ANALYZING TRANSACTIONS INTO DEBIT AND CREDIT PARTS CHAPTER 3.

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Analyzing Transactions into Debit and Credit Parts

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Presentation transcript:

ANALYZING TRANSACTIONS INTO DEBIT AND CREDIT PARTS CHAPTER 3

3.1 USING T ACCOUNTS

Cannot use accounting equation setup in “real” accounting A separate record is commonly used for each account. Assets = Liabilities + Owner’s Equity LeftSide Right Side

An accounting device used to analyze transactions is a T account. An amount recorded on the left side is a debit. An amount recorded on the right side is a credit. T Account Left SideRight Side Debit SideCredit Side

The side of the account that is increased is called the normal balance. Assets are on the left side and have a normal debit balance. Liabilities are on the right side and have a normal credit balance. Owner’s equity is on the right side and has a normal credit balance.

Two basic accounting rules guide increases and decreases: 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

3.2 ANALYZING HOW TRANSACTIONS AFFECT ACCOUNTS

A list of accounts used by a business is called a chart of accounts.

Questions for analyzing a transaction: 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 account? *Debits must equal credits for each transaction *After a transaction total debits must equal total credits

If changes are made on one side of equation: one account increases, another account decreases A common error is that a transaction must affect both sides of an equation.