Chapter 4 Analyzing Transactions Into Debit and Credit Parts

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Chapter 4Analyzing Transactions Into Debit and
Credit Parts
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Objectives

• Define accounting terms related to analyzing
  transactions into debit and credit parts
• Identify accounting practices related to
  analyzing transactions into debit and credit parts

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Objectives

• Use T Accounts to analyze transactions showing
  which accounts are debited or credited for each
  transaction
• Verify the equality of debits and credits for
  each transaction

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Terms

• T Account an accounting device used to analyze
  transactions

Assets Liabilities

Owners Equity
Left Side
Right Side
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T Account
Left Side DEBIT SIDE
Right Side CREDIT SIDE
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Terms

• Debit an amount recorded on the left side of a
  T Account
• Credit an amount recorded on the right side of
  a T Account

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Relationship of Assets, Liabilities, and Owners
Equity
Assets Liabilities

Owners Equity
Left SideDebit SideNORMAL BALANCE
Right SideCredit Side
Left SideDebit Side
Right SideCredit SideNORMAL BALANCE
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Increase and Decrease Sides of Assets,
Liabilities, and Owners Equity
Assets Liabilities

Owners Equity
Left SideDebit SideNormal BalanceINCREASE
Right SideCredit Side DECREASE
Left SideDebit Side DECREASE
Right SideCredit SideNormal BalanceINCREASE
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Basic Accounting Rules Regulating Increases and
Decreases of Account Balances

• Account balances increase on the normal balance
  side of an account
• Account balances decrease on the side opposite
  the normatl balance side of an account

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Audit Your Understanding

• Draw the accounting equation on a T Account
• What are the two accounting rules that regulate
  increases and decreases of account balances?

• Paid Cash For Insurance

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Analyzing How Transactions Affect Accounts
Debit Equals Credits For Each Transaction
Supplies
Cash
Left SideDebit SideNormal BalanceIncrease
1,577.00
Right SideCredit Side Decrease
Left SideDebit Side Increase
Right SideCredit SideNormal BalanceDecrease
1,577.00
DEBITS equal
CREDITS
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4 Questions Used In Analyzing Transactions

• What accounts are affected?
• Chart Of Accounts a list of accounts used by a
  business
• What accounts are affected?
• Classified as assets, liabilities, owners
  equity, revenue, and expenses

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4 Questions Used In Analyzing Transactions

• How is each account balanced changed?
• In each account increased or decreased
• How is each amount entered in the accounts?
• Amount is either debited or credited to the
  account

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Received Cash From Owner As An Investment
Cash
Owners Equity
Left SideDebit SideNormal BalanceIncrease
10,000.00
Right SideCredit Side Decrease
Left SideDebit Side Decrease
Right SideCredit SideNormal BalanceIncrease
10,000.00
DEBITS equal
CREDITS
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Paid Cash For Supplies
Supplies
Left SideDebit SideNormal BalanceIncrease
1, 577.00
Right SideCredit SideNormal Decrease
Cash
Left SideDebit SideNormal Increase
Right SideCredit Side Decrease1,577.00
DEBITS equal
CREDITS
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FYI

• Always use the four steps of analyzing
  transactions
• This will make the analyzing process easier

The 4 Steps
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Paid Cash For Insurance
Insurance
Left SideDebit SideNormal BalanceIncrease
1,200.00
Right SideCredit SideNormal Decrease
Cash
Left SideDebit SideNormal Increase
Right SideCredit Side Decrease1,200.00
DEBITS equal
CREDITS
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Bought Supplies On Account
Supplies
Butler Cleaning Supply
Left SideDebit SideNormal BalanceIncrease
2,720.00
Right SideCredit Side Decrease
Left SideDebit Side Decrease
Right SideCredit SideNormal BalanceIncrease
2,720.00
DEBITS equal
CREDITS
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Paid Cash On Account
Cash
Butler Cleaning Supply
Left SideDebit SideNormal BalanceIncrease
Right SideCredit SideDecrease1,360.00
Left SideDebit Side Decrease1,360.00
Right SideCredit SideNormal BalanceIncrease
DEBITS equal
CREDITS
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Received Cash From Sales
Cash
Sales
Left SideDebit SideNormal BalanceIncrease 525
Right SideCredit Side Decrease
Left SideDebit Side Decrease
Right SideCredit SideNormal BalanceIncrease
525.00
DEBITS equal
CREDITS
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Paid Cash For An Expense
Cash
Rent Expense
Left SideDebit SideNormal BalanceIncrease
Right SideCredit Side Decrease 250.00
Left SideDebit SideNormal BalanceIncrease
250.00
Right SideCredit SideDecrease
DEBITS equal
CREDITS
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Paid Cash To Owner For Personal Use
Cash
Ben Furman, Drawing
Left SideDebit SideNormal BalanceIncrease
Right SideCredit Side Decrease 100.00
Left SideDebit SideNormal BalanceDecrease
100.00
Right SideCredit SideDecrease
DEBITS equal
CREDITS
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Audit Your Understanding

• State the four questions to analyze a transaction
• Are asset accounts increased on the debit side or
  credit side?
• Are liability accounts increased on the debit
  side or the credit side?

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Audit Your Understanding

• Is the drawing account increased on the debit
  side or the credit side?
• Are revenue accounts increased on the debit side
  or the credit side?
• Are expense accounts increased on the debit side
  or the credit side?

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Summary Illustration

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