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Chapter 3
Analyzing Transactions into Debit and Credit Parts
© South-Western Educational Publishing Thursday, October 6, 2011 9:32:03 AM ET
Analyzing the Accounting Equation Transactions can be recorded in an accounting equation
but this is not practical in an actual accounting system.
Too many accounts to fit on the accounting equation. A separate account is used for each account. The accounting equation is represented as a “T” in
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these accounts. Thursday, October 6, 2011 9:32:03 AM ET
© South-Western Educational Publishing
ACCOUNTS
T-Account
An accounting device used to analyze transactions. Debit (Dr) An amount recorded on the left side Credit (Cr) Lesson 3-1, page 42 © South-Western An amount recorded on the right side. Educational Publishing
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ACCOUNT BALANCES Normal Balance
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The side of the account that is increased.
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Lesson 3-1, page 42 © South-Western Educational Publishing
ACCOUNT BALANCES
Assets are on the left side of the accounting equation Asset accounts have normal debit balances. Left side = Debit Dawson_David
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Lesson 3-1, page 42 © South-Western Educational Publishing
ACCOUNT BALANCES
Liabilities are on the right side of the accounting
equation Liability accounts have normal Credit balances. Right side = Credit Dawson_David
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Lesson 3-1, page 42 © South-Western Educational Publishing
ACCOUNT BALANCES
Owner’s Equity are on the right side of the accounting
equation Owner’s Equity accounts have normal Credit
balances. Right side = Credit
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Lesson 3-1, page 42 © South-Western Educational Publishing
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ACCOUNT BALANCES
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Lesson 3-1, page 42 © South-Western Educational Publishing
Increases and Decreases in Accounts The sides of the T account are used to show increases
and decreases in account balances. Two basic accounting rules regulate increases and
decreases of account balances: 1. Account balances increase on the normal balance
side of an account. 2. Account balances decrease on the side opposite the
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normal balance side of an account.
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© South-Western Educational Publishing
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INCREASES AND DECREASES IN ACCOUNTS
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Lesson 3-1, page 43 © South-Western Educational Publishing
3-1 Assignments p. 44 Audit Your Understanding p. 44 (p. 35) Work Together p. 44 (p. 36) On Your Own p. 58 (p. 41) Application Problem 3-1
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Lesson 3-1, page 44 © South-Western Educational Publishing
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3-2
Analyzing How Transactions Affect Accounts
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© South-Western Educational Publishing
Received Cash from Owner as an Investment Each transaction changes the balances of at least
two accounts. Chart of Accounts A list of accounts used by a business. Debits = Credits after every transaction.
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© South-Western Educational Publishing
Received Cash from Owner as an Investment Four questions are used in analyzing transactions. 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?
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© South-Western Educational Publishing
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RECEIVED CASH FROM OWNER AS AN INVESTMENT August 1. Received cash from owner as an investment, $10,000.00.
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1. Cash and Barbara Treviño, Capital are affected. 2. Cash is an asset account. Barbara Treviño, Capital is an owner’s equity account. 3. Assets are increased. Owner’s Equity is increased. 4. Cash is debited. Barbara Treviño, Capital is credited. Thursday, October 6, 2011 9:32:03 AM ET
Lesson 3-2, page 45 © South-Western Educational Publishing
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PAID CASH FOR SUPPLIES August 3. Paid cash for supplies, $1,577.00.
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1. Supplies and Cash are affected. 2. Supplies and Cash are assets. 3. Assets (Supplies) are increased. Assets (Cash) are decreased. 4. Supplies is debited. Cash is credited. Thursday, October 6, 2011 9:32:03 AM ET
Lesson 3-2, page 46 © South-Western Educational Publishing
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PAID CASH FOR INSURANCE August 4. Paid cash for insurance, $1,200.00.
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1. Prepaid Insurance and Cash are affected. 2. Prepaid Insurance and Cash are assets. 3. Assets (Prepaid Insurance) are increased. Assets (Cash) are decreased. 4. Prepaid Insurance is debited. Cash is credited. Thursday, October 6, 2011 9:32:03 AM ET
Lesson 3-2, page 47 © South-Western Educational Publishing
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BOUGHT SUPPLIES ON ACCOUNT August 7. Bought supplies on account from Ling Music Supplies, $2,720.00.
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1. Supplies and Accounts Payable—Ling Music Supplies are affected. 2. Supplies is an asset. Accounts Payable—Ling Music Supplies is a liability. 3. Assets are increased. Liabilities are increased. 4. Supplies is debited. Accounts Payable—Ling Music Lesson 3-2, page 48 © South-Western Supplies is credited. Thursday, October 6, 2011 9:32:03 AM ET
Educational Publishing
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PAID CASH ON ACCOUNT August 11. Paid cash on account to Ling Music Supplies, $1,360.00.
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1. Accounts Payable—Ling Music Supplies and Cash are affected. 2. Cash is an asset. Accounts Payable—Ling Music Supplies is a liability. 3. Assets are decreased. Liabilities are decreased. 4. Accounts Payable—Ling Music Supplies is debited. Lesson 3-2, page 49 © South-Western Cash is credited. Thursday, October 6, 2011 9:32:03 AM ET
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3-2 Assignments p. 50 Audit Your Understanding p. 50 (p. 37) Work Together p. 50 (p. 38) On Your Own p. 58 (p. 43) Application Problem 3-2
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Lesson 3-1, page 44 © South-Western Educational Publishing
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3-3
Analyzing How Transactions Affect Owner’s Equity Accounts
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© South-Western Educational Publishing
Received Cash from Sales Revenues increase owner’s equity The increases from a revenue could be recorded in
the owner’s capital account. A separate account (Sales account) is used to record
revenues to summarize revenue information more easily. Increases for revenues are recorded in the Sales
account as a Credit. A revenue account has a normal credit balance. Dawson_David
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© South-Western Educational Publishing
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RECEIVED CASH FROM SALES August 12. Received cash from sales, $325.00.
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1. Cash and Sales are affected. 2. Cash is an asset. Sales is a revenue account that affects owner’s equity. 3. Assets are increased. Owner’s equity is increased. 4. Cash is debited. Sales is credited. Thursday, October 6, 2011 9:32:03 AM ET
Lesson 3-3, page 51 © South-Western Educational Publishing
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SOLD SERVICES ON ACCOUNT August 12. Sold services on account to Kids Time, $200.00.
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1. Accounts Receivable—Kids Time and Sales are affected. 2. Accounts Receivable—Kids Time is an asset. Sales is a revenue account that affects owner’s equity. 3. Assets are increased. Owner’s equity is increased. 4. Accounts Receivable—Kids Time is debited. Sales is Lesson 3-3, page 52 © South-Western credited. Thursday, October 6, 2011 9:32:03 AM ET
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Paid Cash for an Expense Expenses decrease owner’s equity The decreases from an expense could be recorded in
the owner’s capital account. A separate account (Expense accounts) is used to
record expenses to summarize expense information more easily. Decreases for expenses are recorded in Expense
accounts as a Debit. An expense account has a normal debit balance. Dawson_David
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© South-Western Educational Publishing
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PAID CASH FOR AN EXPENSE August 12. Paid cash for rent, $250.00. 2
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1. Rent Expense and 4 Cash are affected. 2. Cash is an asset. Rent 3 3 Expense is an expense account that affects owner’s equity. 3. Assets are decreased. Owner’s equity is decreased; expenses are increased. 4. Rent Expense is debited. Cash is credited. Thursday, October 6, 2011 9:32:03 AM ET
Lesson 3-3, page 53 © South-Western Educational Publishing
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RECEIVED CASH ON ACCOUNT August 12. Received cash on account from Kids Time, $100.00. 2
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1. Cash and Accounts Receivable—Kids Time are affected. 2. Cash and Accounts Receivable—Kids Time are assets. 3. Assets (Cash) are increased. Assets (Accounts Receivable—Kids Time) is decreased. 4. Cash is debited. Accounts Receivable—Kids Time Lesson 3-3, page 54 © South-Western is credited. Thursday, October 6, 2011 9:32:03 AM ET
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Paid Cash to Owner fro Personal Use Withdrawals decrease owner’s equity The decreases from withdrawals could be recorded in
the owner’s capital account. A separate account (Drawing account) is used to
record withdrawals to summarize withdrawals information more easily. Decreases for withdrawals are recorded in the
Drawing account as a Debit. A Drawing account has a normal debit balance. Dawson_David
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© South-Western Educational Publishing
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PAID CASH TO OWNER FOR PERSONAL USE August 14. Paid cash to owner for personal use, $100.00.
Barbara Trevino, Drawing 100.00
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Cash 100.00
Lesson 3-3, page 54 © South-Western Educational Publishing
3-3 Assignments p. 56 Audit Your Understanding p. 56 (p. 39) Work Together p. 56 (p. 40) On Your Own p. 59 (p. 45) Application Problem 3-3 p. 59 (p. 47) Application Problem 3-4 p. 60 (p. 49) Mastery Problem 3-5 p. 61 (p. 51) Challenge Problem 3-6
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© South-Western Educational Publishing
