© South-Western Educational Publishing CHAPTER 3: Analyzing Transactions into Debit and Credit Parts OBJECTIVES: n Define accounting terms related to analyzing

© South-Western© South-WesternEducational PublishingEducational Publishing

CHAPTER 3: Analyzing Transactions into CHAPTER 3: Analyzing Transactions into Debit and Credit PartsDebit 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.


Ch 3-1 Using T-AccountsCh 3-1 Using T-Accounts

Cash Supplies Prepaid Insurance Accounts Receivable

Accounts Payable Owner’s Capital Revenue Withdrawals Expenses:

– Rent – Advertising– Charity– Phone/Cable/Internet– Utilities

ACCOUNT: Used to summarize one item in the accounting equation

REVIEW:


Transactions…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


ACCOUNTSACCOUNTS

Lesson 3-1, page 42Lesson 3-1, page 42

DEBIT (DR) = CREDIT (CR)

Left side: value of all things owned assets

Right side: values of equities or claims against the assets (liabilities and OE)


Account balancesAccount 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


Increases and Decreases in AccountsIncreases and Decreases in Accounts

Two basic accounting rules regulate increases and decreases of account balances:

1. Account balances INCREASE on the normal balance side

2. Account balances DECREASE on the opposite side of the normal balance


INCREASES AND DECREASES IN ACCOUNTSINCREASES AND DECREASES IN ACCOUNTS


CREATE CHART!



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 – increase on credit side and decrease on the debit side

*****NOT TRUE for ALL Owner’s EQUITY accounts*****


TTERMS REVIEWERMS REVIEWT account

debit

credit

normal balance


TO DO:

-Audit, pg. 44

-Work Together

-On your own


Ch 3-2: Analyzing How Transactions Affect AccountsCh 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


Received Cash from Owner as InvestmentReceived Cash from Owner as Investment

Four Questions to ask Before Recording a Transaction:

1. What accounts are affected?

2. How is each account classified? Asset, Liability, Owner’s Equity, Expense,

Revenue

3. How is the account balance changed? + -

4. How is each amount entered into the T-account? Debit - Credit


RECEIVED CASH FROM OWNER AS AN INVESTMENTRECEIVED CASH FROM OWNER AS AN INVESTMENT


August 1. Received cash from owner as an investment, $10,000.00.

1

3

4

22

3

4

1

1. Cash and Barbara Treviño, Capital are affected.

4. Cash is debited. Barbara Treviño, Capital is credited.

3. Assets are increased. Owner’s Equity is increased.

2. Cash is an asset account. Barbara Treviño, Capital is an owner’s equity account.


DO NOT ASSUME THAT BOTH SIDES OF ACCOUTING

EQUATION WILL ALWAYS BE AFFECTED!!!

DEBITS = CREDITS Assets = Liabilities + Owner’s Equity


3. Assets (Supplies) are increased. Assets (Cash) are decreased.

PAID CASH FOR SUPPLIESPAID CASH FOR SUPPLIES


August 3. Paid cash for supplies, $1,577.00.

1

3

4

2

3

4

1

1. Supplies and Cash are affected.

4. Supplies is debited. Cash is credited.

2. Supplies and Cash are assets.


3. Assets (Prepaid Insurance) are increased. Assets (Cash) are decreased.

PAID CASH FOR INSURANCEPAID CASH FOR INSURANCE


August 4. Paid cash for insurance, $1,200.00.

1

3

4

2

3

4

1

1. Prepaid Insurance and Cash are affected.

4. Prepaid Insurance is debited. Cash is credited.

2. Prepaid Insurance and Cash are assets.


BOUGHT SUPPLIES ON ACCOUNTBOUGHT SUPPLIES ON ACCOUNT


August 7. Bought supplies on account from Ling Music Supplies, $2,720.00.

1

3

4

22

3

4

1

1. Supplies and Accounts Payable—Ling Music Supplies are affected.

4. Supplies is debited. Accounts Payable—Ling Music Supplies is credited.

3. Assets are increased. Liabilities are increased.

2. Supplies is an asset. Accounts Payable—Ling Music Supplies is a liability.


PAID CASH ON ACCOUNTPAID CASH ON ACCOUNT


August 11. Paid cash on account to Ling Music Supplies, $1,360.00.

1. Accounts Payable—Ling Music Supplies and Cash are affected.

4. Accounts Payable—Ling Music Supplies is debited. Cash is credited.

3. Assets are decreased. Liabilities are decreased.

2. Cash is an asset. Accounts Payable—Ling Music Supplies is a liability.

PAGE 49


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


TTERMS REVIEWERMS REVIEW chart of accounts

TO DO: - Audit, pg 50- Work Together- On your own


Assign:

App 3-1, 3-2



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 – increase on credit side and decrease on the debit side





Ch. 3-3: Analyzing How Transactions Affect Owner’s Ch. 3-3: Analyzing How Transactions Affect Owner’s Equity AccountsEquity 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


RECEIVED CASH FROM SALESRECEIVED CASH FROM SALES


August 12. Received cash from sales, $325.00.

1

3

4

22

3

4

1

1. Cash and Sales are affected.

4. Cash is debited. Sales is credited.

3. Assets are increased. Owner’s equity is increased.

2. Cash is an asset. Sales is a revenue account that affects owner’s equity.


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)


SOLD SERVICES ON ACCOUNTSOLD SERVICES ON ACCOUNT


August 12. Sold services on account to Kids Time, $200.00.

1

3

4

22

3

4

1

1. Accounts Receivable—Kids Time and Sales are affected.

4. Accounts Receivable—Kids Time is debited. Sales is credited.

3. Assets are increased. Owner’s equity is increased.

2. Accounts Receivable—Kids Time is an asset. Sales is a revenue account that affects owner’s equity.


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


2. Cash is an asset. Rent Expense is an expense account that affects owner’s equity.

3. Assets are decreased. Owner’s equity is decreased; expenses are increased.

PAID CASH FOR AN EXPENSEPAID CASH FOR AN EXPENSE


August 12. Paid cash for rent, $250.00.

1

3

4

2

3

4

1

1. Rent Expense and Cash are affected.

4. Rent Expense is debited. Cash is credited.

2

3


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


1. Cash and Accounts Receivable—Kids Time are affected.

4. Cash is debited. Accounts Receivable—Kids Time is credited.

3. Assets (Cash) are increased. Assets (Accounts Receivable—Kids Time) is decreased.

2. Cash and Accounts Receivable—Kids Time are assets.

RECEIVED CASH ON ACCOUNTRECEIVED CASH ON ACCOUNT


August 12. Received cash on account from Kids Time, $100.00.

1

3

4

2

4

1

3


August 12. Paid cash to owner for personal use, August 12. Paid cash to owner for personal use, $100.00$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


August 12. Paid cash to owner for personal use, August 12. Paid cash to owner for personal use, $100.00$100.00

1. What accounts are affected?1. Drawing and Cash

2. How is each account classified?1. Drawing OE account2. Cash asset account

3. How is the account balance changed? + - 1. OE is decreased by an increased in withdrawal2. Assets are decreased

4. 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


TO DO…TO DO…

Audit, pg 56 Work Together, 56 On your own, 56 App 3-3, 3-4

CHAPTER 3 REVIEW:

1. Ch. 3 Quiz

2. Mastery 3-5

3. Case 1 and 2 – pg 62

4. Ch. 3 Study Guide

Documents

© South-Western Educational Publishing CHAPTER 3: Analyzing Transactions into Debit and Credit Parts OBJECTIVES: n Define accounting terms related to analyzing