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CHAPTER THREE THE DOUBLE ENTRY FRAMEWORK. “T” Accounts DebitCredit SHAPED LIKE a “ T ”

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Presentation on theme: "CHAPTER THREE THE DOUBLE ENTRY FRAMEWORK. “T” Accounts DebitCredit SHAPED LIKE a “ T ”"— Presentation transcript:

1 CHAPTER THREE THE DOUBLE ENTRY FRAMEWORK

2 “T” Accounts DebitCredit SHAPED LIKE a “ T ”

3 “T” Accounts DebitCredit Debit means Left Credit means Right

4 “T” Accounts Dr.Cr. Abbreviation for Debit Abbreviation for Credit

5 “T” Accounts Dr.Cr. CASH ACCOUNT NAME

6 Every “T” Account has: èAn Increase Side, and èA Decrease Side èBut, Some Accounts Increase on the Debit Side èAnd, Some Accounts Increase on the Credit Side

7 7 RULES OF DEBITS AND CREDITS

8 RULE #1 ASSET ACCOUNTS Dr.Cr. + Increase on Debit Side Decrease on Credit Side

9 EXAMPLE: PURCHASED OFFICE SUPPLIES FOR $800 CASH

10 STEP #1 Name the accounts affected: CASH OFFICE SUPPLIES

11 STEP #2 Determine Classification of Accounts CASH ASSET OFFICE SUPPLIES ASSET

12 STEP #3 Now that we know the classification, we can identify increase and decrease sides. CASH DR.CR. + OFFICE SUPPLIES DR.CR. +

13 Did Office Supplies Increase or Decrease in this transaction? PURCHASED OFFICE SUPPLIES FOR $800 CASH

14 INCREASED OFFICE SUPPLIES DR.CR. $800 +

15 What about Cash? Increase or Decrease in this transaction? PURCHASED OFFICE SUPPLIES FOR $800 CASH

16 DECREASED CASH DR.CR. $800 +

17 RULE #2 IN EVERY TRANSACTION DEBITS MUST EQUAL CREDITS

18 DEBITS = CREDITS DR. CASH + $800 CR. OFFICE SUPPLIES DR.CR. $800 +

19 RULE #3 LIABILITY ACCOUNTS Dr.Cr. + Decrease on Debit Side Increase on Credit Side

20 EXAMPLE: PURCHASED EQUIPMENT ON ACCOUNT FOR $3,000.

21 STEP #1 Name the accounts affected: EQUIPMENT ACCOUNTS PAYABLE

22 STEP #2 Determine Classification of Accounts: EQUIPMENT ACCOUNTS PAYABLE ASSET LIABILITY

23 STEP #3 Now that we know the classification, we can identify increase and decrease sides. EQUIPMENT DR.CR. + ACCOUNTS PAYABLE DR.CR. +

24 Did Equipment Increase or Decrease in this transaction? PURCHASED EQUIPMENT ON ACCOUNT FOR $3,000.

25 INCREASED EQUIPMENT DR.CR. $3000 +

26 Accounts Payable? Increase or Decrease in this transaction? PURCHASED EQUIPMENT ON ACCOUNT FOR $3,000.

27 INCREASED ACCOUNTS PAYBLE DR.CR. $3000 +

28 DEBITS = CREDITS DR. ACCOUNTS PAYABLE + $3000 CR. EQUIPMENT DR.CR. $3000 +

29 RULE #4 CAPITAL ACCOUNT Dr.Cr. + Decrease on Debit Side Increase on Credit Side JUST LIKE LIABILITY ACCOUNTS

30 EXAMPLE: MARY ADAMS, THE OWNER, INVESTED $25,000 IN THE BUSINESS

31 STEPS #1 & 2 Name and classify the accounts affected: M. ADAMS, CAPITALCASH DR.CR.DR.CR. OWNER’S EQUITY ASSET

32 STEP #3 Now that we know the classification, we can identify increase and decrease sides. CASH DR.CR. + M. ADAMS, CAPITAL DR.CR. +

33 INCREASED OR DECREASED? CASH DR.CR. + M. ADAMS, CAPITAL DR.CR. + INCREASED $25,000

34 DEBITS = CREDITS DR. M. ADAMS, CAPITAL + $25,000 CR. CASH DR.CR. + $25,000

35 RULE #5 DRAWING ACCOUNT Dr.Cr. + Increase on the Debit Side Decrease on the Credit Side JUST LIKE ASSET ACCOUNTS

36 EXAMPLE: MARY WITHDREW $1,500 FOR PERSONAL EXPENSES

37 STEPS #1 & #2 Name and classify the accounts affected: M. ADAMS, DRAWINGCASH DR.CR.DR.CR. OWNER’S EQUITY ASSET

38 STEP #3 Now that we know the classification, we can identify increase and decrease sides. CASH DR.CR. + M. ADAMS, DRAWING DR.CR. +

39 INCREASED OR DECREASED? CASH DR.CR. + M. ADAMS, DRAWING DR.CR. INCREASED DECREASED $1,500 +

40 DEBITS = CREDITS DR. M. ADAMS, DRAWING $1,500 CR. CASH DR.CR. $1,

41 RULE #6 REVENUE ACCOUNTS Dr.Cr. Decrease on Debit Side Increase on Credit Side JUST LIKE LIABILITY & CAPITAL ACCOUNTS +

42 EXAMPLE: MARY PERFORMED SERVICES AND RECEIVED $4,500 IN CASH

43 STEPS #1 & #2 Name and classify the accounts affected: CONSULTING FEESCASH DR.CR.DR.CR. REVENUE ASSET

44 STEP #3 Now that we know the classification, we can identify increase and decrease sides. CASH DR.CR. CONSULTING FEES DR.CR. + +

45 INCREASED OR DECREASED? CASH DR.CR. CONSULTING FEES DR.CR. INCREASED $4,

46 DEBITS = CREDITS DR. CONSULTING FEES $4,500 CR. CASH DR.CR. $4,

47 EXAMPLE: MARY PERFORMED $6,000 OF SERVICES ON ACCOUNT

48 DEBITS = CREDITS DR. CONSULT. FEES $6,000 CR. ACCOUNTS RECEIVABLE DR.CR. $6,000 ACCOUNTS RECEIVABLE INSTEAD OF CASH + +

49 RULE #7 EXPENSE ACCOUNTS Dr.Cr. Increase on the Debit Side Decrease on the Credit Side JUST LIKE ASSET ACCOUNTS +

50 EXAMPLE MARY ADAMS PAID HER ASSISTANT $750 IN WAGES

51 STEPS #1 & #2 Name and classify the accounts affected: WAGES EXPENSE CASH DR.CR.DR.CR. EXPENSE ASSET

52 STEP #3 Now that we know the classification, we can identify increase and decrease sides. CASH DR.CR. WAGES EXPENSE DR.CR. ++

53 INCREASED OR DECREASED? CASH DR.CR. WAGES EXPENSE DR.CR. INCREASED DECREASED $

54 DEBITS = CREDITS DR. CASH $750 CR. WAGES EXPENSE DR.CR. $750 ++

55 BALANCING “T” ACCOUNTS CASH 2, ,500 FOOTING 1 1 1, ,130 FOOTING STEP #1 FOOT DEBIT & CREDIT SIDES To “Foot” means to Total

56 BALANCING A “T” ACCOUNT üSTEP #2: Find balance by finding the difference between the debit and credit totals. $3,500 debit footing – $3,130 credit footing $ 370 balance

57 BALANCING “T” ACCOUNTS CASH 2, , , , BALANCE Balance is written on side with larger total

58 TRIAL BALANCE LIST OF ALL ACCOUNTS INCLUDING THEIR BALANCES TOTALING DEBITS AND CREDITS PROVING DEBITS EQUAL CREDITS USED AS AN AID IN PREPARING FINANCIAL STATEMENTS

59 Jessica Jane’s Campus Delivery Trial Balance June 30, 20-- Account TitleDebit BalanceCredit Balance HEADING should include: èName of the Company èTitle of Document “Trial Balance” èDate of the Trial Balance

60 Jessica Jane’s Campus Delivery Trial Balance June 30, 20-- Account TitleDebit BalanceCredit Balance Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment All Asset accounts listed first

61 Jessica Jane’s Campus Delivery Trial Balance June 30, 20-- Account TitleDebit BalanceCredit Balance Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accounts Payable Liabilities are shown next

62 Jessica Jane’s Campus Delivery Trial Balance June 30, 20-- Account TitleDebit BalanceCredit Balance Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accounts Payable Jessica Jane, Capital Jessica Jane, Drawing Now the Owner’s Equity Accounts

63 Jessica Jane’s Campus Delivery Trial Balance June 30, 20-- Account TitleDebit BalanceCredit Balance Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accounts Payable Jessica Jane, Capital Jessica Jane, Drawing Delivery Fees Then the Revenue Account

64 Jessica Jane’s Campus Delivery Trial Balance June 30, 20-- Account TitleDebit BalanceCredit Balance Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accounts Payable Jessica Jane, Capital Jessica Jane, Drawing Delivery Fees Wages Expense Rent Expense Telephone Expense Finally, the Expenses

65 Jessica Jane’s Campus Delivery Trial Balance June 30, 20-- Account TitleDebit BalanceCredit Balance Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment Accounts Payable Jessica Jane, Capital Jessica Jane, Drawing Delivery Fees Wages Expense Rent Expense Telephone Expense It Balances!!! Debits = Credits


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