2. What we did on Wednesday: 1.Understand the Transaction 2.Identify the Accounts in the transaction (at least two accounts for each transaction) 3.For each account, identify the TYPE of account (ASSET, LIABILITY, STOCKHOLDERSs EQUITY, REVENUE, EXPENSE) 4.For each account, determine if it is increasing or decreasing. 5.Is the Accounting Equation still in balance?

3. Apply the DEBIT/CREDIT Rules Use all the information from steps 1-5. Need to know these Rules! Debit means LEFT (nothing more) Credit means RIGHT (nothing more) – Rs

4. The left side of the T-account is always the debit side. The right side of the T-account is always the credit side. Account Name Left Right DebitCredit

5. A = L + SE ASSETS Debit for Increase Credit for Decrease EQUITIES Debit for Decrease Credit for Increase LIABILITIES Debit for Decrease Credit for Increase Remember that Stockholders Equity includes Contributed Capital and Retained Earnings.

6. Journal entries T-accounts

7. A journal entry might look like this: Reference: Letter, number, or date. Reference: Account Titles: Debited accounts on top. Debited accounts on top. Credited accounts on bottom AND indented to the right. Credited accounts on bottom AND indented to the right. Account Titles: Debited accounts on top. Debited accounts on top. Credited accounts on bottom AND indented to the right. Credited accounts on bottom AND indented to the right. Amounts: Debited amounts on left. Debited amounts on left. Credited amounts on right. Credited amounts on right.Amounts: Debited amounts on left. Debited amounts on left. Credited amounts on right. Credited amounts on right.

8. (a)

10. Work the Handout in Groups.

11. Financial Leverage Ratio Average Total Assets Average Stockholders Equity = (Beginning Balance + Ending Balance) ÷ 2 The 2006 financial leverage ratio for Papa Johns was: ($351,000 + $380,000) ÷ 2 ($161,000 + $148,000) ÷ 2 =2.37 The ratio tells us how well management is using debt to increase assets the company employs to earn income.

12. BEAT Purdue