1. 4.3 – Account Balances & Terminology Chapter 4

2. What is the Balance in the Cash T-Account (Ledger)? 2

3.  1. Add the two sides of the account separately writing the balance of each side beneath the last item on each side.  2. Subtract the smaller total from the larger total and record it under the larger total.  3. Circle the final amount. Calculating the Balance of an Account

4. Calculate all the Balances of the T-Accounts 4

5.  This is the balance in each of the ledger accounts and the side it is written on represents if it is a debit balance or a credit balance.  Usually:  Assets have a Debit Balance  Liabilities have a Credit Balance  Owner’s Equity has a Credit Balance DEBITS = CREDITS What do these balances represent?

6.  Sometimes an asset account might have a credit balance or a liability will have a debit balance. For instance:  If the business takes out more cash than is in their bank account because they have an overdraft agreement, then the cash would have a credit balance.  Your business overpays an accounts payable balance then it will end up with a debit balance.  These balances don’t usually have an exceptional balance for long. Exceptional Account Balances

7.  Buying and Selling on Credit – when a business buys from another business, they are usually given terms that allow them to pay for the goods at a later date. Here is some terminology: 1. Purchase on Account – items are received from a supplier but not paid for.  DR. Asset or Expense CR. Accounts Payable 2. Sale on Account – items are sold but the customer will pay later.  DR. Accounts Receivable CR. Capital Interpreting Transactions

8. 3. Payment on account– you have paid money to a creditor (Accounts Payable)  DR. Accounts Payable CR. Cash 4. Receipt on Account– a customer has paid a debt that they owe you.  DR. Cash CR. Accounts Receivable Interpreting Transactions

9.  A. Received $180 from M. Coburn on account.  B. Paid $100 to Tri Tech Computers on account.  C. Performed a $200 service for G. Vanderveen on account.  D. Purchased $300 of office furniture from Office Outfitters on account. Your Turn – What is the transaction for each situation.