1. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 2-1 Using T Accounts Original created by M.C. McLaughlin, Thomson/South-Western Modified by Deborah L. Burns, Johnston County Schools, West Johnston High School

2. CENTURY 21 ACCOUNTING © Thomson/South-Western 2 LESSON 2-1 ANALYZING THE ACCOUNTING EQUATION page 28  Using the accounting equation in a business to record transactions would be very cumbersome because of the number of business transactions.  A record summarizing all the information pertaining to a single item in the accounting equation is known as an account.  Accounting transactions must be analyzed to determine how account balances are changed.  T Account – an accounting device used to analyze transactions

3. CENTURY 21 ACCOUNTING © Thomson/South-Western 3 LESSON 2-1 ANALYZING THE ACCOUNTING EQUATION page 28 The accounting equation can be represented as T, as shown below:

4. CENTURY 21 ACCOUNTING © Thomson/South-Western 4 LESSON 2-1 ANALYZING THE ACCOUNTING EQUATION page 29  The values of all things owned (assets) are on the left side of the accounting equation.  The value of all equities or claims against the assets (liabilities & owner’s equity) are on the right side of the equation.  The left side of the equation must always equal the right.

5. CENTURY 21 ACCOUNTING © Thomson/South-Western 5 LESSON 2-1 ACCOUNTS page 29  There are special names for amounts recorded on the left and right sides of a T account.  Debit – an amount recorded on the left side of a T account  Credit – an amount recorded on the right side of a T account

6. CENTURY 21 ACCOUNTING © Thomson/South-Western 6 LESSON 2-1 ACCOUNT BALANCES page 29  All accounts have a debit and credit T accounts.

7. CENTURY 21 ACCOUNTING © Thomson/South-Western 7 LESSON 2-1 ACCOUNT BALANCES page 29  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 and owner’s equity are on the right side & have a normal credit balance.

8. CENTURY 21 ACCOUNTING © Thomson/South-Western 8 LESSON 2-1 INCREASES AND DECREASES IN ACCOUNTS The sides of a T account are used to show increases and decreases in account balances Two basic accounting rules: Account balances increase on the normal balance side of an account Account balances decrease on the side opposite the normal balance side of an account page 30

9. CENTURY 21 ACCOUNTING © Thomson/South-Western 9 LESSON 2-1 INCREASES AND DECREASES IN ACCOUNTS page 30

10. CENTURY 21 ACCOUNTING © Thomson/South-Western 10 LESSON 2-1 TERMS REVIEW T account debit credit normal balance page 31