Chapter 2 T ACCOUNTS DEBITS AND CREDITS TRIAL

Chapter 2 T ACCOUNTS, DEBITS AND CREDITS, TRIAL BALANCE AND FINANCIAL STATEMENTS © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Learning Objective – 1 © 2015 Cengage Learning. All Rights Reserved. May not be

The T-Account Form Step 1: Add Step 2: 109, 070 – 53, 180 = 55, 890 Footings Step 1: Add Step 3: Placement © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The T-Account Form Normally, the footing on the increase (plus) side of an account will be larger than the footing © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Practice Exercise 1 © 2015 Cengage Learning. All Rights Reserved. May not be scanned,

Learning Objective © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied

Asset T Accounts The T account has a ______ (such as _____). Cash Assets ____ on the left side. Assets _____on the right side. (continued) © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Liability T Accounts Payable Liabilities _____ on the left side. Liabilities _____ on the right side. (continued) © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Owner’s Equity T Accounts Drawing and expenses cause a ______ in owner’s equity Owner’s investments (capital) and revenues cause an ______ in owner’s equity © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Expanded Fundamental Accounting Equation © 2015 Cengage Learning. All Rights Reserved. May not be

Practice Exercise 2 © 2015 Cengage Learning. All Rights Reserved. May not be scanned,

What is a: … Debit … Credit § What does debit mean? § Debit means “____” § Debit is abbreviated “_______” § What does credit mean? § Credit means “_____” § Credit is abbreviated “______” © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The T Account with Debits and Credits © 2015 Cengage Learning. All Rights Reserved.

________ © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or

The critical rule to remember is … __ © 2015 Cengage Learning. All Rights

Practice Exercise 3 © 2015 Cengage Learning. All Rights Reserved. May not be scanned,

Learning Objectives © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied

Recording Business Transactions in T Accounts Transaction (a): (a) Conner deposited $90, 000 in a bank account in the name of the business. Steps: 1. What accounts are involved? 2. What are the classifications of the accounts involved (asset, liability, capital, drawing, revenue, expense)? Answer: 1. ____________ 2. ______________ _____ 3. Are the accounts increased or 3. ________________________ decreased? ____________________ © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Recording Business Transactions in T Accounts Transaction: Conner deposited $90, 000 in a bank account in the name of the business. Steps: Answer: 4. Write the transaction as a 4. ____________ debit to one account (or accounts) and a credit to another account (accounts). 5. Is the equation in balance after the transaction has been recorded? _______________ 5. ________________________ _______________ © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (a) in T Account Form © 2015 Cengage Learning. All Rights Reserved. May

Transaction (b): (b) Conner’s Whitewater Adventures bought equipment, paying cash of $38, 000. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (c): (c) Conner’s Whitewater Adventures bought equipment, on account, for $4, 320. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (d): (d) Conner’s Whitewater Adventures paid a creditor, Signal Products, $2, 000. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (e): (e) Conner invests her personal computer, fair market value $5, 200, in the business. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Summary - Transactions (a) - (e) © 2015 Cengage Learning. All Rights Reserved. May

Let’s pause to see if the debits are equal to the credits by listing the balances of the accounts. Equal © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (f): (f) Conner’s Whitewater Adventures sold rafting tours for cash, $8, 000. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (g): (g) Conner’s Whitewater Adventures paid rent for the month, $1, 250. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (h): (h) Conner’s Whitewater Adventures bought computer paper, ink cartridges, invoice pads, pens and pencils, folders, filing cabinets, and 10 -key calculators on account, $675. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (i): (i) Conner’s Whitewater Adventures bought a three -month liability insurance policy, $1, 875. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (j): (j) Conner’s Whitewater Adventures received a bill for newspaper advertisement from the Times, $620. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (k): (k) Conner’s Whitewater Adventures signs a contract with Crystal River Lodge to provide rafting adventures for guests. Conner’s Whitewater Adventures provides 27 one-day rafting tours and bills Crystal River Lodge for $6, 750. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (l): Conner’s Whitewater Adventures pays on account to Signal Products, $1, 500. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (m): (m) Conner’s Whitewater Adventures received and paid Solar Power, Inc. for the electric bill, $225. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (n): (n) Conner’s Whitewater Adventures paid on account to the Times, $620. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (o): (o) Conner’s Whitewater Adventures paid the wages of a part-time employee, $2, 360. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (p): (p) Conner’s Whitewater Adventures bought additional equipment from Signal Products, $3, 780, paying $1, 850 in cash and placing the balance on account. This is a ______ © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (q): (q) Conner’s Whitewater Adventures received $2, 500 cash from Crystal River Lodge to apply against the amount billed in transaction (k). © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (r): (r) Conner’s Whitewater Adventures sold tours for cash, $8, 570. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (s): (s) J. Conner withdrew cash for her personal use, $3, 500. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Summary of Transactions continued © 2015 Cengage Learning. All Rights Reserved. May not be

Summary of Transactions © 2015 Cengage Learning. All Rights Reserved. May not be scanned,

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated,

Practice Exercise 4 © 2015 Cengage Learning. All Rights Reserved. May not be scanned,

Practice Exercise 4 – Complete the T accounts © 2015 Cengage Learning. All Rights

Prepare a Trial Balance § List the account balances in two columns. – Left column = ______ – Right column = _______ § List the accounts in the same order as the chart of accounts. • _______ • _____________ © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The normal balance of each account is on its _____ side. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Figure 2: Trial Balance © 2015 Cengage Learning. All Rights Reserved. May not be

Practice Exercise 5 © 2015 Cengage Learning. All Rights Reserved. May not be scanned,

Practice Exercise 5 – Complete the trial balance © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The Income Statement § The _________ shows total revenue minus total expenses, which yields the net income or net loss. § The income statement reports how the business has performed ________, usually a ______ or a ____. § When total revenue exceeds total expenses over the period, the result is a _______ or _____. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Figure 3 © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied

The Statement of Owner’s Equity § The ______________ shows how—and why—the _____ or _______ has changed over a stated period of time. § This statement is prepared after the accountant has determined the ________ or ______ on the income statement. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Figure 4 © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied

The Balance Sheet § The __________ shows the financial condition of a business’s assets offset by claims against them _____________. § The balance sheet ______ the balances of the _______, and _______ accounts on a given date (usually the end of a ______ or _______). It is a “_____” of the financial condition of the business at that particular time. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Figure 5 © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied

Practice Exercise 6 © 2015 Cengage Learning. All Rights Reserved. May not be scanned,

Practice Exercise 6 (a) – complete the income statement (continued) © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Practice Exercise 6 (b) – complete the statement of owner’s equity (continued) © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Practice Exercise 6 (c) – complete the balance sheet (continued) © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Errors Exposed by the Trial Balance If the debit and credit columns in the trial balance are not equal, then it is evident that there is an error. Possible mistakes include: • _________ • • • _________________ ___________________ _________ © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Procedure for Locating Errors The best method of locating errors is to do everything in reverse, as follows: • ___________________________________ ____________ • ___________________________________ ________ © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transpositions and Slides § A _______ means that the digits have been _____, or _____ around when the numbers were copied from one place to another. Example: ___________________ § A _____ is an _______ in placing the ______. Example: ___________________ § Combination of a _____ and a © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.