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The Double-Entry Framework

3. Chapter. The Double-Entry Framework. 1. Define the parts of a T account. The T Account. SHAPED LIKE a “T” . Debit. Credit. The T Account. Debit means Left. Credit means Right. Debit. Credit. The T Account. Abbreviation for Debit. Dr. Cr. Abbreviation for Credit.

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The Double-Entry Framework

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  1. 3 Chapter The Double-Entry Framework

  2. 1 Define the parts of a T account.

  3. The T Account SHAPED LIKE a “T” Debit Credit

  4. The T Account Debitmeans Left Creditmeans Right Debit Credit

  5. The T Account Abbreviation for Debit Dr. Cr. Abbreviation for Credit

  6. The T Account Account Name CASH Dr. Cr.

  7. The T Account • Every T account has an increase side and a decrease side • Some accounts increase on the debit side and some accounts increase on the credit side

  8. 2 Foot and balance a T account.

  9. Balancing a T Account STEP #2: Find the balance by finding the difference between the debit and credit totals. $3,500 debit footing – 3,130 credit footing $ 370 balance

  10. Balancing a T Account STEP #1 FOOT THE DEBIT AND CREDIT SIDES CASH To “Foot” means to Total 1,200 300 200 50 80 200 300 650 150 2,000 500 570 430 3,500 FOOTING FOOTING 3,130

  11. Balancing A T Account The balance is written on the side with the larger total. CASH 2,000 500 570 430 1,200 300 200 50 80 200 300 650 150 3,500 BALANCE 370 3,130

  12. 3 Describe the effects of debits and credits on specific types of accounts.

  13. Rule #1 In every transaction, debits must equal credits.

  14. 4 Use T accounts to analyze transactions.

  15. Example Purchased office supplies for $800 cash.

  16. 1st STEP Identify the accounts that are affected. CASH OFFICE SUPPLIES

  17. 2nd STEP Classify these accounts as assets, liabilities, owner’s equity, revenues, or expenses. ASSET CASH OFFICE SUPPLIES ASSET

  18. 3rd STEP Identify the location of the accounts in the accounting equation and/or the owner’s equity umbrella—left or right. CASH OFFICE SUPPLIES – – + + DR. CR. DR. CR.

  19. Debits = Credits OFFICE SUPPLIES CASH DR. CR. DR. CR. – + – + 800 800

  20. Example Purchased equipment on account for $3,000.

  21. 1st STEP Identify the accounts that are affected. EQUIPMENT ACCOUNTS PAYABLE

  22. 2nd STEP Classify these accounts as assets, liabilities, owner’s equity, revenues, or expenses. LIABILITY ACCOUNTS PAYABLE ASSET EQUIPMENT

  23. 3rd STEP Identify the location of the accounts in the accounting equation and/or the owner’s equity umbrella—left or right. EQUIPMENT ACCOUNTS PAYABLE DR. + CR. DR. CR. – – +

  24. Debits = Credits EQUIPMENT ACCOUNTS PAYABLE DR. CR. DR. CR. – 3,000 + – + 3,000

  25. Example Mary Adams, the owner, invested $25,000 in the business.

  26. Debits = Credits CASH M. ADAMS, CAPITAL DR. CR. DR. CR. 25,000 + – – + 25,000

  27. Example Mary withdrew $1,500 for personal expenses.

  28. Debits = Credits M. ADAMS, DRAWING CASH DR. CR. DR. CR. + – + – 1,500 1,500

  29. Example Mary performed services and received $4,500 in cash.

  30. Debits = Credits CASH CONSULTING FEES DR. CR. DR. CR. + – + – 4,500 4,500

  31. Example Mary performed $6,000 of services on account.

  32. Debits = Credits ACCOUNTS RECEIVABLE CONSULTING FEES DR. CR. DR. CR. + + – – 6,000 6,000 ACCOUNTS RECEIVABLE INSTEAD OF CASH

  33. Example Mary Adams paid her assistant $750 in wages.

  34. Debits = Credits WAGES EXPENSE CASH DR. CR. DR. CR. + + – – 750 750

  35. Summary • Debits and credits • #1 Rule • Debits always equal credits • Use the umbrella • Start with what happened to cash

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