1. © 2014 Cengage Learning. All Rights Reserved.
Learning Objectives
LO1 Show the relationship between the accounting equation and a T account.
LO2 Identify the debit and credit side, the increase and decrease side, and the balance side of various accounts.
LO3 Restate and apply the two rules that are associated with the increase side of an account.
© 2014 Cengage Learning. All Rights Reserved.

2. Analyzing the Accounting Equation
Lesson 2-1
Analyzing the Accounting Equation
LO1
An accounting device used to analyze transactions is a T account.

3. Lesson 2-1
Accounts
LO2
A record summarizing all the information affecting a single item in the accounting equation is known as an account.
Debit means an amount recorded on the left side of an account.
Credit means an amount recorded on the right side of an account.

4. Lesson 2-1
Accounts
LO2
True or False? An amount recorded on the right side of a T account is a debit.
Answer: False
True or False? The left side of an asset account is the credit side, because asset accounts are on the left side of the accounting equation.
True or False? If an amount is recorded on the side of a T account opposite the normal balance side, the account balance is increased.

5. Increases, Decreases, and Balances in Accounts
Lesson 2-1
Increases, Decreases, and Balances in Accounts
LO3
Assets
On the left side of the accounting equation
Increase on the left, or debit, side of the account
Liabilities and the owner’s capital account
On the right side of the accounting equation
Increase on the right, or credit, side of the account
Normal balance
The side of the account that is increased is called the normal balance of the account.
Assets have normal debit balances
Liabilities and the owner’s capital account have normal credit balances
Remember: The balance of an account increases on the same side as the normal balance side.

6. Increases, Decreases, and Balances in Accounts
Lesson 2-1
LO3
True or False? Each asset account has a normal credit balance.
Answer: False
True or False? Each liability account has a normal debit balance.
True or False?
If an amount is recorded on the side of a T account opposite the normal balance side, the account balance is increased.
Understand: Assets are on the left (debit) side of the equation, so the increase side is the left side. Liabilities and Owners Equity are on the right side of the equation, so the increase side is the right (credit) side.

7. Lesson 2-1 Audit Your Understanding
What are the two accounting rules that explain increases of account balances?
ANSWER
(1) Assets are on the left side of the accounting equation. Therefore, assets increase on the left, or debit, side of the account.
(2) Liabilities and the owner’s capital account are on the right side of the accounting equation. Therefore, liabilities and the owner’s capital account increase on the right, or credit, side of the account.

8. © 2014 Cengage Learning. All Rights Reserved.
Learning Objectives
LO4 Restate and apply the four questions necessary to analyze transactions for starting a business into debit and credit parts.
© 2014 Cengage Learning. All Rights Reserved.

9. Lesson 2-2
Chart of Accounts
Each transaction changes the balances of at least two accounts.
A list of accounts used by a business is called a chart of accounts.

10. Chart of Accounts for Delgado Web Services
Lesson 2-2
Chart of Accounts for Delgado Web Services
Balance Sheet Accounts
(100) ASSETS
110 Cash
120 Petty Cash
130 Accounts Receivable—Main Street Services
140 Accounts Receivable—Valley Landscaping
150 Supplies
160 Prepaid Insurance
(200) LIABILITIES
210 Accounts Payable—Canyon Office Supplies
220 Accounts Payable—Mountain Graphic Arts
(300) OWNER’S EQUITY
310 Michael Delgado, Capital
320 Michael Delgado, Drawing
330 Income Summary
Income Statement Accounts
(400) REVENUE
410 Sales
(500) EXPENSES
510 Advertising Expense
520 Cash Short and Over
530 Communications Expense
540 Equipment Rental Expense
550 Insurance Expense
560 Miscellaneous Expense
570 Supplies Expense

11. Received Cash from Owner as an Investment
Lesson 2-2
Received Cash from Owner as an Investment
LO4
January 2. Received cash from owner as an investment, $2,
Cash and Michael Delgado, Capital are affected. 1 2
Cash is an asset account.
Michael Delgado, Capital is an owner‘s equity account. 2
Assets are increased. 3
Owner’s Equity is increased. 3

12. Paid Cash for Supplies January 2. Paid cash for supplies, $165.00. LO4
Lesson 2-2
Paid Cash for Supplies
LO4
January 2. Paid cash for supplies, $
Supplies and Cash are affected. 1 2
Supplies and Cash are assets.
True or False?
When cash is paid for supplies, the Supplies account is increased by a credit.
Answer: False

13. Paid Cash for Insurance
Lesson 2-2
Paid Cash for Insurance
LO4
January 3. Paid cash for insurance, $ 2
Prepaid Insurance and Cash are assets.
Prepaid Insurance and Cash are affected. 1
True or False?
Prepaid Insurance is decreased with a credit.
Answer: False

14. Bought Supplies on Account
Lesson 2-2
Bought Supplies on Account
LO4
January 5. Bought supplies on account from Canyon Office Supplies, $
Accounts Payable—
Canyon Office
Supplies is a
liability.
Supplies is an asset.
Accounts Payable accounts are increased with a credit.
True or False?
Decreases to liability accounts are recorded on the credit side.
Answer: False

15. Lesson 2-2
Paid Cash on Account
LO4
January 9. Paid cash on account to Canyon Office Supplies, $
Accounts Payable—Canyon Office Supplies
and Cash are affected. 1
Accounts Payable—
Canyon Office
Supplies is a
liability. 2 2
Cash is an asset.
Assets are decreased. 3
Liabilities are decreased. 3

16. © 2014 Cengage Learning. All Rights Reserved.
Learning Objectives
LO5 Analyze transactions for operating a business into debit and credit parts.
© 2014 Cengage Learning. All Rights Reserved.

17. Received Cash from Sales
Lesson 2-3
Received Cash from Sales
LO5
January 10. Received cash from sales, $1,
Note: When cash is received from sales, the change in the owner’s equity is usually recorded in a separate revenue account named Sales.
Sales is a
revenue account
that affects
owner‘s equity. 1 1
Cash is an asset.
Assets are increased. 2
Owner’s equity is increased. (through sales) 2

18. Sold Services on Account
Lesson 2-3
Sold Services on Account
LO5
January 12. Sold services on account to Main Street Services, $ 1
Accounts Receivable—
Main Street Services is an asset.
Sales is a
revenue
account
that affects
owner's
equity. 1
Assets are increased. 2
Owner’s equity is increased. 2
The normal balance side of an Accounts Receivable account is a debit

19. Paid Cash for an Expense
Lesson 2-3
Paid Cash for an Expense
LO5
January 12. Paid cash for communications bill for cell phone and Internet service, $80.00.
Increases in expense accounts are recorded as debits, because they decrease the owner’s capital account.
True of False? Utilities Expense is increased with a debit.
Answer: True

20. Received Cash on Account
Lesson 2-3
Received Cash on Account
LO5
January 16. Received cash on account from Main Street Services, $
Cash and Accounts Receivable—
Main Street Services are assets. 2
Cash and Accounts Receivable—
Main Street Services are affected. 1
Assets
= Liabilities Owner’s Equity
Assets (Cash) are increased. 3
Assets (Accounts Receivable—
Main Street Services) are decreased. 3
Understand: When cash is received on account, note the two accounts that are affected.
Sales was only affected at the time of the sale, not when the customer pays on account.

21. Paid Cash to Owner for Personal Use
Lesson 2-3
Paid Cash to Owner for Personal Use
LO5
January 16. Michael Delgado withdrew equity in the form of cash, $
True or False?
Common accounting practice is to record withdrawals as debits directly in the owner’s capital account.
Answer: False
T or F? A drawing account is increased by debits and decreased by credits.
Answer: True
Michael Delgado, Drawing is an owner‘s equity account. Withdrawals are NEVER recorded in the Capital account. They are kept separate in the Drawing account.
Owner’s equity is decreased; withdrawals are increased.

22. Thank you for your extra effort!
The End!
Thank you for your extra effort!
Getting a solid understanding of accounting now will help you build a strong foundation. That solid foundation will make future chapters easier to master.