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Home. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Copyright © by The McGraw-Hill Companies, Inc. All rights.

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Presentation on theme: "Home. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Copyright © by The McGraw-Hill Companies, Inc. All rights."— Presentation transcript:

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2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. A business’s transactions can be analyzed by using the double-entry accounting system, which recognizes the different sides of business transactions as debits and credits. Home

3 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Describe the chart of accounts. Explain the purpose of double-entry accounting. Use T accounts to analyze transactions that affect assets, liabilities, and the owner’s capital account. Prepare a chart of accounts. Identify the normal balance of accounts. Use T accounts to illustrate the rules of debit and credit. Calculate the account balances after recording business transactions. Glencoe AccountingCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Home

4 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Key Terms chart of accounts ledger double-entry accounting debit credit T account normal balance Accounts and the Double- Entry Accounting System Section 4.1 Home

5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Chart of Accounts chart of accounts A list of all accounts used by a business. Accounts and the Double- Entry Accounting System Section 4.1 Home

6 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Chart of Accounts ledger A group of accounts; also referred to as a general ledger. Accounts and the Double- Entry Accounting System Section 4.1 A system for numbering accounts makes it easy to locate individual accounts in the ledger. Home

7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Chart of Accounts Accounts and the Double- Entry Accounting System Section 4.1 A typical numbering system Asset accounts begin with 1. Liability accounts begin with 2. Owner’s equity accounts begin with 3. Revenue accounts begin with 4. Expense accounts begin with 5. See page 82 Home

8 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Double-Entry Accounting Accounts and the Double- Entry Accounting System Section 4.1 The double-entry accounting system recognizes both the debit and credit side of a business transaction. 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. Home

9 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Double-Entry Accounting Accounts and the Double- Entry Accounting System Section 4.1 The T account gets its name from being shaped like a T. T-account A visual representation of a ledger account. The T account is a tool used to analyze transactions. Home

10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Double-Entry Accounting Accounts and the Double- Entry Accounting System Section 4.1 normal balance The increase side of an account. The word normal here means usual. Home

11 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Double-Entry Accounting Accounts and the Double- Entry Accounting System Section 4.1 Rules for Asset Accounts It is increased on the debit side (left side). It is decreased on the credit side (right side). The normal balance is the increase or debit side. Home

12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Double-Entry Accounting Accounts and the Double- Entry Accounting System Section 4.1 Rules for Liability and Owner’s Capital Accounts It is increased on the credit side (right side). It is decreased on the debit side (left side). The normal balance is the increase or credit side. Home

13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Applying the Rules of Debit and Credit Section 4.2 Business Transaction Analysis When analyzing business transactions, you should Apply the rules of debit and credit. Complete the entry in T-account form. Home

14 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Applying the Rules of Debit and Credit Section 4.2 Assets and Equities Transactions Analyzing Business Transactions Business Transaction 1 On October 1 Crista Vargas took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Zip Delivery Service. See page 87 Home

15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Applying the Rules of Debit and Credit Section 4.2 Assets and Equities Transactions Use a T account to analyze an owner’s investment in the business: Business Transaction 2 On October 2 Crista Vargas took two telephones valued at $200 each from her home and transferred them to the business as office equipment. See page 87 Home

16 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Applying the Rules of Debit and Credit Section 4.2 Assets and Equities Transactions Increase an asset and decrease another asset: Business Transaction 3 On October 4 Zip issued Check 101 for $3,000 to buy a computer system. See page 88 Home

17 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Applying the Rules of Debit and Credit Section 4.2 Assets and Equities Transactions Increase an asset and increase a liability: Business Transaction 4 On October 9 Zip bought a used truck on account from Coast to Coast Auto for $12,000. See page 89 Home

18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Applying the Rules of Debit and Credit Section 4.2 Assets and Equities Transactions Increase an asset and decrease another asset: Business Transaction 5 On October 11 Zip sold one phone on account to Green Company for $200. See page 89 Home

19 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Applying the Rules of Debit and Credit Section 4.2 Assets and Equities Transactions Decrease a liability and decrease an asset: Business Transaction 6 On October 12 Zip mailed Check 102 for $350 as the first installment on the truck purchased from Coast to Coast Auto on October 9. See page 90 Home

20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Applying the Rules of Debit and Credit Section 4.2 Assets and Equities Transactions Increase an asset and decrease another asset: Business Transaction 7 On October 14 Zip received and deposited a check for $200 from Green Company. The check is full payment for the telephone sold on account to Green Company on October 11. See page 90 Home

21 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Question 1 Identify the normal balance for each of the following accounts by indicating Debit or Credit. Cash in Bank __________ Accounts Receivable __________ Richard Sims, Capital__________ Computer Equipment __________ 1st National Bank (mortgage on building ) __________ Car Wash Equipment __________ Building __________ Office Supplies __________ DEBIT CREDIT DEBIT CREDIT DEBIT Home

22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Question 2 On October 18 Dick’s Car Wash bought $10,000 worth of car wash equipment by issuing Check #111. Using the Business Transaction Analysis method in your book, list the steps you would use to record this transaction. Assume that asset accounts for Cash in Bank and Car Wash Equipment exist. Step 1: Identify the accounts affected. The accounts Car Wash Equipment and Cash in Bank are affected. Step 2: Classify the accounts affected. Car Wash Equipment is an asset account. Cash in Bank is an asset account (continued) Home

23 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Question 2 On October 18 Dick’s Car Wash bought $10,000 worth of car wash equipment by issuing Check #111. Using the Business Transaction Analysis method in your book, list the steps you would use to record this transaction. Assume that asset accounts for Cash in Bank and Car Wash Equipment exist. Step 3: Determine the amount of increase or decrease for each account affected. Car Wash Equipment is increased by $10,000. Cash in Bank is decreased by $10,000. (continued) Home

24 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Question 2 On October 18 Dick’s Car Wash bought $10,000 worth of car wash equipment by issuing Check #111. Using the Business Transaction Analysis method in your book, list the steps you would use to record this transaction. Assume that asset accounts for Cash in Bank and Car Wash Equipment exist. Step 4: Which account is debited and for what amount? Increases in asset accounts are recorded as debits. Debit Car Wash Equipment for $10,000. Step 5: Which account is credited and for what amount? Decreases in asset accounts are recorded as credits. Credit Cash in Bank for $10,000. Home

25 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Question 3 What does “double-entry accounting” mean? Every transaction has two sides: a debit (left) side and a credit (right) side. If a business were to buy supplies for cash, two things would happen. First, the amount of supplies would go up, and since supplies are assets, the increase to the Supplies account would be recorded as a debit. Second, the balance in the Cash in Bank account would go down, and since cash is an asset, the decrease in Cash in Bank would be recorded as a credit. Home

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