CHAPTER 2 Analyzing Transactions into Debit and Credit

CHAPTER 2 Analyzing Transactions into Debit and Credit Parts

2 2 -1 USING T ACCOUNTS page 28 The effects of transactions can be recorded in an accounting equation, the procedure is not practical in an actual accounting system. -Accountants need more detail about the changes affecting each account. -Number of accounts would make accounting equation too cumbersome to use as a major financial record. -A separate record is used for each account.

3 T ACCOUNT page 29 A T Account is an accounting device used to analyze transactions into debit and credit parts. Asset accounts have normal debit balances (left side of =). Liabilities/Owner’s Equity have normal credit balances (right side of =).

4 ACCOUNT BALANCES page 29

5 INCREASES AND DECREASES IN ACCOUNTS page 30

2 -2 ANALYZING HOW TRANSACTIONS AFFECT ACCOUNTS A list of accounts used by a business is called a chart of accounts. (See pg. 3 for example) *Before a transaction is recorded the information is analyzed to determine which accounts are changed and how. -Each transaction changes the balances of at least two accounts. 4 questions used in analyzing a transaction Ask yourself these questions every time you analyze a transaction 1. What accounts are affected? 2. How is each account classified? 3. How is each account balance changed? 4. How is each amount entered in the accounts? Debits MUST = Credits after each transaction.

7 RECEIVED CASH FROM OWNER AS AN INVESTMENT August 1. Received cash from owner as an investment, $5, 000. 2 1 4 4 3 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? 3 page 32

8 PAID CASH FOR SUPPLIES page 33 August 3. Paid cash for supplies, $275. 00. 1 2 1 4 4 3 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? 3

9 PAID CASH FOR INSURANCE August 4. Paid cash for insurance, $1, 200. 1 2 1 4 4 3 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? 3 page 34

10 BOUGHT SUPPLIES ON ACCOUNT page 35 August 7. Bought supplies on account from Supply Depot, $500. 2 1 4 4 3 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? 3

11 PAID CASH ON ACCOUNT page 36 August 11. Paid cash on account to Supply Depot, $300. 2 1 1 4 4 3 3 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? 2

2 -3 ANALYZING HOW TRANSACTIONS AFFECT OWNER’S EQUITY ACCOUNTS Revenue increases Owner’s Equity. (Sales) An account that reduces a related account on a financial statement is called a contra account. (ex: drawing account is a contra capital account because it reduces capital) Expenses decrease Owner’s Equity (Expense Accounts) Withdrawals decrease Owner’s Equity(Drawing Account) 2 -3

13 RECEIVED CASH FROM SALES page 38 August 12. Received cash from sales, $295. 00. 2 1 4 4 3 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? 3

14 SOLD SERVICES ON ACCOUNT page 39 August 12. Sold services on account to Oakdale School, $350. 00. 2 1 4 3 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? 4 3

15 PAID CASH FOR AN EXPENSE page 40 August 12. Paid cash for rent, $300. 1 2 3 2 4 3 1 4 1. Which accounts are affected? 3 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts?

16 RECEIVED CASH ON ACCOUNT page 41 August 18. Received cash on account from Oakdale School, $200. 2 1 4 3 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? 3

17 PAID CASH TO OWNER FOR PERSONAL USE August 12. Paid cash to owner for personal use, $125. 00. 2 1 3 4 3 1 4 1. Which accounts are affected? 3 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? 2 page 42