Bellringer What does the word, “Debit” mean to you? What does the word, “Credit” mean to you? Write it down on a separate piece of paper. Draw an outline of your left hand and right hand on a different piece of paper.

Essential Questions: How is the accounting equation organized ? What is double entry accounting and how does it analyze business transactions?

Students will be able to: Demonstrate an understanding of the fundamental accounting equation. Classify items as assets, liabilities, or owner’s equity. Explain the double-entry system of accounting and apply debit and credit rules when analyzing business transactions.

How is the accounting equation organized ? Chart of Accounts – “Chart” List of “Accounts” used by a business. General Ledger - “Ledger” Accounts grouped together Keeping the books Makes information easy to find When summarized, forms financial statements

How is the accounting equation organized ? System of Numbering Accounts within the Ledger Makes it easy to find accounts and information. Usually have at least 2 digits Example: Look at page 79 in book Assets 100’s Liabilities 200’s Owner’s Equity 300’s Revenue 400’s Expense 500’s

What is double entry accounting and how does it analyze business transactions? Chapter 3 used the Accounting Equation Assets = Liabilities + Owner’s Equity Double entry accounting – System to analyze a business transaction. Recognizes different sides of business transactions as DEBITS and CREDITS T- ACCOUNT – a tool to help analyze transaction and reflect increases and decreases in an account.

T-Accounts Top Left sideRight side Account title DebitCredit

Rules for Asset Accounts 1. An asset account is increased (+) on the debit side. 2. An asset account is decreased (-) on the credit side. 3. The normal balance for an asset account is a debit balance. ASSETS= LIABILITIES + OWNERS EQUITY Asset Accounts Debit + Increase side Balance side Credit - Decrease side

T-Accounts for Assets Debit + $ $350 Balance, $240 Credit - $70 40 $110 1.Asset accounts are increased on the left, or ____________ side 2.Asset accounts are decreased on the right, or __________ side 3.The normal balance for asset accounts is a ________ balance 4.On notebook paper, draw a T account for the asset account Office Equipment. Enter debits of $2000 and $1500. Enter a credit of $500. What is the balance, and on what side of the T account is it shown? Cash in Bank

Rules for Liability and Owner’s Equity Accounts 1. The liability and capital accounts are increased (+) on the credit side. 2. The liability and capital accounts are decreased (-) on the debit side. 3. The normal balance for the liability and capital accounts is a credit balance. ASSETS=LIABILITIES+OWNER’S EQUITY Asset Accounts Liability Accounts Capital Accounts Debit + Increase side Balance side Credit - Decrease Side Debit - Decrease Side Credit + Increase side Balance side Debit - Decrease side Credit + Increase side Balance side RIGHT SIDE LEFT SIDE

T-Accounts for Liabilities and Owner’s Equity Accounts Payable Debit - $ $175 Credit + $ $375 Balance, $200 John Doe, Capital Debit - $ $550 Credit + $ $4000 Balance, $3450

Rules Debits are used to Increase (+) assets Decrease (-) liabilities Decrease (-) owner’s equity Credits are used to Decrease (-) assets Increase (+) liabilities Increase (+) owner’s equity

Independent Work Let’s do Problem 4-1 Page 8-2 in Textbook and 34 in Workbook. You have about 7 minutes……

What you should know! Double Entry Accounting – Every business transaction MUST have Debits = Credits. Regardless of which Account: DEBIT = LEFT SIDE CREDIT = RIGHT SIDE Debit and Credit Rules vary according to the type of account classification.