CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 2-1 Focus questions: What is a debit, credit, and T Account? How do these terms relate to the accounting equation?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning How do companies keep accurate records of transactions? Why would it be inefficient to use the accounting equation, like we have done so far, to keep record of transactions? A separate record is typically used to keep track of each account 2 LESSON 2-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 3 LESSON 2-1 ANALYZING THE ACCOUNTING EQUATION page 28

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 4 LESSON 2-1 ACCOUNTS page 29 T account is used to analyze how transactions change an account balance.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 5 LESSON 2-1 ACCOUNT BALANCES page 29 Normal balance – side of the account that increases the account balance Debit does NOT mean good and credit does NOT mean bad!

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 6 LESSON 2-1 INCREASES AND DECREASES IN ACCOUNTS page 30

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Rules for increases/decreases of account balances 1.Account balances increase on the normal balance side of an account. 2.Account balances decrease on the side opposite the normal balance side of an account. 7 LESSON 2-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 8 LESSON 2-1 TERMS REVIEW T account debit credit normal balance page 31

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 2-2 Focus question: How do business transaction affect account balances?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Chart of Accounts List of accounts used by a business Why is a chart of accounts important? 10 LESSON 2-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 11 LESSON 2-2 RECEIVED CASH FROM OWNER AS AN INVESTMENT 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? August 1. Received cash from owner as an investment, $5, page Which accounts are affected?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Analyzing accounts Debits MUST equal credits for each transaction After each transaction is recorded, total debits must equal total credits The same four questions are used each time a transaction is analyzed: 1.Which accounts are affected? 2.How is each account classified? 3.How is each classification changed? 4.How is each amount entered in the accounts? 12 LESSON 2-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 13 LESSON 2-2 PAID CASH FOR SUPPLIES 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? August 3. Paid cash for supplies, $ page Which accounts are affected?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 14 LESSON Which accounts are affected? PAID CASH FOR INSURANCE 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? August 4. Paid cash for insurance, $1, page 34

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 15 LESSON 2-2 BOUGHT SUPPLIES ON ACCOUNT page 35 August 7. Bought supplies on account from Supply Depot, $ Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 16 LESSON 2-2 PAID CASH ON ACCOUNT page 36 August 11. Paid cash on account to Supply Depot, $ Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 17 LESSON 2-2 TERM REVIEW chart of accounts page 37

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 2-3 Focus question: How do we analyze transactions that affect owner’s equity accounts?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Accounting for revenue/sales What effect does revenue have on owner’s equity? Why? Revenue is recorded in a separate account, sales, in order to avoid a large number of entries in the capital account and to keep it separate from other entries that affect capital Revenue increases owner’s equity, which has a normal credit balance; therefore, sales also has a normal credit balance 19 LESSON 2-3

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 20 LESSON 2-3 RECEIVED CASH FROM SALES page 38 August 12. Received cash from sales, $ Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 21 LESSON 2-3 SOLD SERVICES ON ACCOUNT page 39 August 12. Sold services on account to Oakdale School, $ Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Accounting for expenses What effect do expenses have on owner’s equity? Why? Expenses are accounted for in a separate account to keep a large number of entries out of the capital account and to give a clear picture of expenses Owner’s equity – normal credit balance Expenses decrease owner’s equity Expenses – normal debit balance 22 LESSON 2-3

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 23 LESSON 2-3 PAID CASH FOR AN EXPENSE page 40 August 12. Paid cash for rent, $ Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 24 LESSON 2-3 RECEIVED CASH ON ACCOUNT page 41 August 18. Received cash on account from Oakdale School, $ Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Accounting for owner withdrawals What effect do withdrawals have on owner’s equity? Why? Withdrawals are accounted for in a separate account to keep a large number of entries out of the capital account and to give a clear picture of owner withdrawals Owner’s equity – normal credit balance Withdrawals decrease owner’s equity Drawing – normal debit balance 25 LESSON 2-3

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 26 LESSON 2-3 PAID CASH TO OWNER FOR PERSONAL USE page 42 August 12. Paid cash to owner for personal use, $ Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts?