CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Chapter 2 Objectives 1.Define accounting terms related to analyzing transactions into debit and credit parts. 2.Identify accounting practices related to analyzing transactions into debit and credit parts. 3.Use T accounts to analyze transactions showing which accounts are debited or credited for each transaction. 4.Analyze how transactions to set up a business affect accounts. 5.Analyze how transactions affect owner’s equity accounts. 1 LESSON 2-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 2-1 Using T Accounts

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 3 LESSON 2-1 ANALYZING THE ACCOUNTING EQUATION page 28

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Accounting Terms 4 LESSON 2-1 T Account—Accounting device used to analyze transactions Debit (DR)—Amount recorded on the LEFT side of a T Account Credit (CR)—Amount recorded on the RIGHT side of a T Account Normal Balance—The side of the T Account that is INCREASED!!!

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Analyzing The Accounting Equation 5 LESSON 2-1 Value of things OWNED Value of all Equities or claims AGAINST the assets of a business ***Right side MUST equal Left side of the equation***

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage LearningLESSON Account Balances INCREASE on the NORMAL Balance Side 2.Account Balances DECREASE on the side OPPOSITE the Normal Balance Side TWO Rules Regulating Increases/Decreases in Account Balances

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 7 LESSON 2-1 ACCOUNTS page 29

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 8 LESSON 2-1 ACCOUNT BALANCES page 29

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 9 LESSON 2-1 INCREASES AND DECREASES IN ACCOUNTS page 30

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Normal Balances for Owner’s Equity Accounts Normal Balance for CAPITAL (Investment) is CREDIT Always makes OE go UP Normal Balance for SALES (Revenue) is CREDIT Always makes OE go UP Normal Balance for EXPENSES (Expense) is DEBIT Always makes OE go DOWN Normal Balance for DRAWING (Withdrawal) is DEBIT Always makes OE go DOWN 10 LESSON 2-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 11 LESSON 2-1 TERMS REVIEW T account debit credit normal balance page 31

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Audit Your Understanding 1.Draw the accounting equation on a T account. 2.What are the two accounting rules that regulate increases and decreases of account balances? 12 LESSON 2-1