Debit and Credit (Using “T” Accounts) Chapter 2 Analyzing Transactions into Debit and Credit Parts

DO NOW: In your notebook What do you know about debits and credits?

The Accounting Equation – It’s really not efficient http://www.youtube.com/watch?v=PEXulul11dE

Let’s Break the Accounting Equation Down Assets = Liabilities + Owner’s Equity Remember how we named OE transactions as Investment, Withdrawal, Revenue and Expense The owner gave her own cash to the business for the business to use We increased cash We increased Owner’s Equity, because the owner has a right to that money We called it INVESTMENT The owner took money out of the business to pay for something for herself– not business related We decreased cash We decreased Owner’s Equity, because this $ wasn’t there for her to have the right to it We called it Withdrawal

Let’s Break the Accounting Equation Down Assets = Liabilities + Owner’s Equity Remember how we named OE transactions as Investment, Withdrawal, Revenue and Expense A sale occurs We increased either cash or accounts receivable We increased Owner’s Equity, because the owner has a right to that money received or coming in We called it REVENUE OR We pay cash for a service (telephone bill, repairs, rent) that isn’t an asset We decrease cash We decrease Owner’s Equity, because the owner is losing the rights to the cash We called it EXPENSE

Let’s Break the Accounting Equation Down Assets = Liabilities + Owner’s Equity Remember how we named OE transactions as Revenue and Expense? Let’s practice some of these: Decrease cash (asset), decrease Capital (OE) Paid cash for charity: Expense Sold services for cash: Increase cash (asset) Increase Capital (OE) Revenue Sold services to customer On account: Increase accounts receivable (asset), Increase Capital (OE) Revenue Decrease cash (asset) Decrese Capital (OE) Expense Paid cash for cleaning service to clean office:

The Expanded Accounting Equation Assets = Liabilities + Owner’s Equity Assets = Liabilities + Investment – Withdrawal + Revenue - Expense (Capital)

Accounting Terms T account – Temporary account; an accounting device used to analyze transactions Debit – an amount recorded on the left side of the T account Credit – an amount recorded on the right side of the T account

T Account and Debits and Credits: The Increase-Decrease Secret http://www.youtube.com/watch?v=DfX_mbbBsYo WITT

The Accounting Equation Debits & Credits Using T Accounts http://www.youtube.com/watch?v=99LTqkxzBpA Learning on the closet door

REVIEW IN PRINT Textbook pages 28, 29, and 30

Increases and Decreases for the “T” Account Two sides of an account are used to record increases and decreases to that account. Any Asset Debit side increases (Left side and normal balance) Credit decreases (Right side) Any Liability and OE Debit side decreases (left side) Credit side increases (right side and normal balance)

Account Balances Normal Balance The side of the account that increases Assets On the left side of the T Have normal debit balances Liabilities and OE On the right side of the T Have normal credit balances

Work Together Work Together WP p. 21 Textbook p. 31 USE THE STEPS!

Debit/Credit Dance http://www.youtube.com/watch?v=j71Kmxv7smk

TRANSACTION ANALYSIS Step by step Which accounts are affected? How is each account classified? Asset, liability, or owner’s equity account How is each classification changes? Increase or decrease How is each amount entered in the accounts? Debit or credit side

Received cash from owner as an investment $5000 1. Which accounts are affected? Cash and Capital 2. How is each account classified? Cash is an asset Capital is an OE 3. How is each classification changed? Assets: increase OE: Increase 4. How is each amount entered in accounts? Assets increase on the debit side Debit the asset account cash OE increase on the credit side Credit the OE account capital

Paid cash for supplies $275.00 1. Which accounts are affected? Supplies and Cash 2. How is each account classified? Supplies is an Asset Cash is an Asset 3. How is each classification changed? One asset (supplies): increase One asset (cash): decrease 4. How is each amount entered in accounts? Assets increase on the debit side Debit the asset account supplies Assets decrease on the credit side Credit the asset account cash

Paid cash for insurance $1,200 1. Which accounts are affected? Prepaid insurance and cash 2. How is each account classified? Prepaid insurance is an Asset Cash is an Asset 3. How is each classification changed? One asset (prepaid insurance): increase One asset (cash): decrease 4. How is each amount entered in accounts? Assets increase on the debit side Debit the asset account prepaid insurance Assets decrease on the credit side Credit the asset account cash

Bought supplies on account $500 1. Which accounts are affected? Supplies and Accounts Payable (Supply Depot) 2. How is each account classified? Supplies is an Asset Accounts Payable is a Liability 3. How is each classification changed? Assets: increase Liabilities: increase 4. How is each amount entered in accounts? Assets increase on the debit side Debit the asset account supplies Liabilities increase on the credit side Credit the liability account Accounts payable

Paid cash on account $300 1. Which accounts are affected? Cash and Accounts Payable (Supply Depot) 2. How is each account classified? Cash is an Asset Accounts Payable is a Liability 3. How is each classification changed? Assets: decrease Liabilities: decrease 4. How is each amount entered in accounts? Assets decrease on the credit side Credit the asset account cash Liabilities decrease on the debit side debit the liability account Accounts payable

Practice Work Together WP p.23 Textbook p. 27 HOMEWORK: Study Guide 2: WP p. 17 Study Guide Part Three: WP p. 19, #’s 1 – 8 On Your Own WP p. 24 Textbook p. 37`

Analyzing Trasactions: OE Accts

Receive cash from sales $295 1. Which accounts are affected? Cash and Sales 2. How is each account classified? Cash is an asset Sales is an OE (revenue) 3. How is each classification changed? Assets: increase OE: Increase 4. How is each amount entered in accounts? Assets increase on the debit side Debit the asset account cash OE increase on the credit side Credit the revenue account sales

Sold services on account $350 1. Which accounts are affected? Accounts receivable and Sales 2. How is each account classified? AR is an asset Sales is an revenue account that affects OE 3. How is each classification changed? Assets: increase OE: Increase 4. How is each amount entered in accounts? Assets increase on the debit side Debit the asset account AR OE increase on the credit side Credit the revenue account sales (OE)

Paid cash for an expense (Rent) $300 1. Which accounts are affected? Cash and Rent Expense 2. How is each account classified? Cash is an asset Rent Exp is an OE 3. How is each classification changed? Assets: decrease OE: decreases 4. How is each amount entered in accounts? OE decrease on the debit side Debit the rent expense account Assets decrease on the credit side Credit the asset account cash

Received cash on account $200 1. Which accounts are affected? Cash and Accounts receivable 2. How is each account classified? Cash is an asset AR is an asset 3. How is each classification changed? Assets: (cash) increase Assets: (AR) decreases 4. How is each amount entered in accounts? Assets increase on the debit side Debit the asset account cash Assets decrease on the credit side Credit the asset account AR

Paid cash to owner for personal use $125 1. Which accounts are affected? Cash and Owner, Drawing 2. How is each account classified? Cash is an asset Owner Drawing is an OE 3. How is each classification changed? Assets: decrease OE: decreases 4. How is each amount entered in accounts? OE decreases on the debit side Debit the OE account Owner Drawing Assets decrease on the credit side Credit the asset account cash

REVIEW ACTIVITIES http://www.quia.com/cm/63252.html Quia game matching transactions and vocab