CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 2-1 Using T Accounts Original created by M.C. McLaughlin, Thomson/South-Western Modified by Deborah L. Burns, Johnston County Schools, West Johnston High School

CENTURY 21 ACCOUNTING © Thomson/South-Western 2 LESSON 2-1 ANALYZING THE ACCOUNTING EQUATION page 28  Using the accounting equation in a business to record transactions would be very cumbersome because of the number of business transactions.  A record summarizing all the information pertaining to a single item in the accounting equation is known as an account.  Accounting transactions must be analyzed to determine how account balances are changed.  T Account – an accounting device used to analyze transactions

CENTURY 21 ACCOUNTING © Thomson/South-Western 3 LESSON 2-1 ANALYZING THE ACCOUNTING EQUATION page 28 The accounting equation can be represented as T, as shown below:

CENTURY 21 ACCOUNTING © Thomson/South-Western 4 LESSON 2-1 ANALYZING THE ACCOUNTING EQUATION page 29  The values of all things owned (assets) are on the left side of the accounting equation.  The value of all equities or claims against the assets (liabilities & owner’s equity) are on the right side of the equation.  The left side of the equation must always equal the right.

CENTURY 21 ACCOUNTING © Thomson/South-Western 5 LESSON 2-1 ACCOUNTS page 29  There are special names for amounts recorded on the left and right sides of a T account.  Debit – an amount recorded on the left side of a T account  Credit – an amount recorded on the right side of a T account

CENTURY 21 ACCOUNTING © Thomson/South-Western 6 LESSON 2-1 ACCOUNT BALANCES page 29  All accounts have a debit and credit T accounts.

CENTURY 21 ACCOUNTING © Thomson/South-Western 7 LESSON 2-1 ACCOUNT BALANCES page 29  The side of the account that is increased is called the normal balance  Assets are on the left side and have a normal debit balance. Liabilities and owner’s equity are on the right side & have a normal credit balance.

CENTURY 21 ACCOUNTING © Thomson/South-Western 8 LESSON 2-1 INCREASES AND DECREASES IN ACCOUNTS The sides of a T account are used to show increases and decreases in account balances Two basic accounting rules: Account balances increase on the normal balance side of an account Account balances decrease on the side opposite the normal balance side of an account page 30

CENTURY 21 ACCOUNTING © Thomson/South-Western 9 LESSON 2-1 INCREASES AND DECREASES IN ACCOUNTS page 30

CENTURY 21 ACCOUNTING © Thomson/South-Western 10 LESSON 2-1 TERMS REVIEW T account debit credit normal balance page 31