4 DefinitionsT Account: An accounting device used to analyze transactions.Debit: The number recorded on the left side of the equation.Credit: The number recorded on the right side of the equation.Normal Balance: The side of the account that is increased .
5 ANALYZING HOW TRANSACTIONS AFFECT ACCOUNTS CHAPTER 2-2ANALYZING HOW TRANSACTIONS AFFECT ACCOUNTS
7 Chart of AccountsA list of all accounts used by a business is called a Chart of Accounts
8 Steps for Analyzing a Transaction into Debit and Credit Parts Which accounts are affected?Cash, Supplies, Capital, Accounts Payable, etc.How is each account classified?Asset, Liability, or Owner’s EquityHow is each classification changed?Increases or Decreases?How is each amount entered into the account?Debit Side or Credit Side? Increase or Decrease?DEBITS MUST EQUAL CREDITS ON EACH TRANSACTION! TOTAL DEBITS MUST EQUAL TOTAL CREDITS!
9 August 1. Received Cash from owner as an investment, $5,000 Assets = Liabilities OECASHKim Park, CapitalDebitCreditDebitCreditNormal BalanceNormal Balance$5,000$5,000
10 August 3. Paid Cash for Supplies, $275.00 Assets = Liabilities OESuppliesDebitCreditNormal Balance$275.00CashDebitCreditNormal Balance$275.00
11 August 4. Paid Cash for Insurance, $1,200.00 Assets = Liabilities OEPrepaid InsuranceDebitCreditNormal Balance$1,200.00CashDebitCreditNormal Balance$1,200.00
12 August 7. Bought Supplies on account from Supply Depot, $500.00 Assets = Liabilities OESuppliesAP – Supply DepotDebitCreditDebitCreditNormal BalanceNormal Balance$500.00$500.00
13 August 11. Paid Cash on account to Supply Depot, $300.00 Assets = Liabilities OECashAP – Supply DepotDebitCreditDebitCreditNormal BalanceNormal Balance$300.00$300.00
14 DO NOW: On Your Own Pg. 37Home Work: Application problem 2-2 Pg. 46
15 ANALYZING HOW TRANSACTIONS AFFECT OWNER’S EQUITY ACCOUNTS CHAPTER 2-3ANALYZING HOW TRANSACTIONS AFFECT OWNER’S EQUITY ACCOUNTS
16 SALES ACCOUNTS Revenue increases Owner’s Equity HOWEVER, to avoid a Capital account with a large number of entries and to summarize revenue records separately, TechKnow Consulting uses a separate revenue account titled SALES.
17 August 12. Received cash from sales, $295.00 Assets = Liabilities OECashSalesDebitCreditDebitCreditNormal BalanceNormal Balance$295.00$295.00
18 August 12. Sold services on account to Oakdale School, $350.00 Assets = Liabilities OESalesAR - Oakdale SchoolDebitCreditDebitCreditNormal BalanceNormal Balance$350.00$350.00
19 EXPENSE ACCOUNTS Expenses decrease Owner’s Equity HOWEVER, to avoid a Capital account with a large number of entries and to summarize information separately, TechKnow Consulting uses separate Expense Accounts.Expense Accounts have NORMAL DEBIT BALANCES!!DebitCreditNormal Balance
20 August 12. Paid cash for rent, $300.00 Assets = Liabilities OECapitalCashDebitCreditNormal BalanceDebitCreditNormal Balance$300.00Rent ExpenseDebitCreditNormal Balance$300.00
21 August 18. Received cash on account from Oakdale School. Assets = Liabilities OECashDebitCreditNormal Balance$200.00AR – Oakdale SchoolDebitCreditNormal Balance$200.00
22 PAID CASH TO OWNER FOR PERSONAL USE Withdrawals decrease Owner’s EquityHOWEVER, to avoid a Capital account with a large number of entries and to summarize information separately, TechKnow Consulting uses a separate Withdrawal account titled, Kim Park, Drawing.Withdrawal Accounts have NORMAL DEBIT BALANCES!!DebitCreditNormal Balance
23 August 18. Paid cash to owner for personal use, $125.00. Assets = Liabilities OECapitalCashDebitCreditNormal BalanceDebitCreditNormal Balance$125.00Kim Park, DrawingDebitCreditNormal Balance$125.00