LESSON 2-1 Using T Accounts 4/15/2017 Chapter 2-1 Using T Accounts

ANALYZING THE ACCOUNTING EQUATION page 28 2-1

Analyzing Transactions in Debit and Credit Parts LESSON 2-1 4/15/2017 Analyzing Transactions in Debit and Credit Parts It is important to distinguish between debit and credit parts. These two terms will be used throughout the study of accounting. 2-1

Accounting Equation Assets = Liabilities + Owner’s Equity LESSON 2-1 4/15/2017 Accounting Equation Assets = Liabilities + Owner’s Equity Left Side Right Side 2-1

New Vocabulary: T-account LESSON 2-1 4/15/2017 New Vocabulary: T-account An accounting device used to analyze transactions. 2-1

Debit An amount recorded on the left side of a T account. Left Side LESSON 2-1 4/15/2017 Debit An amount recorded on the left side of a T account. Left Side 2-1

Credit An amount recorded on the right side of a T account. Right Side LESSON 2-1 4/15/2017 Credit An amount recorded on the right side of a T account. Right Side 2-1

Normal Balance The side of the account that is increased. 2-1 LESSON 2-1 4/15/2017 Normal Balance The side of the account that is increased. 2-1

Using T Accounts T account Assets = Liabilities + Owner’s Equity LESSON 2-1 4/15/2017 Using T Accounts Assets = Liabilities + Owner’s Equity Left Side Right Side Debit Side Credit Side T account 2-1

Account Balances Assets = Liabilities + Owner’s Equity Any Asset LESSON 2-1 4/15/2017 Account Balances Assets = Liabilities + Owner’s Equity Any Asset Debit Credit Normal Bal. 2-1

Account Balances Assets = Liabilities + Owner’s Equity Any Liability LESSON 2-1 4/15/2017 Account Balances Assets = Liabilities + Owner’s Equity Any Liability Debit Credit Normal Balance 2-1

Account Balances Assets = Liabilities + Owner’s Equity Debit Credit LESSON 2-1 4/15/2017 Account Balances Assets = Liabilities + Owner’s Equity Owner’s Capital Account Debit Credit Normal Bal. 2-1

Account Balances Assets = Liabilities + Owner’s Equity LESSON 2-1 4/15/2017 Account Balances Assets = Liabilities + Owner’s Equity Any Asset Any Liability Debit Credit Debit Credit Normal Bal. Normal Balance Owner’s Capital Account Debit Credit Normal Bal. Remember: An equation must always have equal amounts on each side. 2-1

Increases and Decreases LESSON 2-1 4/15/2017 Increases and Decreases Assets = Liabilities + Owner’s Equity Any Asset Any Liability Debit Credit Debit Credit Normal Bal. Normal Balance Owner’s Capital Account Debit Credit Normal Bal. 2-1

Increases and Decreases LESSON 2-1 4/15/2017 Increases and Decreases Remember: The two sides of an account are used to record increases and decreases to that account. Some accounts increase on the debit side Some accounts increase on the credit side. 2-1

Increases and Decreases LESSON 2-1 4/15/2017 Increases and Decreases The easy way to remember the increase side of each account is to connect it with the normal balance side of the account. The decrease side is the opposite side. 2-1

Draw a T account for Assets LESSON 2-1 4/15/2017 Draw a T account for Assets Please add the increase arrow. Assets 2-1

Draw a T account for Assets LESSON 2-1 4/15/2017 Draw a T account for Assets How did you do? Assets 2-1

Draw a T account for Liabilities LESSON 2-1 4/15/2017 Draw a T account for Liabilities Please add the increase arrow. Liabilities 2-1

Draw a T account for Liabilities LESSON 2-1 4/15/2017 Draw a T account for Liabilities How did you do? Liabilities 2-1

Draw a T account for Owner’s Equity LESSON 2-1 4/15/2017 Draw a T account for Owner’s Equity Please add the increase arrow. Capital 2-1

Draw a T account for Owner’s Equity LESSON 2-1 4/15/2017 Draw a T account for Owner’s Equity How did you do? Capital 2-1

Which is the Normal Balance Side? LESSON 2-1 4/15/2017 Which is the Normal Balance Side? Assets? Left Side (Debit Side) Liabilities? Right Side (Credit Side) Owner’s Equity? Right Side (Credit side) 2-1

ACCOUNTS--Review page 29 2-1

ACCOUNT BALANCES--Review page 29 2-1

Work Together 2-1 On my webpage 2-1

Chapter 2-2 Analyzing How Transactions Affect Accounts LESSON 2-1 4/15/2017 Chapter 2-2 Analyzing How Transactions Affect Accounts Each transaction affects the balances of at least two accounts. Chart of Accounts: A list of accounts used by a business. 2-1

Analyzing Transactions LESSON 2-1 4/15/2017 Analyzing Transactions Assets = Liabilities + Owner’s Equity Cash Any Liability Debit Credit Debit Credit Normal Bal. Normal Balance Owner’s Capital Account Debit Credit Normal Bal. Remember: An equation must always have equal amounts on each side. 2-1

Analyzing Transactions LESSON 2-1 4/15/2017 Analyzing Transactions Received $1,000 cash from owner, Kyle June, as an investment. Consider: 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? 2-1

Analyzing Transactions LESSON 2-1 4/15/2017 Analyzing Transactions Received $5,000 cash from owner as an investment. Assets = Liabilities + Owner’s Equity Cash Kyle June, Capital Debit Credit Debit Credit N. Bal. Normal Balance $5,000 $5,000 2-1

Analyzing Transactions LESSON 2-1 4/15/2017 Analyzing Transactions Paid cash for supplies, $275.00. Assets = L + OE Cash Supplies Debit Credit Debit Credit N. Bal N. Bal $275.00 $275.00 2-1

Analyzing Transactions -- Use the four questions. LESSON 2-1 4/15/2017 Analyzing Transactions -- Use the four questions. Paid $1,200 for insurance. Assets = L + OE Cash Prepaid Ins. Debit Credit Debit Credit N. Bal N. Bal 1,200.00 1,200.00 2-1

Analyzing Transactions LESSON 2-1 4/15/2017 Analyzing Transactions Bought supplies on account from Stutzman Music. $800.00. Assets = Liabilities + Owner’s Equity Supplies A.P. - Stutzman Music Debit Credit Debit Credit N. Bal Normal Bal. 800.00 800.00 2-1

Analyzing Transactions LESSON 2-1 4/15/2017 Analyzing Transactions Paid $200.00 on account to Stutzman Music. Assets = Liabilities + Owner’s Equity Cash A.P. - Stutzman Music Debit Credit Debit Credit N. Bal Normal Bal. 200.00 200.00 Remember the increase and decrease side of each account can be related back to the accounting equation. 2-1

RECEIVED CASH FROM OWNER AS AN INVESTMENT page 32 August 1. Received cash from owner as an investment, $5,000.00. 2-1

PAID CASH FOR SUPPLIES August 3. Paid cash for supplies, $275.00. page 33 August 3. Paid cash for supplies, $275.00. 2-1

PAID CASH FOR INSURANCE page 34 August 4. Paid cash for insurance, $1,200.00. 2-1

BOUGHT SUPPLIES ON ACCOUNT page 35 August 7. Bought supplies on account from Supply Depot, $500.00. 2-1

PAID CASH ON ACCOUNT page 36 August 11. Paid cash on account to Supply Depot, $300.00. 2-1

Audit Your Understanding Which two accounts are affected when a business pays cash for supplies? Cash Supplies 2-1

Work Together 2-2 On My Website 2-1

LESSON 2-1 Analyzing How Transactions Affect Owner’s Equity Accounts Chapter 2-3 4/15/2017 Analyzing How Transactions Affect Owner’s Equity Accounts

RECEIVED CASH FROM SALES page 38 August 12. Received cash from sales, $295.00. 2-1

SOLD SERVICES ON ACCOUNT page 39 August 12. Sold services on account to Oakdale School, $350.00. 2-1

Analyzing Transactions 2-3 LESSON 2-1 4/15/2017 Analyzing Transactions 2-3 Received cash from sales, $400.00 Revenue makes Owner’s Equity increase. Assets = Liabilities + Owner’s Equity Cash Sales Debit Credit Debit Credit N. Bal Normal Bal. 400.00 400.00 2-1

Analyzing Transactions LESSON 2-1 4/15/2017 Analyzing Transactions Sold services on account to Kids Time, $500.00 Assets = Liabilities + Owner’s Equity A.R. Kids Time Sales Debit Credit Debit Credit N. Bal Normal Bal. 500.00 500.00 2-1

Analyzing Transactions --Use the four questions. LESSON 2-1 4/15/2017 Analyzing Transactions --Use the four questions. Received cash on account from Kids Time, $100.00 Assets = L + OE Cash A.R. Kids Time Debit Credit Debit Credit N. Bal N. Bal $100.00 $100.00 2-1

Analyzing Expense Transactions LESSON 2-1 4/15/2017 Analyzing Expense Transactions Expenses decrease owner’s equity. The decreases from expenses could be recorded directly in the Owner’s Equity account. But, the OE account would have too many entries. Using separate accounts for each helps to keep information straight. 2-1

Analyzing Expense Transactions LESSON 2-1 4/15/2017 Analyzing Expense Transactions The owner’s capital account has a normal credit balance. Decreases in the owner’s capital account are shown as debits. Therefore, an expense account has a normal debit balance. Expenses are always debited. 2-1

PAID CASH FOR AN EXPENSE page 40 August 12. Paid cash for rent, $300.00. 2-1

Analyzing Transactions LESSON 2-1 4/15/2017 Analyzing Transactions Paid cash for rent, $800.00. Expenses decrease Owner’s Equity--so an expense account’s normal balance side is the left side. Assets = Liabilities + Owner’s Equity Cash Rent Expense Debit Credit Debit Credit N. Bal Normal Bal. 800.00 800.00 2-1

Owner’s Taxable Income LESSON 2-1 4/15/2017 Owner’s Taxable Income A business owned by one person is called a proprietorship. The IRS does not require the proprietorship, itself, to pay taxes. However, the owner must include the net income of the proprietorship in his or her own taxable income. 2-1

LESSON 2-1 4/15/2017 Owner Withdrawals Employee salaries are considered an expense that reduces the net income of a company. Owner withdrawals are not considered an expense. Withdrawals do not affect the business’s income. 2-1

PAID CASH TO OWNER FOR PERSONAL USE page 42 August 12. Paid cash to owner for personal use, $125.00. 2-1

Analyzing Transactions LESSON 2-1 4/15/2017 Analyzing Transactions Paid cash to owner for personal use, 600.00. Withdrawals decrease Owner’s Equity--so a drawing account’s normal balance is the left side. Assets = Liab. + Owner’s Equity Cash Taylor Stalter, Drawing Debit Credit Debit Credit N. Bal Normal Bal. 600.00 600.00 Withdrawals could be recorded directly in the owner’s capital account. Using a separate Drawing account helps keep information separate. 2-1

Audit Your Understanding What two accounts are affected when a business receives cash from sales? Cash and Sales What two accounts are affected when services are sold on account. Sales and Accounts Receivable 2-1

Audit Your Understanding What two accounts are affected when a business pays cash to the owner for personal use? Owner’s drawing account and Cash Are revenue accounts increased on the debit side or credit side? Explain why. Credit side because sales increase owner’s equity 2-1

Audit Your Understanding Are expense accounts increased on the debit side or credit side. Explain why. Debit side because expenses decrease owner’s equity. 2-1

Work Together, 3-3 On My Website 2-1