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Analyzing Transactions: Debit and Credit Parts

This chapter explains how to analyze transactions using T accounts, the normal balance of different accounts, and the impact of transactions on account balances.

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Analyzing Transactions: Debit and Credit Parts

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  1. Chapter 3 Analyzing Transactions into Debit and Credit Parts

  2. 3.1 Using T Accounts

  3. Cannot use accounting equation setup in “real” accounting • A separate record is commonly used for each account. Assets = Liabilities + Owner’s Equity Left Side Right Side

  4. An accounting device used to analyze transactions is a T account. • An amount recorded on the left side is a debit. • An amount recorded on the right side is a credit. T Account Left Side Right Side Debit Side Credit Side

  5. The side of the account that is increased is called the normal balance. • Assets are on the left side and have a normal debit balance. • Liabilities are on the right side and have a normal credit balance. • Owner’s equity is on the right side and has a normal credit balance.

  6. Two basic accounting rules guide increases and decreases: • 1. Account balances increase on the normal balance side of an account • 2. Account balances decrease on the side opposite the normal balance side of an account

  7. 3.2 Analyzing How Transactions Affect Accounts

  8. A list of accounts used by a business is called a chart of accounts.

  9. Questions for analyzing a transaction: • Which accounts are affected? • How is each account classified? • How is each classification changed? • How is each amount entered in the account? *Debits must equal credits for each transaction *After a transaction total debits must equal total credits

  10. If changes are made on one side of equation: one account increases, another account decreases • A common error is that a transaction must affect both sides of an equation.

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