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Section 1Accounts 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.

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Presentation on theme: "Section 1Accounts 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."— Presentation transcript:

1 Section 1Accounts 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. What You’ll Learn  How to use T accounts.  Why you need a ledger.  The rules of debit and credit.

2 Why It’s Important The rules of debit and credit are the basis for entering transactions into the records of a business. Double-entry accounting is a system of recordkeeping in which each business transaction affects at least two accounts. Why It’s Important The rules of debit and credit are the basis for entering transactions into the records of a business. Double-entry accounting is a system of recordkeeping in which each business transaction affects at least two accounts. Key Terms  ledger  double-entry accounting  T account  debit  credit  normal balance Key Terms  ledger  double-entry accounting  T account  debit  credit  normal balance

3 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. 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 SideRight Side Debit SideCredit Side DebitCredit Account Name Left SideRight Side Debit SideCredit Side DebitCredit

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.  The normal balance in an account is always on the side used to record the increases to the account. The word normal used here means usual. 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.  The normal balance in an account is always on the side used to record the increases to the account. The word normal used here means usual.

5 Rules for Asset Accounts Assets Credit – (2) Decrease Side Debit + (1) Increase Side (3) Normal Balance

6 Rules for Liability and Owner’s Capital Accounts Section 1 Accounts and the Double-Entry Accounting System (cont'd.) Liabilities Credit + (1) Increase Side (3) Normal Balance Debit – (2) Decrease Side DebitCredit –+ (2) Decrease (1) Increase Side (3) Normal Balance Credit + (1) Increase Side (3) Normal Balance Owner’s Equity, Capital

7 Business Transaction Analysis: Steps to Success Business Transaction ANALYSIS Identify1.Identify the accounts affected. Classify2.Classify the accounts affected. + / -3.Determine the amount of increase or decrease for each account affected. Section 2Applying the Rules of Debit and Credit (cont'd.)

8 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? Section 2Applying the Rules of Debit and Credit (cont'd.)

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

10 Business Transaction Analysis Business Transaction 1 Section 2Applying the Rules of Debit and Credit (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. Cash Capital Asset Owner Equity +25,000 Debit Credit

11 Business Transaction Analysis Business Transaction 1 (cont'd.) T ACCOUNTS 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 Debit + 25,000 Credit + 25,000

12 Business Transaction Analysis (cont'd.) Business Transaction 3 Section 2Applying the Rules of Debit and Credit (cont'd.) On October 4, Roadrunner issued Check 101 for $3,000 to buy a computer system. Cash Computer Equipment Asset -3,000 +3,000 Credit Debit

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

14 Business Transaction Analysis (cont'd.) Business Transaction 4 Section 2Applying the Rules of Debit and Credit (cont'd.) On October 9, Roadrunner bought a used truck on account from North Shore Auto for $12,000. AP Delivery Equipment Liability Asset +12,000 Credit Debit

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

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