# CENTURY 21 ACCOUNTING © Thomson/South-Western Accounting Equation 1 LESSON 2-1 value of all things owned (assets) values of all equities (claims against)

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CENTURY 21 ACCOUNTING © Thomson/South-Western Accounting Equation 1 LESSON 2-1 value of all things owned (assets) values of all equities (claims against) In Chapter 1 we learned the accounting equation: Left side of equation = Right side of equation = Left side always = right side or: Assets = Liabilities + Owners Equity Large number of accounts = cumbersome to use as a financial record.

CENTURY 21 ACCOUNTING © Thomson/South-Western In Chapter 1 we learned How a transaction impacts accounts: Two accounts always adjusted in a transaction Are the accounts impacted: an asset, liability, or owner’s equity Determine if the balance of the account goes up or down Transactions change the balance of an account in the equation. The equation is unchanged Assets = Liabilities + Owner’s Equity 2 LESSON 2-1

CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 2-1 Using T Accounts Account: a record summarizing all the information for a single item in the accounting equation T Account: is the accounting device (tool) used to analyze accounting transactions Determines how a transaction changes the balances of accounts – does the account increase or decrease

CENTURY 21 ACCOUNTING © Thomson/South-Western 4 LESSON 2-1 ANALYZING THE ACCOUNTING EQUATION page 28 We represent the accounting equation as a “T” Account:

CENTURY 21 ACCOUNTING © Thomson/South-Western List Our Accounts 5 LESSON 2-1 Cash, Supplies, Account’s Receivables, Petty Cash and Prepaid Insurance Accounts Payables Capital Account AND we list each account on the appropriate side, each with it’s own T account:

CENTURY 21 ACCOUNTING © Thomson/South-Western TERMS  T Account: is the accounting device used to analyze accounting transactions  Debit: = an amount recorded on the left side of a T account  Credit:= an amount recorded on the right side of a T account  Normal balance: the side of the account that is increased (hint : the side of the T account that corresponds with the side of the accounting equation) LESSON 2-1

CENTURY 21 ACCOUNTING © Thomson/South-Western ACCOUNTS Where is the Debit and Credit side of a T account?

CENTURY 21 ACCOUNTING © Thomson/South-Western NORMAL BALANCE Where is the normal balance Same side of T account that corresponds with the side of the accounting equation The “normal balance” side increases the account Decreases on the opposite side of normal balance LESSON 2-1

CENTURY 21 ACCOUNTING © Thomson/South-Western DRAW IT Examples: Draw it: Cash is an Asset Assets are on which side of equation? What side is considered the “normal balance” for cash? Which side of Cash increases? Which side decreases? Does it increase as a Debit or a Credit? LESSON 2-1 Right Left Debit Left Cash

CENTURY 21 ACCOUNTING © Thomson/South-Western DRAW IT Examples: Draw in your notes the Capital account (Owner’s Equity) Owner’s Equity is on which side of equation? What side is the Normal Balance? Which side increases? Which side decreases? Does it increase as a Debit or a Credit? 10 LESSON 2-1 Credit Right Left Right Cash Capital Normal Bal. + - -

CENTURY 21 ACCOUNTING © Thomson/South-Western 11 LESSON 2-1 ASSET NORMAL BALANCES page 29

CENTURY 21 ACCOUNTING © Thomson/South-Western 12 LESSON 2-1 LIABILITY NORMAL BALANCE page 29

CENTURY 21 ACCOUNTING © Thomson/South-Western 13 LESSON 2-1 OWNER’S EQUITY NORMAL BALANCE page 29

CENTURY 21 ACCOUNTING © Thomson/South-Western TERMS REVIEW T account debit credit normal balance

CENTURY 21 ACCOUNTING © Thomson/South-Western WORK TOGETHER 2-1

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