1. Debits and Credits: Analyzing and Recording Business Transactions
Chapter 2 2

2. Setting up and organizing
Learning Objective 1
Setting up and organizing
a chart of accounts. 4

3. Learning Unit 2-1 (The T Account)
Standard account
Ledger

4. Learning Unit 2-1 (The T Account)
The Standard Account Form
Account Title Account No.
Date
Item PR
Debit
Credit

5. Learning Unit 2-1 (The T Account)
Each T account contains three basic parts.
1. Title of account
2. Left side
Dr. (debit)
3. Right side
Cr. (credit)

6. Learning Unit 2-1 (The T Account)
Account Name (Title)
Dr. (debit)
4,000
500
Cr. (credit)
300
400
Entries
Footings
4,500
700
Balance
3,800 8

7. Recording transactions in T accounts according to
Learning Objective 2
Recording transactions in
T accounts according to
the rules of debit and credit. 4

8. Learning Unit 2-2 (Recording Business Transactions)
Assets =
Liabilities +
Owner’s Equity 11

9. Learning Unit 2-2 (Recording Business Transactions)
Assets =
Liabilities +
Owner’s Equity
Normal
Balance
Debit
Debits +
Credits –
Normal
Balance
Credit
Debits –
Credits +
Normal
Balance
Credit
Debits –
Credits +

10. Learning Unit 2-2 (Recording Business Transactions)
Normal
Balance
Credit
Debits –
Credits +
Capital
Normal
Balance
Debit
Debits +
Credits –
Withdrawals
Owner's
Equity

11. Learning Unit 2-2 (Recording Business Transactions)
Normal
Balance
Credit
Debits –
Credits +
Revenues
Normal
Balance
Debit
Debits +
Credits –
Expenses
Owner's
Equity

12. Balance Sheet Accounts
Chart of Accounts
Balance Sheet Accounts
Assets
111 Cash
112 Accounts Receivable
121 Office Equipment
Liabilities
211 Accounts Payable
Owner’s Equity
311 Cathy Hall, Capital
312 Cathy Hall, Withdrawals

13. Income Statement Accounts
Chart of Accounts
Income Statement Accounts
Revenue
411 Legal Fees
Expenses
511 Salaries Expense
512 Rent Expense
513 Advertising Expense

14. The Transaction Analysis
Step 1
Determine which accounts are affected.
Step 2
Determine which category the accounts belong.
Determine increases or decreases.
Step 3
Step 4
What do the rules of debits and credits say?
Step 5
What does the T account look like?

15. Applying the Transaction Analysis
A. August 28: Cathy Hall invests
$7,000 in cash and $800 of
office equipment into the business.
B. August 29: Law practice buys
office equipment for cash, $900.
C. August 30: Buys additional office
equipment on account, $400.

16. Applying the Transaction Analysis
Office Equipment 121
Cathy Hall, Capital 311
Cash 111
Accounts Payable 211
(A) 7,000
(A) 800
7,800 (A)
900 (B)
(B) 900
400 (C)
(C) 400

17. Applying the Transaction Analysis
D. September 1-30: Cathy Hall provided
legal services for cash, $3,000.
E. September 1-30: Provided legal
services on account, $4,000.
F. September 1-30: Received $700 cash
as partial payment from previous
services performed on account.
G. September 1-30: Paid salaries expense, $600.

18. Applying the Transaction Analysis
Cash 111
Accts. Receivable 112
(A) 7,000
700 (F)
(F)
900 (B)
(E) 4,000
4,000 (E)
(G) 600
600 (G)
3,000 (D)
(D) 3,000
Salaries Expense 511
Legal Fees 411

19. Applying the Transaction Analysis
H. September 1-30: Paid rent expense, $700.
I. September 1-30: Incurred advertising
expense of $300, to be paid next month.

20. Applying the Transaction Analysis
Cash 111
Accounts Payable 211
(A) 7,000
(D) 3,000
(F)
900 (B)
600 (G)
400 (C)
(I) 300
300 (I)
(H)
700 (H)
Rent Expense 512
Advertising Expense 513

21. Applying the Transaction Analysis
J. September 1-30: Hall withdrew
cash for personal use, $200.
Cash 111
C. Hall Withdrawals, 312
(A) 7,000
(D) 3,000
(F)
(J) 200
200 (J)
900 (B)
600 (G)
700 (H)

22. Preparing a trial balance.
Learning Objective 3
Preparing a trial balance. 4

23. Learning Unit 2-3 (The Trial Balance)
Cash 111
(A) 7,000
(D) 3,000
(F)
10,700
8,300
900 (B)
600 (G)
700 (H)
200 (J)
2,400
Footings
New Balance

24. Learning Unit 2-3 (The Trial Balance)
Footings are used to obtain the balance
of each side of every T account
that has more than one entry.
The ending balances are used
to prepare a trial balance.

25. Learning Unit 2-3 (The Trial Balance)
Cathy Hall, Attorney-at-Law
Trial Balance
September 30, 200x
Cash Account No.111
Balance $$$
Balance $$$
Balance $$$
Cash $$$
Accounts Receivable $$$
Office Equipment $$$
Accounts Payable $$$
Cathy Hall, Capital $$$
Cathy Hall Withdrawals $$$
Legal Fees $$$
Salaries Expenses $$$
Rent Expense $$$
Advertising Expense $$$
Balance $$$
Balance $$$
Balance $$$
Balance $$$
Balance $$$
Balance $$$
Balance $$$

26. Learning Unit 2-3 (The Trial Balance)
111 Cash
112 Accounts Receivable
121 Office Equipment
211 Accounts Payable
311 Cathy Hall, Capital
312 Cathy Hall, Withdrawals
411 Legal Fees
511 Salaries Expense
512 Rent Expense
513 Advertising Expense
Totals
Dr.
8,300
3,300
2,100
200
600
700
300
15,500
Cr.
700
7,800
7,000
15,500

27. Preparing financial statements
Learning Objective 4
Preparing financial statements
from a trial balance. 4

28. Preparing the Financial Statements
Cathy Hall, Attorney-at-Law
Income Statement
For Month Ended September 30, 200x
Revenue:
Legal fees $7,000
Operating expenses:
Salaries expense $600
Rent expense
Advertising expense
Total operating expenses ,600
Net income $5,400

29. Preparing the Financial Statements
Cathy Hall, Attorney-at-Law
Statements of Owner’s Equity
For Month Ended September 30, 200x
Cathy Hall, capital
September 1, 200x $ 7,800
Net income for September $5,400
Less withdrawals
Increase in capital ,200
Cathy Hall, capital,
September 30, 200x $13,000

30. Preparing the Financial Statements
Cathy Hall, Attorney-at-Law
Balance Sheet
September 30, 200x
Assets
Cash $ 8,300
Accts. rec ,300
Office equip ,100
Total $13,700
Liabilities and Owner’s Equity
Accounts payable $
Owner’s equity
Cathy Hall, capital 13,000
Total $13,700

31. End of Chapter 2