1. Transactions That Affect Assets, Liabilities and Owner’s Equity
Chapter 4 $
Transactions That Affect Assets, Liabilities and Owner’s Equity $
Making Accounting Relevant
Accounting and finance professionals are key to every business operation. $
How might the work performed by the accountant affect the day-to-day decisions made by the business owner? $

2. $ $ $ $ Section 1 Accounts and the Double-Entry Accounting System
Chapter 4 $
Section 1 Accounts and the Double-Entry Accounting System $
What You’ll Learn
How to use T accounts.
Why you need a ledger.
The rules of debit and credit. $ $

3. $ $ $ $ Why It’s Important Key Terms Chapter 4
Section 1 Accounts and the Double-Entry Accounting System (con’t.)
Chapter 4 $
Why It’s Important
The rules of debit and credit are the basis for entering transactions into the records of a business. $
Key Terms
ledger
chart of accounts
double-entry accounting
T account
debit
credit
normal balance $ $

4. Roadrunner Delivery Service
Section 1 Accounts and the Double-Entry Accounting System (con’t.)
Chapter 4 $
The Chart of Accounts
A list of all the accounts and their assigned account numbers. $
Roadrunner Delivery Service
155 Gateway Blvd.
Sacramento, CA 94230
CHART OF ACCOUNTS
ASSETS 101 Cash in Bank
105 Accounts Receivable--City News
110 Accounts Receivable--Green Company
115 Computer Equipment
120 Office Equipment
125 Delivery Equipment
LIABILITIES 201 Accounts Payable--Beacon Advertising
205 Accounts Payable--North Shore Auto
OWNER’S EQUITY 301 Maria Sanchez, Capital
302 Maria Sanchez, Withdrawals
303 Income Summary
REVENUE 401 Delivery Revenue
EXPENSES 501 Advertising Expense
505 Maintenance Expense
510 Rent Expense
515 Utilities Expense $ $

5. $ $ $ $ Double-Entry Accounting Chapter 4
Section 1 Accounts and the Double-Entry Accounting System (con’t.)
Chapter 4 $
Double-Entry Accounting
Double-entry accounting is a system of recordkeeping in which each business transaction affects at least two accounts. $ $ $

6. $ $ $ $ T Accounts Chapter 4 Account Name Left Side Right Side
Section 1 Accounts and the Double-Entry Accounting System (con’t.)
Chapter 4 $
T Accounts
The T account, so called because of its T shape, shows the dollar increase or decrease in an account that is caused by a transaction. $ $
Account Name
Left Side Right Side
Debit Side Credit Side
Debit Credit $

7. $ $ $ $ The Rules of Debit and Credit Chapter 4
Section 1 Accounts and the Double-Entry Accounting System (con’t.)
Chapter 4 $
The Rules of Debit and Credit
The rules of debit and credit vary according to whether an account is classified as an asset, a liability, or an owner’s capital account.
Normal balance is always on the side used to record increases to the account. The word normal used here means usual. $ $ $

8. $ $ $ $ Rules for Asset Accounts Chapter 4 Asset Accounts Debit +
Section 1 Accounts and the Double-Entry Accounting System (con’t.)
Chapter 4 $
Rules for Asset Accounts $
Asset Accounts
Debit +
(1) Increase Side
(3) Normal Balance
Credit –
(2) Decrease Side $ $

9. Owner’s Capital Account
Section 1 Accounts and the Double-Entry Accounting System (con’t.)
Chapter 4 $
Rules for Liability and Owner’s Capital Accounts $
Liability Accounts
Debit Credit
– +
(2) Decrease (1) Increase
Side Side
(3) Normal
Balance
Owner’s Capital Account
Debit Credit
– +
(2) Decrease (1) Increase
Side Side
(3) Normal
Balance
Debit –
(2) Decrease Side $
Credit +
(1) Increase Side
(3) Normal Balance $

10. $ $ $ $ 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. $

11. $ $ $ $ Business Transaction Analysis: Steps to Success Chapter 4
Section 2 Applying the Rules of Debit and Credit (con’t.)
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. $

12. $ $ $ $ Business Transaction Analysis: Steps to Success (con’t.)
Section 2 Applying the Rules of Debit and Credit (con’t.)
Chapter 4 $
Business Transaction Analysis: Steps to Success (con’t.) $
Business Transaction $
DEBIT-CREDIT RULE 4. Which account is debited? For what amount?
5. Which account is credited? For what amount? $

13. $ $ $ $ Business Transaction Analysis: Steps to Success (con’t.)
Section 2 Applying the Rules of Debit and Credit (con’t.)
Chapter 4 $
Business Transaction Analysis: Steps to Success (con’t.) $
Business Transaction $
T ACCOUNTS 6. What is the complete entry in T-account forms?
Account Name Account Name $

14. $ $ $ $ Business Transaction Analysis Chapter 4
Section 2 Applying the Rules of Debit and Credit (con’t.)
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. $

15. Business Transaction 1 (con’t.)
Section 2 Applying the Rules of Debit and Credit (con’t.)
Chapter 4 $
Business Transaction Analysis (con’t.)
Business Transaction 1 (con’t.) $
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. $

16. Business Transaction 1 (con’t.)
Section 2 Applying the Rules of Debit and Credit (con’t.)
Chapter 4 $
Business Transaction Analysis (con’t.)
Business Transaction 1 (con’t.) $
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

17. $ $ $ $ Business Transaction Analysis (con’t.) Chapter 4
Section 2 Applying the Rules of Debit and Credit (con’t.)
Chapter 4 $
Business Transaction Analysis (con’t.) $
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. $

18. Business Transaction 3 (con’t.)
Section 2 Applying the Rules of Debit and Credit (con’t.)
Chapter 4 $
Business Transaction Analysis (con’t.) $
Business Transaction 3 (con’t.)
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. $

19. Business Transaction 3 (con’t.)
Section 2 Applying the Rules of Debit and Credit (con’t.)
Chapter 4 $
Business Transaction Analysis (con’t.) $
Business Transaction 3 (con’t.)
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

20. $ $ $ $ Business Transaction Analysis (con’t.) Chapter 4
Section 2 Applying the Rules of Debit and Credit (con’t.)
Chapter 4 $
Business Transaction Analysis (con’t.)
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. $ $

21. Business Transaction 4 (con’t.)
Section 2 Applying the Rules of Debit and Credit (con’t.)
Chapter 4 $
Business Transaction Analysis (con’t.) $
Business Transaction 4 (con’t.)
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. $

22. Business Transaction 4 (con’t.)
Section 2 Applying the Rules of Debit and Credit (con’t.)
Chapter 4 $
Business Transaction Analysis (con’t.) $
Business Transaction 4 (con’t.)
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