1. Applying the Rules of Debit and Credit
Chapter 4 Section 2
Applying the Rules of Debit and Credit

2. Transactions That Affect Assets, Liabilities, and Owner’s Capital
Objectives:
Prepare a chart of accounts
Explain the purpose of double-entry accounting
Identify the normal balance of accounts
Use T-Accounts to illustrate the rules of debit and credit for asset accounts, liability accounts, and the owner’s capital account and to express the accounting equation.

3. Objectives: cont…
Calculate the account balances after recording business transactions.
Define the accounting terms introduced in this chapter.

4. Why it’s important?
Transactions That Affect Assets, Liabilities, and Owner’s Capital:
You need to analyze transactions into debit and credit parts.

5. PANDA RESTAURANT GROUP
Andrew and Peggy Cherng opened their first Panda Inn in Pasadena, California.
Use recipes from Andrew’s father, Master Chef Ming-Tsai Cherng.
Now has more than 700 stores in 36 states, Puerto Rico, and Japan.
Their mission is to reach a goal of 10,000 Panda Express restaurants.

6. Section 4-2 Applying the Rules of Debit and Credit
Main Idea: use the T-Accounts to analyze transaction.
Step-by-step method for analyzing transactions.
How to apply the method to asset, liability, and owner’s capital transactions.

7. Property and Financial Claims Assets = Equities =
Instant Recall . . .
Property and Financial Claims Assets = Equities =
Property
Creditors’ Claims + Owner’s Claim

8. Section 4-2 Assets and Owner’s Capital
Transaction #1 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.
Step 1: Identifying the accounts
Step 2: + or -
Cash in Bank
Debit +
Credit
Maria Sanchez, Capital
Debit
Credit +
Step 3: Debit – Credit Rule and T-Accounts
Cash in Bank
Debit
25,000
Credit
Maria Sanchez, Capital
Debit
Credit
25,000

9. Section 4-2 Assets and Owner’s Capital
Transaction #2 On October 2 Maria Sanchez took two telephones valued at $200 each from her home and transferred them to the business office equipment.
Step 1: Identifying the accounts
Step 2: + or -
Office Equipment
Debit +
Credit
Maria Sanchez, Capital
Debit
Credit +
Step 3: Debit – Credit Rule and T-Accounts
Maria Sanchez, Capital
Debit
Credit
400
Office Equipment
Debit
400
Credit

10. Section 4-2 Assets and Owner’s Capital
Transaction #3 On October 4 Roadrunner issued Check 101 for $3,000 to buy a computer system.
Step 1: Identifying the accounts
Step 2: + or -
Cash in the Bank
Debit
Credit -
Computer Equipment
Debit +
Credit
Step 3: Debit – Credit Rule and T-Accounts
Computer Equipment
Debit
3,000
Credit
Cash in the Bank
Debit
Credit
3,000

11. Section 4-2 Assets and Owner’s Capital
Transaction #4 On October 9 Roadrunner bought a used truck on account from North Shore Auto for $12,000.
Step 1: Identifying the accounts
Step 2: + or -
Delivery Equipment
Debit +
Credit
Accounts Payable---
North Shore Auto
Debit
Credit +
Step 3: Debit – Credit Rule and T-Accounts
Accounts Payable---
North Shore Auto
Debit
Credit
12,000
Delivery Equipment
Debit
12,000
Credit

12. Section 4-2 Assets and Owner’s Capital
Transaction #5 On October 11 Roadrunner sold one phone on account to Green company for $200.
Step 1: Identifying the accounts
Step 2: + or -
Accounts Receivable---
Green Company
Debit +
Credit
Office Equipment
Debit
Credit -
Step 3: Debit – Credit Rule and T-Accounts
Accounts Receivable---
Green Company
Debit
200
Credit
Office Equipment
Debit
Credit
200

13. Section 4-2 Assets and Owner’s Capital
Transaction #6 On October 12 Roadrunner mailed Check 102 for $350 as the first installment payment on the truck purchased from North Shore Auto on October 9.
Step 1: Identifying the accounts
Step 2: + or -
Cash in Bank
Debit
Credit -
Accounts Payable---
North Shore Auto
Debit -
Credit
Step 3: Debit – Credit Rule and T-Accounts
Accounts Payable---
North Shore Auto
Debit
350
Credit
Cash in Bank
Debit
Credit
350

14. Section 4-2 Assets and Owner’s Capital
Transaction #7 On October 14 Roadrunner received and deposited a check for $200 from Green company. The check is full payment for the telephone sold on account to Green Company on October 11.
Step 1: Identifying the accounts
Step 2: + or -
Cash in Bank
Debit +
Credit
Accounts Receivable---
Green Company
Debit
Credit -
Step 3: Debit – Credit Rule and T-Accounts
Cash in Bank
Debit
+200
Credit
Accounts Receivable---
Green Company
Debit
Credit
-200

15. Check Your Understanding
1. What is a chart of accounts?
2. Why are the accounts numbered?
3. What is meant by the normal balance?
4. What is the normal balance for ASSET accounts?
For LIABILITY accounts?
For the OWNER’S CAPITAL account?
5. What are the three basic parts of a T-Account.

16. Check Your Understanding
6. What are the 3 steps used to analyze a business transaction?
7. How do you determine the balance of an account?
8. What is the balance for the following accounts?
Cash in Bank
Debit
Beg bal ,000
1,500
Credit
400
2,100
Accounts Receivable---
Ambros Company
Debit
Beg bal ,500
1,800
Credit
2,100
End bal ,000
End bal ,100

17. BUSINESS TRANSACTION ANALYSIS: Steps to success
Identify the accounts affected
Determine the amount of increase or decrease. (+ or -)
Record the amount to be Debited and the amount to be Credited

18. Purchased a computer on account from Computer Inc. for $2,500
Problem 4-2
June 3, Transaction #1
Purchased a computer on account from Computer Inc. for $2,500 1
Office Equipment
Accounts Payable 2 + 3
Debit
Credit

19. Transferred a desk to the business. The desk is worth $750
June 9, Transaction #2
Transferred a desk to the business. The desk is worth $750 1
Office Furniture
Alice Roberts, Capital 2 + 3
Debit
Credit

20. Made a partial payment on account of $1,000 to Computer Inc.
June 15, Transaction #3
Made a partial payment on account of $1,000 to Computer Inc. 1
Cash
Accounts Payable 2 - 3
Credit
Debit

21. Regina Delgado, Capital
Problem 4-4
Cash in Bank
1) 40,000
Bal 3,750
4) 7,500
Accounts Payable---
Allen Vacuum Systems
2) 27,000
Bal 27,000
Office Furniture
3) 3,750
Bal 3,750
Accounts Receivable
—Valley Auto
5) 1,200
Bal 1, 200
Car Wash Equipment
2) 27,000
Bal 25,800
1,200
Regina Delgado, Capital
1) 40,000
3,750
Bal 36,250
Office Equipment
4) 7,500
Bal 7,500