Section 2Applying the Rules of Debit and Credit to Revenue, Expense, and Owner’s Equity Transactions What You’ll Learn  How to analyze transactions that.

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Presentation transcript:

Section 2Applying the Rules of Debit and Credit to Revenue, Expense, and Owner’s Equity Transactions What You’ll Learn  How to analyze transactions that affect revenue, expense, and withdrawals accounts What You’ll Learn  How to analyze transactions that affect revenue, expense, and withdrawals accounts

Business Transaction 8 ANALYSIS Identify1.The accounts Cash in Bank and Delivery Revenue are affected. Classify2.Cash in Bank is an asset account. Delivery Revenue is a revenue account. + / –3.Cash in Bank is increased by $1,200. Delivery Revenue is increased by $1,200. On October 15, Roadrunner provided delivery service for the Sims Corporation. A check for $1,200 was received in full payment. Analyzing Transactions

Analyzing Transactions (cont'd.) Business Transaction 8 (cont'd.) DEBIT-CREDIT RULE 4.Increases in asset accounts are recorded as debits. Debit Cash in Bank for $1, Increases in revenue accounts are recorded as credits. Credit Delivery Revenue for $1,200. On October 15, Roadrunner provided delivery service for the Sims Corporation. A check for $1,200 was received in full payment.

Analyzing Transactions (cont'd.) Business Transaction 8 (cont'd.) T ACCOUNTS 6. On October 15, Roadrunner provided delivery service for the Sims Corporation. A check for $1,200 was received in full payment. Delivery Cash in BankRevenue Debit + 1,200 Credit + 1,200 Credit – Debit –

Business Transaction 9 ANALYSIS Identify1.The accounts Rent Expense and Cash in Bank are affected. Classify2.Rent Expense is an expense account. Cash in Bank is an asset account. + / –3.Rent Expense is increased by $700. Check in Bank is decreased by $700. On October 16, Roadrunner mailed Check 103 for $700 to pay the month’s rent. Analyzing Transactions (cont'd.)

Business Transaction 9 (cont'd.) DEBIT-CREDIT RULE 4.Increases in expense accounts are recorded as debits. Debit Rent Expense for $ Decreases in asset accounts are recorded as credits. Credit Cash in Bank for $700. On October 16, Roadrunner mailed Check 103 for $700 to pay the month’s rent.

Analyzing Transactions (cont'd.) Business Transaction 9 (cont'd.) T ACCOUNTS 6. On October 16, Roadrunner mailed Check 103 for $700 to pay the month’s rent. Rent ExpenseCash in Bank Debit Credit – 700 Credit – Debit +

Business Transaction 10 ANALYSIS Identify1.The accounts Advertising Expense and Accounts Payable —Beacon Advertising are affected. Classify2.Advertising Expense is an expense account. Accounts Payable—Beacon Advertising is a liability account. + / –3.Advertising Expense is increased by $75. Accounts Payable— Beacon Advertising is increased by $75. On October 18, Beacon Advertising prepared an advertisement for Roadrunner. Roadrunner will pay Beacon’s $75 fee later. Analyzing Transactions (cont'd.)

Business Transaction 10 (cont'd.) DEBIT-CREDIT RULE 4.Increases in expense accounts are recorded as debits. Debit Advertising Expense for $75. 5.Increases in liability accounts are recorded as credits. Credit Accounts Payable—Beacon Advertising for $75. On October 18, Beacon Advertising prepared an advertisement for Roadrunner. Roadrunner will pay Beacon’s $75 fee later.

Analyzing Transactions (cont'd.) Business Transaction 10 (cont'd.) T ACCOUNTS 6. On October 18, Beacon Advertising prepared an advertisement for Roadrunner. Roadrunner will pay Beacon’s $75 fee later. AdvertisingAccounts Payable— ExpenseBeacon Advertising Debit + 75 Credit + 75 Credit – Debit –

Analyzing Transactions (cont'd.) Business Transaction 11 DEBIT-CREDIT RULE 4.Increases in asset accounts are recorded as debits. Debit Acc Rec. – City News for $1, Increases in revenue accounts are recorded as credits. Credit Delivery Revenue for $1,450. On October 20, Roadrunner Billed City News $1,450 for delivery services.

Analyzing Transactions (cont'd.) Business Transaction 11 T ACCOUNTS 6. On October 20, Roadrunner Billed City News $1,450 for delivery services. Accounts Delivery Rec. – city news Revenue Debit + 1,450 Credit + 1,450 Credit – Debit –

Transaction 11 Money is recorded as revenue immediately even though the money has not been collected

Analyzing Transactions (cont'd.) Business Transaction 12 DEBIT-CREDIT RULE 4.Increases in expense accounts are recorded as debits. Debit Utilities Expense for $ Decreases in asset accounts are recorded as credits. Credit Cash for $125. On October 28, Roadrunner paid a $125 telephone bill with Check 104

Analyzing Transactions (cont'd.) Business Transaction 12 T ACCOUNTS 6. On October 28, Roadrunner paid a $125 telephone bill with Check 104 Utilities ExpenseCash in Bank Debit Credit – 125 Credit – Debit +

Analyzing Transactions (cont'd.) Business Transaction 13 DEBIT-CREDIT RULE 4.Increases in expense accounts are recorded as debits. Debit Maintenance Expense for $ Decreases in asset accounts are recorded as credits. Credit Cash for $600. On October 29, Roadrunner wrote Check 105 for $600 to have the office repainted

Analyzing Transactions (cont'd.) Business Transaction 13 T ACCOUNTS 6. On October 29, Roadrunner wrote Check 105 for $600 to have the office repainted. Maintenance ExpenseCash in Bank Debit Credit – 600 Credit – Debit +

Analyzing Transactions (cont'd.) Business Transaction 14 DEBIT-CREDIT RULE 4.Increases in owner’s withdrawals accounts are recorded as debits. Debit Maria Sanchez, Withdrawals for $ Decreases in asset accounts are recorded as credits. Credit Cash for $500. On October 31, Maria Sanchez wrote Check 106 to withdraw $500 cash for personal use.

Analyzing Transactions (cont'd.) Business Transaction 14 T ACCOUNTS 6. On October 31, Maria Sanchez wrote Check 106 to withdraw $500 cash for personal use. Maria Sanchez, WithdrawalCash in Bank Debit Credit – 500 Credit – Debit +

Testing for the Equality of Debits and Credits Step 1 Make a list of the account titles used by the business. Step 2 To the right of each account title, list the balance of the account. Use two columns, one for debit balances and the other for credit balances. Step 3 Add the amounts in each column.

Testing for the Equality of Debits and Credits (cont'd.) DEBITCREDIT ACCOUNT NAMEBALANCESBALANCES 101 Cash in Bank$21, Accounts Receivable – City News 1, Accounts Receivable--Green Company 115Computer Equipment 3, Office Equipment Delivery Equipment 12, Accounts Payable--Beacon Advertising $ Accounts Payable--North Shore Auto 11, Maria Sanchez, Capital 25, Maria Sanchez, Withdrawals Income Summary 401Delivery Revenue 2, Advertising Expense Maintenance Expense Rent Expense Utilities Expense 125 $ 39,775 $ 39,775

Review 1. What is the normal balance of a withdrawals account? 2. What other temporary account carries a normal balance on the same side as the normal balance for a withdrawals account?