1. CHAPTER 3: Analyzing Transactions into Debit and Credit Parts
OBJECTIVES:
Define accounting terms related to analyzing transactions into debit and credit parts.
Identify accounting practices related to analyzing transactions into debit and credit parts.
Use T accounts to analyze transactions showing which accounts are debited or credited for each transaction.
Analyze how transactions to set up a business affect accounts.
Analyze how transactions affect owner’s equity accounts.

2. Ch 3-1 Using T-Accounts
ACCOUNT:
Used to summarize one item in the accounting equation
REVIEW:
Accounts Payable
Owner’s Capital
Revenue
Withdrawals
Expenses:
Rent
Advertising
Charity
Phone/Cable/Internet
Utilities
Cash
Supplies
Prepaid Insurance
Accounts Receivable

3. Transactions…
Transactions change the accounting equation, and transactions are summarized in accounts.
Effects of transactions can be recorded in an accounting equation, BUT this is not practical in an actual accounting system
Too many accounts in most businesses
Most keep a separate record for each account
Can be represented as a T-account

4. Left side: value of all things owned assets
Lesson 03-1 (GJ)
ACCOUNTS
Left side: value of all things owned assets
Right side: values of equities or claims against the assets (liabilities and OE)
DEBIT (DR) = CREDIT (CR)
Lesson 3-1, page 42

5. Assets – Normal DR Balance Liabilities – Normal CR Balance
Account balances
Normal Balance – the side of the account that is increased when a transaction is made.
Assets – Normal DR Balance
Liabilities – Normal CR Balance
Owner’s Capital – Normal CR Balance

6. Increases and Decreases in Accounts
Two basic accounting rules regulate increases and decreases of account balances:
Account balances INCREASE on the normal balance side
Account balances DECREASE on the opposite side of the normal balance

7. INCREASES AND DECREASES IN ACCOUNTS
CREATE CHART!
Lesson 3-1, page 43

8. INCREASES AND DECREASES IN ACCOUNTS
ALL Asset accounts NORMAL DEBIT BALANCE
increase on the debit side and decrease on the credit side
ALL Liability accounts NORMAL CREDIT BALANCE
increase on credit side and decrease on the debit side
Owner’s Capital account NORMAL CREDIT BALANCE
*****NOT TRUE for ALL Owner’s EQUITY accounts*****

9. TERMS REVIEW TO DO: Audit, pg. 44 Work Together On your own T account
debit
credit
normal balance
Lesson 3-1, page 44

10. Ch 3-2: Analyzing How Transactions Affect Accounts
Chart of accounts: List of accounts used by a business – pg. 3
REMEMBER---
‘Received cash’ always means that cash is received and will be DEBITED
‘Paid cash’ always means that cash decreases and will be CREDITED

11. Received Cash from Owner as Investment
Four Questions to ask Before Recording a Transaction:
What accounts are affected?
How is each account classified?
Asset, Liability, Owner’s Equity, Expense, Revenue
How is the account balance changed? + -
How is each amount entered into the T-account? Debit - Credit

12. RECEIVED CASH FROM OWNER AS AN INVESTMENT
Lesson 03-1 (GJ)
RECEIVED CASH FROM OWNER AS AN INVESTMENT
August 1. Received cash from owner as an investment, $10, 2 2 1 1 4 4 3 3
1. Cash and Barbara Treviño, Capital are affected.
2. Cash is an asset account. Barbara Treviño, Capital is an owner’s equity account.
3. Assets are increased. Owner’s Equity is increased.
4. Cash is debited. Barbara Treviño, Capital is credited.
Lesson 3-2, page 45

13. Assets = Liabilities + Owner’s Equity
DO NOT ASSUME THAT BOTH SIDES OF ACCOUTING EQUATION WILL ALWAYS BE AFFECTED!!!
DEBITS = CREDITS
Assets = Liabilities + Owner’s Equity

14. PAID CASH FOR SUPPLIES
August 3. Paid cash for supplies, $1, 2 1 1 4 4 3 3
1. Supplies and Cash are affected.
2. Supplies and Cash are assets.
3. Assets (Supplies) are increased. Assets (Cash) are decreased.
4. Supplies is debited. Cash is credited.
Lesson 3-2, page 46

15. PAID CASH FOR INSURANCE
August 4. Paid cash for insurance, $1, 2 1 1 4 4 3 3
1. Prepaid Insurance and Cash are affected.
2. Prepaid Insurance and Cash are assets.
3. Assets (Prepaid Insurance) are increased. Assets (Cash) are decreased.
4. Prepaid Insurance is debited. Cash is credited.
Lesson 3-2, page 47

16. BOUGHT SUPPLIES ON ACCOUNT
August 7. Bought supplies on account from Ling Music Supplies, $2, 2 2 1 1 4 4 3 3
1. Supplies and Accounts Payable—Ling Music Supplies are affected.
2. Supplies is an asset. Accounts Payable—Ling Music Supplies is a liability.
3. Assets are increased. Liabilities are increased.
4. Supplies is debited. Accounts Payable—Ling Music Supplies is credited.
Lesson 3-2, page 48

17. PAID CASH ON ACCOUNT PAGE 49
August 11. Paid cash on account to Ling Music Supplies, $1,
PAGE 49
1. Accounts Payable—Ling Music Supplies and Cash are affected.
2. Cash is an asset. Accounts Payable—Ling Music Supplies is a liability.
3. Assets are decreased. Liabilities are decreased.
4. Accounts Payable—Ling Music Supplies is debited. Cash is credited.
Lesson 3-2, page 49

18. REMEMBER: when you decrease an account balance, record the decrease side on the side opposite the normal balance of the account.

19. TERMS REVIEW Assign: TO DO: App 3-1, 3-2 Audit, pg 50 Work Together
chart of accounts
TO DO:
Audit, pg 50
Work Together
On your own
Lesson 3-2, page 50

20. INCREASES AND DECREASES IN ACCOUNTS
ALL Asset accounts NORMAL DEBIT BALANCE
increase on the debit side and decrease on the credit side
ALL Liability accounts NORMAL CREDIT BALANCE
increase on credit side and decrease on the debit side
Owner’s Capital account NORMAL CREDIT BALANCE

21. INCREASES AND DECREASES IN ACCOUNTS
Lesson 3-1, page 43

22. Ch. 3-3: Analyzing How Transactions Affect Owner’s Equity Accounts
August 12. Received cash from sales, $325.00
Revenue increases OE!!!!
Can be recorded in owner’s capital account
BUT to avoid a capital account with VERY large entries use separate REVENUE account, SALES
Revenue increases OE normal credit balance

23. RECEIVED CASH FROM SALES
Lesson 03-1 (GJ)
RECEIVED CASH FROM SALES
August 12. Received cash from sales, $ 2 2 1 1 4 4 3 3
1. Cash and Sales are affected.
2. Cash is an asset. Sales is a revenue account that affects owner’s equity.
3. Assets are increased. Owner’s equity is increased.
4. Cash is debited. Sales is credited.
Lesson 3-3, page 51

24. August 12. Sold services on account to Kids Time, $200.00
Analysis for selling services on account is similar to that for selling services for cash, BUT cash is NOT received at the time of sale
Cash account is NOT affected when sales are made ON ACCOUNT
Transaction increases the ACCOUNTS RECEIVABLE account (asset) and SALES account (owner’s equity)

25. SOLD SERVICES ON ACCOUNT
August 12. Sold services on account to Kids Time, $ 2 2 1 1 4 4 3 3
1. Accounts Receivable—Kids Time and Sales are affected.
2. Accounts Receivable—Kids Time is an asset. Sales is a revenue account that affects owner’s equity.
3. Assets are increased. Owner’s equity is increased.
4. Accounts Receivable—Kids Time is debited. Sales is credited.
Lesson 3-3, page 52

26. ALL EXPENSES have a normal DEBIT balance
August 12. Paid cash for rent, $250.00
Expenses DECREASE Owner’s Equity!!!!
could be recorded as decrease in capital, BUT to avoid too many entries in capital recorded separately
Rent expense records all payments for rent
OE, capital Normal credit balance
decreases in OE shown as DEBIT
ALL EXPENSES have a normal DEBIT balance

27. PAID CASH FOR AN EXPENSE
August 12. Paid cash for rent, $ 2 2 1 4 3 1
1. Rent Expense and Cash are affected. 4
2. Cash is an asset. Rent Expense is an expense account that affects owner’s equity. 3 3
3. Assets are decreased. Owner’s equity is decreased; expenses are increased.
4. Rent Expense is debited. Cash is credited.
Lesson 3-3, page 53

28. August 12. Received cash on account from Kids Time, $100.00
This transaction does NOT affect Owner’s Equity
Revenue was recorded at time of sale; cannot be recorded twice
Realization of Revenue

29. RECEIVED CASH ON ACCOUNT
August 12. Received cash on account from Kids Time, $ 2 1 1 4 4 3 3
1. Cash and Accounts Receivable—Kids Time are affected.
2. Cash and Accounts Receivable—Kids Time are assets.
3. Assets (Cash) are increased. Assets (Accounts Receivable—Kids Time) is decreased.
4. Cash is debited. Accounts Receivable—Kids Time is credited.
Lesson 3-3, page 54

30. August 12. Paid cash to owner for personal use, $100.00
This transaction is NOT an expense
Withdrawals decrease Owner’s Equity
Could be recorded directly into OE, but instead use separate account
Drawing withdrawal account
SEE PAGE 55

31. August 12. Paid cash to owner for personal use, $100.00
What accounts are affected?
Drawing and Cash
How is each account classified?
Drawing OE account
Cash asset account
How is the account balance changed? + -
OE is decreased by an increased in withdrawal
Assets are decreased
How is each amount entered into the account? Debit – Credit
OE decreases on debit side increase in withdrawals decreases OE
withdrawal accounts have a normal debit balance
OE account is debited
Assets decrease on the credit side cash is credited

32. TO DO…
Audit, pg 56
Work Together, 56
On your own, 56
App 3-3, 3-4
CHAPTER 3 REVIEW:
Ch. 3 Quiz
Mastery 3-5
Case 1 and 2 – pg 62
Ch. 3 Study Guide