Charpter four Accounting methods

Charpter four

Accounting methods

www.nordridesign.com LOGO

4.1 The Double-Entry System of Accounting

• Debit side• Credit side• Luca Paciolio: • Italian mathematician and Franciscan friar the father of accounting Summa de arithmetica, geometria, prop

ortioni et proportionalita

New words and terms 4.1

• Double-entry accounting

• Debit

• Credit

• balance

4.2 The Account

• The T- Accounts

• Four-Column Account Format

• Normal balance of an account

• The chart of accounts

Notes：Notes：

The T-account

The increase and decrease should be recorded seperatly on debit side or credit side of every accounts

Four-column account format

Account: *** Accout No:***

Date Item Post.

Debit Credit Balance

Debit Credit

New words and terms 4.2• Increases• Decreases• Account classification• T-account• entry• running balance• post• JR=Journal Reference

New words and terms 4.2

• debit-balance accounts

• credit-balnace accounts

• permanent accounts

• temporary accounts

• overdraw

• overpay

• miscellaneous expense

4.3 Debits and Credits

• The symbol of debit and credit

Debit side: Dr

Credit side: Cr

• The rules of debit and credit

Assets Liabilities

Owner’s equity

Beginning

balances XXX

XXXincrease XXXdecrease

XXXEnding

balances

XXXdecrease

Beginning

balances XXX

XXXincrease

Ending

balances

www.nordridesign.com LOGOSummary Summary

Account elements

The effects

Debit Credit balances

Assets + - Debits

Liabilites

Owner’s Equity- + Credits

Revenues - + no

Expenses + - no

4.4 Applying for Double-Entry Accounting

• use of assets, liabilities and owner’s equity

• use of revenues, expenses and net income

www.nordridesign.com LOGOTransaction (1) :owner invested $ 30 000 cash in the business

• Assets = liabilities + Owner’s Equity

cash Ted Andy, Capital

+30000 +30000

www.nordridesign.com LOGOTransaction (2) :purchased office equipment on account, $ 2 500Assets = Liabilites + Owner’s EquityCash+ office = Accounts + Ted Andy, Capital

equipment payables

+2 500 = +2 500

Transaction (3) :purchased office supplies for cash, $ 350Assets = Liabilites + Owner’s EquityCash+ office + office = Accounts + Ted Andy, Capital

supplies equipment payables

-350 +350

Transaction (4) :paid amount owed to a creditor, $ 500

Assets = Liabilites + Owner’s EquityCash+ office + office = Accounts + Ted Andy, Capital

-500 -500

www.nordridesign.com LOGOTransaction (5) :purchased office supplies on account, $ 400

Assets = Liabilites + Owner’s EquityCash+ office + office = Accounts + Ted Andy, Capital

+400 = +400

www.nordridesign.com LOGO Transaction (6) :owner withdrew $ 300 for personal use

Assets = Liabilites + Owner’s EquityCash+office+office = Accounts + Ted’s– Ted ‘s+revenues-Expense

supplies equipment payables Capital Drawing

-300 = +300

www.nordridesign.com LOGOTransaction (7) :received cash as payment for professional fees, $ 3 500Assets = Liabilites + Owner’s EquityCash+office+office = Accounts + Ted’s– Ted ‘s+revenues-Expense

+3500 = +3500

www.nordridesign.com LOGO Transaction (8) :paid office rent $ 1 000

-1000 = +1000

www.nordridesign.com LOGOTransaction (9) : paid telephone expense, $ 75

- 75 = +75

Charpter four Accounting methods

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