Bellringer

1. Bellringer • What does the word, “Debit” mean to you? • What does the word, “Credit” mean to you? • Write it down on a separate piece of paper. • Draw an outline of your left hand and right hand on a different piece of paper.

2. Essential Questions: • How is the accounting equation organized ? • What is double entry accounting and how does it analyze business transactions?

3. Students will be able to: • Demonstrate an understanding of the fundamental accounting equation. • Classify items as assets, liabilities, or owner’s equity. • Explain the double-entry system of accounting and apply debit and credit rules when analyzing business transactions.

4. How is the accounting equation organized ? • Chart of Accounts – “Chart” • List of “Accounts” used by a business. • General Ledger - “Ledger” • Accounts grouped together • Keeping the books • Makes information easy to find • When summarized, forms financial statements

5. How is the accounting equation organized ? • System of Numbering Accounts within the Ledger • Makes it easy to find accounts and information. • Usually have at least 2 digits • Example: Look at page 79 in book • Assets 100’s • Liabilities 200’s • Owner’s Equity 300’s • Revenue 400’s • Expense 500’s

6. What is double entry accounting and how does it analyze business transactions? • Chapter 3 used the Accounting Equation Assets = Liabilities + Owner’s Equity • Double entry accounting – System to analyze a business transaction. • Recognizes different sides of business transactions as DEBITS and CREDITS • T- ACCOUNT – a tool to help analyze transaction and reflect increases and decreases in an account .

7. T-Accounts Top Left side Right side Account title Debit Credit

8. Rules for Asset Accounts • An asset account is increased (+) on the debit side. • An asset account is decreased (-) on the credit side. • The normal balance for an asset account is a debit balance. ASSETS = LIABILITIES + OWNERS EQUITY Asset Accounts Debit + Increase side Balance side Credit - Decrease side

9. T-Accounts for Assets Cash in Bank Debit + $200 150 $350 Balance, $240 Credit - $70 40 $110 • Asset accounts are increased on the left, or ____________ side • Asset accounts are decreased on the right, or __________ side • The normal balance for asset accounts is a ________ balance • On notebook paper, draw a T account for the asset account Office Equipment. Enter debits of $2000 and $1500. Enter a credit of $500. What is the balance, and on what side of the T account is it shown?

10. Rules for Liability and Owner’s Equity Accounts • The liability and capital accounts are increased (+) on the credit side. • The liability and capital accounts are decreased (-) on the debit side. • The normal balance for the liability and capital accounts is a credit balance. ASSETS = LIABILITIES + OWNER’S EQUITY RIGHT SIDE RIGHT SIDE LEFT SIDE Asset Accounts Capital Accounts Liability Accounts Credit + Increase side Balance side Credit + Increase side Balance side Debit + Increase side Balance side Credit - Decrease Side Debit - Decrease Side Debit - Decrease side

11. T-Accounts for Liabilities and Owner’s Equity John Doe, Capital Accounts Payable Credit + $1500 2500 $4000 Balance, $3450 Credit + $200 175 $375 Balance, $200 Debit - $100 75 $175 Debit - $350 200 $550

12. Rules Debits are used to • Increase (+) assets • Decrease (-) liabilities • Decrease (-) owner’s equity Credits are used to • Decrease (-) assets • Increase (+) liabilities • Increase (+) owner’s equity

13. Independent Work • Let’s do Problem 4-1 Page 8-2 in Textbook and 34 in Workbook. • You have about 7 minutes……

14. What you should know! • Double Entry Accounting – Every business transaction MUST have Debits = Credits. • Regardless of which Account: • DEBIT = LEFT SIDE • CREDIT = RIGHT SIDE • Debit and Credit Rules vary according to the type of account classification.