1 / 17

Transactions That Affect Assets, Liabilities, and Owner’s Equity

Chapter 4. Transactions That Affect Assets, Liabilities, and Owner’s Equity. Making Accounting Relevant Accounting and finance professionals are key to every business operation. How might the work performed by the accountant affect the day-to-day decisions made by the business owner?.

dianesutton
Download Presentation

Transactions That Affect Assets, Liabilities, and Owner’s Equity

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 4 Transactions That Affect Assets, Liabilities, and Owner’s Equity Making Accounting Relevant Accounting and finance professionals are key to every business operation. How might the work performed by the accountant affect the day-to-day decisions made by the business owner?

  2. What You Will Learn • How to use T accounts • Why you need a ledger • The rules of debit and credit

  3. Section 1 Accounts and the Double-Entry Accounting System (cont'd.) Chapter 4 Why It’s Important The rules of debit and credit are the basis for entering transactions into the records of a business. • Key Terms • ledger • chart of accounts • double-entry accounting • T account • debit • credit • normal balance

  4. Ledger • Accounts are grouped together in a ledger • Manual or electronic system • Known as “keeping the books” • Grouping accounts makes info easy to find • Info taken from ledger is organized into reports to provide financial statements

  5. Section 1 Accounts and the Double-Entry Accounting System (cont'd.) Chapter 4 The Chart of Accounts A list of all the accounts and their assigned account numbers. Roadrunner Delivery Service 155 Gateway Blvd. Sacramento, CA 94230 CHART OF ACCOUNTS ASSETS 101 Cash in Bank 105 Accounts Receivable--City News 110 Accounts Receivable--Green Company 115 Computer Equipment 120 Office Equipment 125 Delivery Equipment LIABILITIES 201 Accounts Payable--Beacon Advertising 205 Accounts Payable--North Shore Auto OWNER’S EQUITY 301 Maria Sanchez, Capital 302 Maria Sanchez, Withdrawals 303 Income Summary REVENUE 401 Delivery Revenue EXPENSES 501 Advertising Expense 505 Maintenance Expense 510 Rent Expense 515 Utilities Expense

  6. Section 1 Accounts and the Double-Entry Accounting System (cont'd.) Chapter 4 Double-Entry Accounting Double-entry accounting is a system of recordkeeping in which each business transaction affects at least two accounts.

  7. Section 1 Accounts and the Double-Entry Accounting System (cont'd.) Chapter 4 T Accounts The T account, so called because of its T shape, shows the dollar increase or decrease in an account that is caused by a transaction. Account Name Left Side Right Side Debit Side Credit Side Debit Credit

  8. Section 1 Accounts and the Double-Entry Accounting System (cont'd.) Chapter 4 • The Rules of Debit and Credit • The rules of debit and credit vary according to whether an account is classified as an asset, a liability, or an owner’s capital account. • Normal balance is always on the side used to record increases to the account. The word normal used here means usual.

  9. Remembering Accounting Rules(alore)

  10. Section 1 Accounts and the Double-Entry Accounting System (cont'd.) Chapter 4 Rules for Asset Accounts Assets Debit + (1) Increase Side (3) Normal Balance Credit – (2) Decrease Side

  11. RULES FOR ASSET ACCOUNTS • An ASSET account is INCREASED (+) ON the DEBIT side (left side) • An ASSET account is DECREASED (-) on the CREDIT side (right side) • The NORMAL BALANCE for an ASSET account is the INCREASE SIDE (debit side) • ASSETS normally have DEBIT balances

  12. Section 1 Accounts and the Double-Entry Accounting System (cont'd.) Chapter 4 Cash in Bank Debit + 200 150 350 Balance 240 Credit – 70 40 110

  13. Section 1 Accounts and the Double-Entry Accounting System (cont'd.) Chapter 4 Rules for Liability and Owner’s Capital Accounts Liabilities Debit Credit – (2) Decrease Side (1) Increase Side Owner’s Equity Debit Credit – + (2) Decrease (1) Increase Side Side (3) Normal Balance • Credit • + • Increase • Side • (3) Normal • Balance Credit + (1) Increase Side (3) Normal Balance

  14. Rules for Liability and Owner’s Capital Accounts • INCREASED on the CREDIT side (right side) • DECREASED on the DEBIT side (left side) • The NORMAL BALANCE is on the INCREASE side, or the CREDIT side • Normally have CREDIT balances (right side)

  15. Section 1 Accounts and the Double-Entry Accounting System (cont'd.) Chapter 4 Example: Accounts Payable Debit Credit – + 100 75 175 175 375 M. Sanchez, Capital Debit Credit – + 350 200 550 (3) Normal Balance Credit + 1,500 2,500 4,000 Bal. 3,450 Credit + 200 175 375 Bal. 200

  16. Look at top of page 76 in your textbook

  17. Section 1 Accounts and the Double-Entry Accounting System (cont'd.) Chapter 4 Check Your Understanding Explain why the normal balance of an asset account is on the debit side of the account.

More Related