Chapter 4 Transactions That Affect Assets Liabilities and

Chapter 4 Transactions That Affect Assets, Liabilities, and Owner’s Capital

Transactions That Affect Assets, Liabilities, and Owner’s Capital Objectives: �Prepare a chart of accounts �Explain the purpose of double-entry accounting �Identify the normal balance of accounts

Objectives: cont… �Use T-Accounts to illustrate the rules of debit and credit for asset accounts, liability accounts, and the owner’s capital account and to express the accounting equation. �Calculate the account balances after recording business transactions. �Define the accounting terms introduced in this chapter.

Transactions That Affect Assets, Liabilities, and Owner’s Capital: Why it’s important? ü You need to analyze transactions into debit and credit parts.

PANDA RESTAURANT GROUP Andrew and Peggy Cherng opened their first Panda Inn in Pasadena, California. Use recipes from Andrew’s father, Master Chef Ming-Tsai Cherng. Now has more than 700 stores in 36 states, Puerto Rico, and Japan. Their mission is to reach a goal of 10, 000 Panda Express restaurants.

Panda Express outlets

Prediction Transactions That Affect Assets, Liabilities, and Owner’s Capital ü What does the chapter title tell you? have you learned about this in the earlier chapters?

What Do You Think? When Panda Restaurant Group opens a new store, how do you think its assets and liabilities are affected? ASSETS: LIABILITIES:

KEY TERMS Chart of accounts A list of all accounts used by a business Ledger A book where all the accounts are grouped together. Double-entry accounting A system used to analyze and record a transaction. Debit An entry on the left side of an account Credit An entry on the right side of an account T-Account An efficient tool for using double-entry accounting Normal balance The usual balance of an account

Chapter 4 Section 1 Accounts and the Double-Entry Accounting System

ROADRUNNER DELIVERY SERVICE 155 Gateway Blvd. Sacramento, CA 94230 CHART OF ACCOUNTS ASSETS 101 Cash in Bank LIABILITIES 201 Accounts Payable---Beacon Advertising 205 Accounts Payable---North Shore Auto OWNER’S EQUITY 105 Accounts Receivable---City News 110 Accounts Receivable---Green Company 115 Computer Equipment 120 Office Equipment 125 Delivery Equipment 301 Maria Sanchez, Capital 302 Maria Sanchez, Withdrawals 303 Income Summary REVENUE 401 Delivery Revenue EXPENSES 501 505 510 515 Advertising Expense Maintenance Expense Rent Expense Utilities Expense

Section 1 Accounts and the Double-Entry Accounting System ASSETS = LIABILITIES + OWNER’S EQUITY Account Name Left Side Debit Side Account Name Right Side Credit Side Left Side Debit Side Right Side Credit Side

Section 1 Rules for Asset Accounts üAn asset account is increased on the debit side üAn asset account is decreased on the credit side üThe normal balance for an asset account is the increase, or the debit side. ASSETS = LIABILITIES ASSETS Debit Credit + - Normal + OWNER’S EQUITY

Rules for Liability and Owner’s Capital Accounts üLiability and owner’s capital accounts are increased on the credit side. üLiability and owner’s capital accounts are decreased on the debit side üThe normal balance for liability and owner’s capital accounts is the increase, or the credit side. ASSETS = LIABILITIES + OWNER’S EQUITY LIABILITIES OWNER’S EQUITY Debit Credit - + Normal

1. ASSETS Find the Balance for each account. = LIABILITIES + OWNER’S EQUITY 2. 1. Roadrunner issued a check for $1, 000 in partialfrom Roadrunner bought a calculator on account 5, 850 = 2, 500 + 2. payment Check the Accuracy using ACCOUNTING EQUATION 3, 350 of. Office the amount owed to National Office Supply. National Supply forthe $400. Total Assets = Total Liabilities + Owner’s Equity Cash in the Bank Debit Credit 5, 000 2)1, 000 Bal Accounts Payable---National Office Supp. Debit Credit 2, 500 2)1, 000 4, 000 Bal Office Equipment Debit Credit 850 1) 400 1, 900 J. L. Baker , Capital Debit Credit 3, 350 1) 400 Bal 1, 250 Bal 3, 350

Applying the Rules of Debit & Credit Asset Accounts Normal Balance Increase Side Decrease Side Liability Accounts Owner’s Capital Account

Problem 4 -1 Applying the Rules of Debit & Credit Account Title Cash in Bank Account Classification Decrease Side Normal Balance Debit Credit Accounts Receivable Asset Debit Credit Debit Office Equipment Asset Debit Credit Debit Accounts Payable Liability Credit Debit Credit R. Lewis, Capital Asset Increase Side Owner’s Equity Credit Debit