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

2. $ $ $ $ Business Transaction Analysis: Steps to Success Chapter 4
Section 2 Applying the Rules of Debit and Credit (cont'd.)
Chapter 4 $
Business Transaction Analysis: Steps to Success $
Business Transaction $
ANALYSIS Identify 1. Identify the accounts affected.
Classify 2. Classify the accounts affected.
+ / - 3. Determine the amount of increase or decrease for each account affected. $

3. $ $ $ $ Business Transaction Analysis: Steps to Success (cont'd.)
Section 2 Applying the Rules of Debit and Credit (cont'd.)
Chapter 4 $
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? $

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

5. $ $ $ $ Business Transaction Analysis Chapter 4
Section 2 Applying the Rules of Debit and Credit (cont'd.)
Chapter 4 $
Business Transaction Analysis
Business 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. $ $
ANALYSIS Identify 1. The accounts Cash in Bank and Maria Sanchez, Capital are affected.
Classify 2. Cash in Bank is an asset account. Maria Sanchez, Capital is an owner’s capital account.
+ / Cash in Bank is increased by $25,000. Maria Sanchez, Capital is increased by $25,000. $

6. Business Transaction 1 (cont'd.)
Section 2 Applying the Rules of Debit and Credit (cont'd.)
Chapter 4 $
Business Transaction Analysis (cont'd.)
Business Transaction 1 (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. $
DEBIT-CREDIT RULE 4. Increases in asset accounts are recorded as debits. Debit Cash in Bank for $25,000.
5. Increases in the owner’s capital account are recorded as credits. Credit Maria Sanchez, Capital for $25,000. $

7. Business Transaction 1 (cont'd.)
Section 2 Applying the Rules of Debit and Credit (cont'd.)
Chapter 4 $
Business Transaction Analysis (cont'd.)
Business Transaction 1 (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
T ACCOUNTS 6. $
Debit +
25,000
Credit +
25,000

8. $ $ $ $ Business Transaction Analysis (cont'd.) Chapter 4
Section 2 Applying the Rules of Debit and Credit (cont'd.)
Chapter 4 $
Business Transaction Analysis (cont'd.) $
Business Transaction 3
On October 4, Roadrunner issued Check 101 for $3,000 to buy a computer system. $
ANALYSIS Identify 1. The accounts Computer Equipment and Cash in Bank are affected.
Classify 2. Computer Equipment and Cash in Bank are asset accounts.
+ / – 3. Computer Equipment is increased by $3,000. Cash in Bank is decreased by $3,000. $

9. Business Transaction 3 (cont'd.)
Section 2 Applying the Rules of Debit and Credit (cont'd.)
Chapter 4 $
Business Transaction Analysis (cont'd.) $
Business Transaction 3 (cont'd.)
On October 4, Roadrunner issued Check 101 for $3,000 to buy a computer system. $
DEBIT-CREDIT RULE 4. Increases in asset accounts are recorded as debits. Debit Computer Equipment for $3,000.
5. Decreases in asset accounts are recorded as credits. Credit Cash in Bank for $3,000. $

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

11. $ $ $ $ Business Transaction Analysis (cont'd.) Chapter 4
Section 2 Applying the Rules of Debit and Credit (cont'd.)
Chapter 4 $
Business Transaction Analysis (cont'd.)
Business Transaction 4 $
On October 9, Roadrunner bought a used truck on account from North Shore Auto for $12,000.
ANALYSIS Identify 1. The accounts Delivery Equipment and Accounts Payable—North Shore Auto are affected.
Classify 2. Delivery Equipment is an asset account. Accounts Payable—North Shore Auto is a liability account.
+ / – 3. Delivery Equipment is increased by $12,000. Accounts Payable— North Shore Auto is increased by $12,000. $ $

12. Business Transaction 4 (cont'd.)
Section 2 Applying the Rules of Debit and Credit (cont'd.)
Chapter 4 $
Business Transaction Analysis (cont'd.) $
Business Transaction 4 (cont'd.)
On October 9, Roadrunner bought a used truck on account from North Shore Auto for $12,000. $
DEBIT-CREDIT RULE 4. Increases in asset accounts are recorded as debits. Debit Delivery Equipment for $12,000.
5. Increases in liability accounts are recorded as credits. Credit Accounts Payable—North Shore Auto for $12,000. $

13. Business Transaction 4 (cont'd.)
Section 2 Applying the Rules of Debit and Credit (cont'd.)
Chapter 4 $
Business Transaction Analysis (cont'd.) $
Business Transaction 4 (cont'd.)
On October 9, Roadrunner bought a used truck on account from North Shore Auto for $12,000. $
Delivery Accounts Payable—
Equipment North Shore Auto
T ACCOUNTS 6. $
Debit +
12,000
Credit +
12,000

14. $ $ $ $ Check Your Understanding Chapter 4
Section 2 Applying the Rules of Debit and Credit (cont'd.)
Chapter 4 $
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? $ $