OBJECTIVES CHAPTER 2 Define the following accounting terms: T Account, Debit, Credit, Normal Balance, Chart of Accounts, Accounts Payable and Accounts Receivable Analyze the Accounting Equation Label each account according to its relationship to the accounting equation. Include: debit, credit, normal balance, increase side and decrease side Analyze transactions and how they af fect accounts
ACCOUNTING EQUATION Assets Anything owned normal balance on left
Liability Anything owed normal balance on right
Capital Worth in business normal balance on right
Account Record summarizing all information affecting a single item in the accounting equation
Normal balance Side of the account that is increased
Accounts decrease on side opposite of the normal balance T Account Device used to analyze a transaction
Debit Amount recorded on left side
Credit Amount recorded on right side
THE ACCOUNTING EQUATION ASSETS = LIABILITES + OWNER’S EQUIT Y All things owned
Value of all equities or claims against the assets
LEFT = RIGHT ASSETS = LIAB + EQUITY
THE ACCOUNTING EQUATION ASSETS = LIABILITES + OWNER’S EQUIT Y Left Side
Right Side
TWO ACCOUNTING RULES Account balances increase on normal balance side Account balances decrease on side opposite of normal balance
INCREASE VS. DECREASE SIDE
Side that is increased is the normal balance side Asset increases on left because debit side is NB side Liability increases on right because credit side is NB side Capital increases on right because credit side is NB side Page 44
T ACCOUNT FOR ASSET
Debit Side Normal balance
Credit Side
T ACCOUNT FOR LIABILIT Y
Debit Side
Credit Side Normal balance
T ACCOUNT FOR OWNER’S EQUIT Y
Debit Side
Credit Side Normal balance
THE ACCOUNTING EQUATION ASSETS = LIABILITES + OWNER’S EQUIT Y Left Side Debit Side
Right Side Credit Side
THE ACCOUNTING EQUATION ASSETS
=
LIABILITES + OWNER’S EQUIT Y
Left Side
Right Side
Debit Side
Credit Side
Any Asset Debit Side
Credit Side
Any Liability Debit Side
Credit Side
YOUR TURN Work Together 2-1 For each account
prepare a T account label debit and credit side draw an up arrow on increase side draw a down arrow on decrease side label normal balance
On Your Own 2-1 Homework
TRANSACTION Business activity that changes assets, liabilities, owners equity Analyzing transactions into debit and credit parts
Received cash from owner as investment Paid cash for supplies Paid cash for insurance Bought supplies on account Paid cash on account
RECEIVED CASH FROM OWNER AS INVESTMENT $2000 What accounts are af fected? Cash and Capital
How is account classified? Cash: asset Capital: equity
How is classification changed Assets increase Owner’s equity increases
CASH 2000
Capital 2000
PAID CASH FOR SUPPLIES Paid Cash for Supplies $165 Cash is a ????? Account Supplies is a ???? Account
In the transaction above:
Supplies 165
Which accounts are affected? How are the accounts classified? How is the classification changed? Does cash go up or down? Supplies?
How is each amount entered in the accounts? On What side of the equation does this happen?
CASH 165
PAID CASH FOR INSURANCE Paid Cash for Insurance $900.00 Cash is a ????? Account Prepaid is a ???? Account
In the transaction above:
Prepaid Insurance 900
Which accounts are affected? How are the accounts classified? How is the classification changed? Does cash go up or down? Prepaid Insurance?
How is each amount entered in the accounts? On What side of the equation does this happen?
CASH 900
BOUGHT SUPPLIES ON ACCOUNT Bought supplies on account from Canyon Of fice Supplies $220.00 Supplies is a ????? Account Accounts Payable is a ???? Account
Supplies
220
In the transaction above: Which accounts are affected? How are the accounts classified? How is the classification changed? Does Supplies go up or down? Accounts Payable?
How is each amount entered in the accounts? On What side of the equation does this happen?
AP Canyon 220
PAID CASH ON ACCOUNT Paid Cash on account to Canyon Of fice Supplies $100.00 Cash is a ????? Account Accounts Payable is a ???? Account
In the transaction above:
AP Canyon 100
Which accounts are affected? How are the accounts classified? How is the classification changed? Does Cash go up or down? Accounts Payable?
How is each amount entered in the accounts? On What side of the equation does this happen?
CASH 100
RECORD HIGH BOX OFFICE RECEIPTS Read P41 Discuss the cost in making a movie Students make a spreadsheet with
Names of three movies Gross receipts of movies Amount main actor was paid Accountant for movie List three costs involved in advertising the movies
YOUR TURN Work Together 2-2 For each account
prepare a T account label debit and credit side draw an up arrow on increase side draw a down arrow on decrease side label normal balance
On Your Own 2-2 Homework
TRANSACTION AFFECT OWNER’S EQUIT Y
Received cash from sales Sold Services on account Paid cash for an expense Received cash on account Paid cash to owner for personal use
SALE ON ACCOUNT
Northside contracts with Calhoun High to provide cherry coke for the entire school once a day and the high school can pay them later Sold Cherry Coke on Account to CHS $200 Asset account Accounts Receivable goes up 11 Equity account Sales is a capital account and goes up $11 Assets = Liabilities + Capital is maintained Accounting Concept Realization of Revenue requires revenue to be recorded at time of sale Accounts Receivable CHS Accounts Receivable are amounts to be received in the future
11.00
Sales
11.00
SOLD SERVICES ON ACCOUNT Sold services on account to Main Street Services $500.00 Accounts Receivable is a ????? Account AR Main Sales is an ???? Account 500 In the transaction above: Which accounts are affected? How are the accounts classified? How is the classification changed? Does Accounts Receivable go up or down? Sales?
How is each amount entered in the accounts? On What side of the equation does this happen?
Sales 500
PAID CASH FOR EXPENSE Paid cash for cell phone $80.00 Cash is a ????? Account Utilities Expense is a ???? Account
Cash
In the transaction above: Which accounts are affected? How are the accounts classified? How is the classification changed? Does Cash go up or down? Utilities Expense?
How is each amount entered in the accounts? On What side of the equation does this happen?
80
Utilities Expense 80
RECEIVED CASH ON ACCOUNT Received cash from Main Street Services $200.00 Cash is a ????? Account Main Street Services is a ???? Account
In the transaction above:
AR Main
Which accounts are affected? How are the accounts classified? How is the classification changed?
200
Does Cash go up or down? Does Accounts Rec go up or down?
How is each amount entered in the accounts? On What side of the equation does this happen?
Assets=Liabilities + Capital Both changes happened on left side of accounting equation which is still in balance
Cash 200
PAID CASH TO OWNER FOR PERSONAL USE Michael Delgado withdrew equity in the form of cash $350 Cash is a ????? Account Michael Delgado, Drawing ???? Account
In the transaction above:
Cash
Which accounts are affected? How are the accounts classified? How is the classification changed?
Delgado, Drawing 350
Does Cash go up or down? Does Michael Delgado go up or down?
How is each amount entered in the accounts? On What side of the equation does this happen?
Assets=Liabilities + Capital Cash paid to owners reduces the cash so business worth is less. Equity goes down on left side
350
YOUR TURN Work Together 2-3 For each account
prepare a T account label debit and credit side draw an up arrow on increase side draw a down arrow on decrease side label normal balance
On Your Own 2-3 Homework
YOUR TURN
Review P50 Automated Accounting Review P51 Owner Withdrawal Application Problems 2-1 to 2-3 Mastery 2-M Challenge 2-C Cases for critical thinking P37 Type answers in Word, spelling and grammar are graded, use MLA format
