Unit # 3 – Recording Transactions in T-Accounts

Unit # 3 – Recording Transactions in T-Accounts We will now learn that when dealing with balances in All Accounts, you will need to know: Debit means Left Side of the account. Credit means Right Side of the account. Debit = Left, Credit = Right

Unit # 3 – Recording Transactions in T-Accounts Recall our Balance Sheet Equation Assets = Liabilities + Owners Equity Debit (Dr) Credit (Cr)

Unit # 3 – Recording Transactions in T-Accounts A = L + OE Normal Bal. Debit (Dr) Credit (Cr) To Increase Dr Cr To Decrease Cr Dr Notice a pattern?

Unit # 3 – Recording Transactions in T-Accounts So how do we use Debit & Credits to record transactions? We need to use T-Account Ledgers Cash T Debit (LHS) Credit (RHS)

Unit # 3 – Recording Transactions in T-Accounts What is a Ledger? A ledger is a group of accounts and it records the changes in each of these accounts as they occur from the business transaction.

Unit # 3 – Recording Transactions in T-Accounts How do you open the Ledger Accounts? All you need to do is “copy” the account totals from your balance sheet See an example on the next slide

Goldman's Gym Balance Sheet Sept. 30, 20XX   Cash Accounts Payable Accounts Receivable Bank Loan Computers Mortgage Payable Land Total Liabilities Building Training Equipment Owner's Equity R. Millar, Capital Total Liabilities & Owner's Equity Total Assets $ 5000 6000 500 25000 110000 94500 241000 $ 4000 65000 80000 149000 92000 241000

Unit # 3 – Recording Transactions in T-Accounts Step 1: First make the T-Accounts Step 2: Enter the account balances into each ledger account Step 3: Identify the which accounts are affected and the type of account (Asset, Liability, or Owner’s Equity) Step 4: Enter the amount on either as either a debit (LHS) or credit (RHS)

Unit # 3 – Recording Transactions in T-Accounts Example # 1: Aug. 2 – Received $500 cash as payments on membership dues owing.

Unit # 3 – Recording Transactions in T-Accounts Example # 2: Aug. 5 – Purchased new computer worth $750 from Central Computer Co.

Unit # 3 – Recording Transactions in T-Accounts Example # 3: Aug. 5 – Paid $705 now due to Equipment Unlimited for goods previously purchased, but not paid for.

Unit # 3 – Recording Transactions in T-Accounts Example # 4: Aug. 7 – Purchased three new tennis racquets for $545 each (total $1635). A cash down payment of $535 was made. The remaining amount $1100 is to be paid at a later date.

Unit # 3 – Recording Transactions in T-Accounts Example # 5: Aug. 7 – Owner invested an additional $5000 in the business.

Unit # 3 – Recording Transactions in T-Accounts Practice makes Perfect! Complete exercises 1-3abc (not d) starting on Page 51.

Unit # 3 – Recording Transactions in T-Accounts Where we are: Journalize (Using the General Journal) Post (To Ledger Accounts – which are also known as T- Accounts) – Partially Done Trial Balance (Can enter on the Worksheet) - Now Adjustments (On the worksheet) Complete the Worksheet Financial Statements (Income Statement then the Balance Sheet - Done) Closing Entries (Closing the Temporary Accounts – Drawings, Revenue, Expenses)

Unit # 3 – Recording Transactions in T-Accounts The Trial Balance! Companies prepare a “Trial Balance” to verify that the total debits = the total credits. This is done after you are finished recording the business transactions into the T-Account Ledgers.

Unit # 3 – Recording Transactions in T-Accounts Once completed entering all the business transactions companies will put the totals of the T-Account Ledgers in either a Debit column or a Credit Column.

Unit # 3 – Recording Transactions in T-Accounts   Accounts Acc. No. Debits Credits 1 2 3 4 5 6 7 8 9 10 11

Unit # 3 – Recording Transactions in T-Accounts Once the Trial Balance is completed (and the Debits = the Credits), you can now create a “New Balance Sheet” using the information from the Trial Balance.