Week 2

 Lots of transactions occur which affect different accounts.  The business needs to keep track of the different accounts it is accounting for so it creates a CHART of ACCOUNTS.  The chart of accounts is a numbered list of all the businesses accounts.  The chart of accounts allows accounts to be located quickly.  Chart of accounts can change.

 Each account in the chart of accounts will have an account number.  Accounts in the chart of accounts are generally grouped according to account classification: assets, liabilities, owner’s equity, revenue, expense, etc. ◦ Cash 110 ◦ Accounts Payable 215 ◦ Owner’s Capital 305 ◦ Sales 420 ◦ Utilities Expense 560

 Form used to analyze transactions and how account balances are changed.

 Left and right side of T account and named. Left is DEBIT, right is CREDIT.

Accounts have a normal balance of either a debit or a credit (but not both). An entry on the side of an account’s normal balance will increase the account. An entry on the opposite side of an account’s normal balance will decrease the account.

 Recall the $$$ amount in an account is known as the account balance. Each account has a normal balance. Normal balance refers to the side that is INCREASED.  Assets have a normal debit balance. A good way to remember this is assets are on the left side of the accounting equation and on the left side of the T account or the debit side.

 Liabilities and Owner’s Equity have a normal credit balance. A good way to remember this is liabilities and owner’s equity are on the right side of the accounting equation and on the right side of the T account or the credit side.

Assets = Liabilities+ Owner’s Equity Debits Increase Credits Decrease Normal Balance Debits Decrease Credits Increase Normal Balance Debits Decrease Credits Increase Normal Balance “Capital”

WithdrawalsExpensesRevenues Debits Increase Credits Decrease Normal Balance Debits Increase Credits Decrease Normal Balance Debits Decrease Credits Increase Normal Balance Negative Components of Owner’s Equity Positive Component Of Owner’s Equity Remember that the normal balance of owner’s equity is a credit. “Sales”

DEAD COIL  Debit - Expenses Assets Drawing  Credit - Owner's Equity Income Liabilities ◦ Income = revenue from sales Debit is the normal balance (increasing) side for assets, expenses and drawing (withdrawal) accounts while credit is the normal balance (increasing) side for liabilities, owner's equity (capital) and income (revenue or sales) accounts. Whenever you're not sure think DEAD COIL.

Questions? Contact your instructor