Transactions That Affect Assets, Liabilities and Owner’s Equity Making Accounting Relevant Accounting and finance professionals are key to every business.

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Presentation transcript:

Transactions That Affect Assets, Liabilities and Owner’s Equity Making Accounting Relevant Accounting and finance professionals are key to every business operation. Making Accounting Relevant Accounting and finance professionals are key to every business operation. How might the work performed by the accountant affect the day-to-day decisions made by the business owner?

Section 1Accounts and the Double-Entry Accounting System What You’ll Learn  How to use T accounts.  Why you need a ledger.  The rules of debit and credit. What You’ll Learn  How to use T accounts.  Why you need a ledger.  The rules of debit and credit.

The Chart of Accounts A list of all the accounts and their assigned account numbers. The Chart of Accounts A list of all the accounts and their assigned account numbers. Section 1 Accounts and the Double-Entry Accounting System (con’t.) Roadrunner Delivery Service 155 Gateway Blvd. Sacramento, CA CHART OF ACCOUNTS ASSETS101Cash in Bank 105Accounts Receivable--City News 110Accounts Receivable--Green Company 115Computer Equipment 120Office Equipment 125Delivery Equipment LIABILITIES201Accounts Payable--Beacon Advertising 205Accounts Payable--North Shore Auto OWNER’S EQUITY301Maria Sanchez, Capital 302Maria Sanchez, Withdrawals 303Income Summary REVENUE401Delivery Revenue EXPENSES501Advertising Expense 505Maintenance Expense 510Rent Expense 515Utilities Expense Roadrunner Delivery Service 155 Gateway Blvd. Sacramento, CA CHART OF ACCOUNTS ASSETS101Cash in Bank 105Accounts Receivable--City News 110Accounts Receivable--Green Company 115Computer Equipment 120Office Equipment 125Delivery Equipment LIABILITIES201Accounts Payable--Beacon Advertising 205Accounts Payable--North Shore Auto OWNER’S EQUITY301Maria Sanchez, Capital 302Maria Sanchez, Withdrawals 303Income Summary REVENUE401Delivery Revenue EXPENSES501Advertising Expense 505Maintenance Expense 510Rent Expense 515Utilities Expense

Double-Entry Accounting Double-entry accounting is a system of recordkeeping in which each business transaction affects at least two accounts. Double-Entry Accounting Double-entry accounting is a system of recordkeeping in which each business transaction affects at least two accounts. Section 1 Accounts and the Double-Entry Accounting System (con’t.)

T Accounts The T account, so called because of its T shape, shows the dollar increase or decrease in an account that is caused by a transaction. T Accounts The T account, so called because of its T shape, shows the dollar increase or decrease in an account that is caused by a transaction. Section 1 Accounts and the Double-Entry Accounting System (con’t.) Account Name Left SideRight Side Debit SideCredit Side DebitCredit Account Name Left SideRight Side Debit SideCredit Side DebitCredit

The Rules of Debit and Credit  The rules of debit and credit vary according to whether an account is classified as an asset, a liability, or an owner’s capital account.  Normal balance is always on the side used to record increases to the account. The word normal used here means usual. The Rules of Debit and Credit  The rules of debit and credit vary according to whether an account is classified as an asset, a liability, or an owner’s capital account.  Normal balance is always on the side used to record increases to the account. The word normal used here means usual. Section 1 Accounts and the Double-Entry Accounting System (con’t.)

Rules for Asset Accounts Section 1 Accounts and the Double-Entry Accounting System (con’t.) Asset Accounts Credit – (2) Decrease Side Debit + (1) Increase Side (3) Normal Balance

Rules for Liability and Owner’s Capital Accounts Section 1 Accounts and the Double-Entry Accounting System (con’t.) Liability Accounts DebitCredit –+ (2) Decrease (1) Increase Side (3) Normal Balance Debit – (2) Decrease Side Owner’s Capital Account DebitCredit –+ (2) Decrease (1) Increase Side (3) Normal Balance Credit + (1) Increase Side (3) Normal Balance

Why It’s Important The rules of debit and credit are the basis for entering transactions into the records of a business. Why It’s Important The rules of debit and credit are the basis for entering transactions into the records of a business. Section 1 Accounts and the Double-Entry Accounting System (con’t.) Key Terms 1.ledger 2.chart of accounts 3.double-entry accounting 4.T account 5.debit 6.credit 7.normal balance Key Terms 1.ledger 2.chart of accounts 3.double-entry accounting 4.T account 5.debit 6.credit 7.normal balance

Check Your Understanding Explain why the normal balance of an asset account is on the debit side of the account. Section 1 Accounts and the Double-Entry Accounting System (con’t.)