Transactions Every single activity in a business that involves money needs to be recorded. Something of value is received. Something of value given. TRANASACTION

Transactions Each transaction will affect at least two accounts Every Asset & Liability is categorized into accounts Examples of accounts Assets Cash, Building, Land, Accounts Receivable, Inventory, Office Supplies, Automobile, Equipment, Furniture Liabilities Loans, Accounts Payable, Mortgage,

Debit/Credit The most fundamental concept in accounting Understanding debit/credit is vital to: recording daily transactions Preparing Financial Statements

Debit/Credit Debits and Credits will increase and decrease different accounts It is important not to think of debits and credits as “Increase & Decrease” This line of thinking will result in mistakes being made for different accounts

Debit/Credit Recall Our Accounting Equaition ASSETS = LIABILITIES + OWNER’S EQUITY Left side of the equation – Debit Account Right Side of the equation – Credit Accounts

Debit/ Credit Think of a debit card vs. a credit card Debit Card – Taking from your cash in the bank (ASSETS) Credit Card – Borrowing money with the promise of future payment. (Liability)

DebitCredit AssetsLiabilities Owner’s Equity T - Account Drawing a T – separates the debit side of an account from the credit side

T - Account ASSETS DEBITCREDIT Will Increase the value of the asset account Ex. Receiving a building Will Decrease the Value of the asset account Ex. Paying out cash

Liability DEBITCREDIT Will Decrease the Value of the Liability Ex. Paying off a creditor Will Increase the Value of the Laibility Ex. Taking on more of a loan

OWNER’S EQUITY DEBITCREDIT Will decrease the Worth of the business Ex. Employee steals cash from the register Will Increase the Worth Of the Business Ex. Initial Investment in the Business

Recording Transactions Every Single Transaction will affect at least two accounts For every transaction Debits = Credits This is referred to as “Balancing the Accounts” Example: Purchase a desk for $100 Cash Accounts Affected: 1)Cash (asset) – Credited 2) Office Furniture (asset) - Debited

Recording Transactions Example 2: Paid back a loan owing for $500. Cash (asset) Loan (Liability) $500

Recording Transactions Example 3: Was paid $330 for services performed. What accounts are affected?

Recording Transactions Example 3: Was paid $330 for services performed. Cash (asset)Owner’s Equity $330

ENVELOPE ACTIVITY Get together in groups of 3