Transactions that Affect Assets, Liabilities, and Owner’s Equity Chapter 4 Transactions that Affect Assets, Liabilities, and Owner’s Equity

Accounts and Double-Entry Accounting Chapter 4, Section 1 Accounts and Double-Entry Accounting

Accounts and Double Entry Accounting System Ledger a book or file containing a separate page for each business account serves as a permanent record of financial transactions a.k.a “Keeping the Books”

Chart of Accounts list of all accounts and their assigned account numbers Numbering Accounts: two or more digits in each number most common 3 digits Large companies have more digits because they have more accounts Turn to page 73 in your textbook Assets begin with 1 Liabilities begin with 2 Owner’s Equity begins with 3 Revenues begin with 4 Expenses begin with 5

Vocab. Double Entry Accounting: a system of record keeping in which each business transaction affects at least two accounts Turn to page 74 in your textbook T Accounts: “T” shape, shows dollar increases and decrease in an account that is caused by a transaction

Debits vs. Credits Debits = Credits ALWAYS! Debit: left side of the T account Abbreviation = DR Helpful reminder “Keep it on the DL (Debit Left) Credit: right side of the T account Abbreviation CR Debits = Credits ALWAYS! Normal Balance: side used to record increases to an account

Handout Overhead Need to know the top only right now Assets Liabilities Capital Label Normal Balance Do Not Lose, we will need the rest in Chapter 5

T Account Rules Rules for Asset Accounts: 1. Increase on Debit side 2. Decreases on Credit side 3. Normal Balance Side = Debit Transparency 4-2 Rules for Liabilities and Capital: 1. Increase on Credit side 2. Decreases on Debit side 3. Normal Balance Side = Credit Transparency 4-3

Applying the Rules of Debit and Credit Chapter 4, Section 2 Applying the Rules of Debit and Credit

Steps to Analyze Business Transactions Identify accounts affected Classify the accounts affected Determine the amount of increase or decrease for each account affected Which account is debited? For what amount? Which account is credited? For what amount? What is the complete entry in T Account form? Transparency 4-5 Also on page 78 in your textbook

Let’s see how those steps work… Turn to page 79 in your textbook Business Transactions 1 – 7 Transparencies