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Section 2Applying the Rules of Debit and Credit What You ’ ll Learn  How to analyze a transaction affecting assets, liabilities, and owner’s equity. What.

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Presentation on theme: "Section 2Applying the Rules of Debit and Credit What You ’ ll Learn  How to analyze a transaction affecting assets, liabilities, and owner’s equity. What."— Presentation transcript:

1 Section 2Applying the Rules of Debit and Credit What You ’ ll Learn  How to analyze a transaction affecting assets, liabilities, and owner’s equity. What You ’ ll Learn  How to analyze a transaction affecting assets, liabilities, and owner’s equity. Why It ’ s Important You need to analyze transactions properly so that you record them correctly. Why It ’ s Important You need to analyze transactions properly so that you record them correctly.

2 Business Transaction Analysis: Steps to Success Business Transaction ANALYSIS Identify1.Identify the accounts affected. Classify2.Classify the accounts affected. + / -3.Determine the amount of increase or decrease for each account affected. Section 2Applying the Rules of Debit and Credit (cont'd.)

3 Business Transaction Analysis: Steps to Success (cont'd.) Business Transaction DEBIT-CREDIT RULE 4.Which account is debited? For what amount? 5.Which account is credited? For what amount? Section 2Applying the Rules of Debit and Credit (cont'd.)

4 Business Transaction Analysis: Steps to Success (cont'd.) Business Transaction T ACCOUNTS 6.What is the complete entry in T-account form? Section 2Applying the Rules of Debit and Credit (cont'd.) Account Name

5 Business Transaction Analysis (cont'd.) Business Transaction 1 (cont'd.) T ACCOUNTS Section 2Applying the Rules of Debit and Credit (cont'd.) On October 1, Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service. Maria Sanchez, Cash in Bank Capital Debit + 25,000 Credit + 25,000

6 Business Transaction Analysis (cont'd.) Business Transaction 3 (cont'd.) T ACCOUNTS Section 2Applying the Rules of Debit and Credit (cont'd.) On October 4, Roadrunner issued Check 101 for $3,000 to buy a computer system. Computer EquipmentCash in Bank Debit + 3,000 Credit – 3,000

7 Business Transaction Analysis (cont'd.) Business Transaction 4 (cont'd.) T ACCOUNTS Section 2Applying the Rules of Debit and Credit (cont'd.) On October 9, Roadrunner bought a used truck on account from North Shore Auto for $12,000. DeliveryAccounts Payable— EquipmentNorth Shore Auto Debit + 12,000 Credit + 12,000

8 Check Your Understanding In double-entry accounting, for each transaction there must be at least two entries. If you are increasing the Cash in Bank account, what other accounts might be affected? Section 2Applying the Rules of Debit and Credit (cont'd.)

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