit (right) side Decreases on the debit (left) side Capital

Chapter 4 Normal balances of Revenue, Expenses and Drawing are determined by their relationship to the Capital account. John Smith, Captial Debit Credit Normal Balance Debit to decrease Capital Credit to increase Capital Expenses and Drawing have Debit balances because they decrease Capital Revenue has a Credit balance because it increases Capital

How Do We Determine If An Account Is Debited or Credited? Chapter 4 How Do We Determine If An Account Is Debited or Credited? Memorization at first Determine an accounts balance side Increase on balance side Decrease on opposite side It will eventually become intuitive

Remember for every transaction… Chapter 4 Remember for every transaction… Every business transaction must have at least one debit and one credit.

Chapter 4 Analyze transactions into Debit and Credit parts. Samples

Received Cash from the owner as an investment $1,000. Chapter 4 Received Cash from the owner as an investment $1,000. Cash Capital Debit Credit Debit Credit NB NB + + $1,000 $1,000

Paid Cash for Supplies $500. Chapter 4 Paid Cash for Supplies $500. Cash Supplies Debit Credit Debit Credit NB NB - + $500 $500

Paid Cash for Insurance $1,200. Chapter 4 Paid Cash for Insurance $1,200. Cash Prepaid Insurance Debit Credit Debit Credit NB NB - + $1,200 $1,200

Bought Supplies on account from Smith Company, AP $800. Chapter 4 Bought Supplies on account from Smith Company, AP $800. Supplies Smith Co.,AP Debit Credit Debit Credit NB NB + + $800 $800

Paid Cash on account to Smith Company, AP $500. Chapter 4 Paid Cash on account to Smith Company, AP $500. Cash Smith Co.,AP Debit Credit Debit Credit NB NB - - $500 $500

Received Cash from Sales $2,000. Chapter 4 Received Cash from Sales $2,000. Cash Sales Debit Credit Debit Credit NB NB + + $2,000 $2,000

Paid Cash for the Electric Bill $200. Chapter 4 Paid Cash for the Electric Bill $200. Cash Utilities Expense Debit Credit Debit Credit NB NB - + $200 $200

Paid Cash to the owner for Personal Use $500. Chapter 4 Paid Cash to the owner for Personal Use $500. Cash Drawing Debit Credit Debit Credit NB NB - + $500 $500