1. Analyzing Transactions into Debit and Credit Parts
Principles of Accounting I

2. Objectives By the end of the lesson, I will be able to:
define accounting terms related to analyzing transactions into debit and credit parts.
identify accounting practices related to analyzing transactions into debit and credit parts.
use “T” accounts to analyze transactions showing which accounts are debited or credited for each transaction.
verify the equality of debits and credits for each transaction.

3. What We Know
We have learned how business transactions affect accounts in an accounting equation.
Procedure is not practical in an actual accounting system.
the number of accounts most businesses have would make the accounting equation cumbersome to use
a separate record is commonly used for each account

4. Accounting Terms
Accounting equation: shows relationship among assets, liabilities, and owner’s equity
Asset: anything of value that is owned or controlled
Capital: account used to summarize the owner’s equity
Chart of accounts: list of accounts used in a business
Credit: amount recorded on the right side of a T-account
Debit: amount recorded on the left side of a T-account
Liability: amount of money owed to the creditors of a business
Normal balance: side of the account that is increased
Owner’s equity: amount remaining after the value of all liabilities is subtracted from the value of all assets
T-account: accounting device used to analyze transactions
Transaction: business activity that changes assets, liabilities, or owner’s equity

5. The Accounting Equation
Assets = Liabilities + Owner’s Equity
The accounting equation can be represented as a “T”:
Always draw T accounts when analyzing transactions to see the debit and credit sides.

6. What Does a T Account Look Like?

7. Location, location, location
The normal balance side of an asset, liability, or capital account is based on the location of the account in the accounting equation

8. All about the sides….
The sides of the T account also show increases and decreases in account balances

9. Rules
Two basic accounting rules regulate the increases and decreases of account balances:
Account balances increase on the normal side of an account
Account balances decrease on the opposite side of an account

10. Remember This… Asset accounts have normal debit balances
increase on the debit side
decrease on the credit side
Liability accounts have normal credit balances
increase on the credit side
decrease on the debit side
Owner’s equity account has a normal credit balance
increases on the credit side
decreases on the debit side

11. Let’s Review
The normal balance side of an asset, liability, or capital account is based on what?
The sides of the T account show what?
Assets account have normal __________ balances.
Liability accounts have normal __________balances.
Owner’s Equity accounts have normal __________balances.

12. Analyze This….
Before a transaction is recorded in the records of a business, the information is analyzed to determine which accounts are changed and how.
Each transaction changes the balances of at least two accounts and debits equal credits for each transaction.
Four steps are used in analyzing a transaction:
Determine what accounts will be affected
Determine whether to increase or decrease the account
Determine whether the increase/decrease needs to be a debit or a credit
Make sure debits equal credits

13. Ticket Out of the Door
Complete the list transaction sheet