1. Using T-Accounts to Analyze Transactions
Chapter 4
Cash
Using T-Accounts to Analyze Transactions
DEBIT
CREDIT
Normal Balance - +
Vocabulary:
T-Account
Debit
Credit

2. What you already (should) know!
Chapter 4
What you already (should) know!
Basic Accounting Equation
Assets = Liabilities + Owner’s Equity
Assets
Anything of value owned by a business.
Cash, Supplies, Prepaid Insurance
Liability
Anything owed by a business
Accounts Payable (Tractor Supply Company)
Owner’s Equity
The rights the owner has to the things owned by the business.
Capital—investment from the owner
Drawing—paid to the owner for personal use
Revenue
Money received from the operation of the business
Sales, Fees
Expenses
Money paid out from the operation of the business.
Rent Expense, Uttilities Expense,

3. What you are going to learn
Chapter 4
What you are going to learn
T-Accounts
A simple tool used to aid in the analysis of business transactions.
Represents the left and right side of an account
Debit—Left side of an account
Credit—Right side of an account
Every transaction:
Changes at least 2 accounts
Involves 1 Debit entry and 1 Credit entry
Account Balances
Are increased on the same side as an account’s normal balance
Are decreased on the opposite side of an account’s normal balance

4. Right Side of an Account
Chapter 4
Account Title
Debit:
Left Side of an Account
Credit:
Right Side of an Account

5. Chapter 4
Normal balance of Accounts are determined by their placement on the basic Accounting Equation
Debit
Credit
ASSETS
Accounts have DEBIT balances
LIABILITIES
And
OWNER’S EQUITY
Accounts have CREDIT balances

6. Chapter 4
Going back to our new rule: --Increase on SAME side as normal balance --Decrease on OPPOSITE side of normal balance
Asset
Increases on the debit (left) side
Decreases on the credit (right) side
Liability
Increases on the credit (right) side
Decreases on the debit (left) side
Capital

7. Chapter 4
Normal balances of Revenue, Expenses and Drawing are determined by their relationship to the Capital account.
John Smith, Captial
Debit
Credit
Normal Balance
Debit to decrease Capital
Credit to increase Capital
Expenses and Drawing have Debit balances because they decrease Capital
Revenue has a Credit balance because it increases Capital

8. How Do We Determine If An Account Is Debited or Credited?
Chapter 4
How Do We Determine If An Account Is Debited or Credited?
Memorization at first
Determine an accounts balance side
Increase on balance side
Decrease on opposite side
It will eventually become intuitive

9. Remember for every transaction…
Chapter 4
Remember for every transaction…
Every business transaction must have at least one debit and one credit.

10. Chapter 4
Analyze transactions into Debit and Credit parts.
Samples

11. Received Cash from the owner as an investment $1,000.
Chapter 4
Received Cash from the owner as an investment $1,000.
Cash
Capital
Debit
Credit
Debit
Credit NB NB + +
$1,000
$1,000

12. Paid Cash for Supplies $500.
Chapter 4
Paid Cash for Supplies $500.
Cash
Supplies
Debit
Credit
Debit
Credit NB NB - +
$500
$500

13. Paid Cash for Insurance $1,200.
Chapter 4
Paid Cash for Insurance $1,200.
Cash
Prepaid Insurance
Debit
Credit
Debit
Credit NB NB - +
$1,200
$1,200

14. Bought Supplies on account from Smith Company, AP $800.
Chapter 4
Bought Supplies on account from Smith Company, AP $800.
Supplies
Smith Co.,AP
Debit
Credit
Debit
Credit NB NB + +
$800
$800

15. Paid Cash on account to Smith Company, AP $500.
Chapter 4
Paid Cash on account to Smith Company, AP $500.
Cash
Smith Co.,AP
Debit
Credit
Debit
Credit NB NB - -
$500
$500

16. Received Cash from Sales $2,000.
Chapter 4
Received Cash from Sales $2,000.
Cash
Sales
Debit
Credit
Debit
Credit NB NB + +
$2,000
$2,000

17. Paid Cash for the Electric Bill $200.
Chapter 4
Paid Cash for the Electric Bill $200.
Cash
Utilities Expense
Debit
Credit
Debit
Credit NB NB - +
$200
$200

18. Paid Cash to the owner for Personal Use $500.
Chapter 4
Paid Cash to the owner for Personal Use $500.
Cash
Drawing
Debit
Credit
Debit
Credit NB NB - +
$500
$500