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Chapter 2 Balance Sheet Accounts UNIT 3 Recording Transactions in T-Accounts

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Chapter 2 Balance Sheet Accounts UNIT 3 Recording Transactions in T-Accounts Accounting 11 September 2011 Transaction analysis sheets are useful in learning how to ... – PowerPoint PPT presentation

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Title: Chapter 2 Balance Sheet Accounts UNIT 3 Recording Transactions in T-Accounts


1
Chapter 2 Balance Sheet AccountsUNIT 3 Recording
Transactions in T-Accounts
  • Accounting 11
  • September 2011

2
  • Transaction analysis sheets are useful in
    learning how to record transactions, however they
    are impractical due to the large number of
    financial events that occur each day in a
    business.
  • A more efficient method to collect, record, and
    summarize these events is to keep a separate
    account for each item.
  • An account is a form in which changes caused by
    transactions are recorded.
  • A simplified form of this record is called a
    T-account.

3
Introducing T-accounts
  • DEBIT CREDIT
  • Debit is the accounting term used for the left
    side of the account, Credit is the accounting
    term used for the right side of the account.
  • T-accounts are not needed in business but are
    often used by accountants for rough work when
    they analyze transactions.

4
  • A separate account is required or each asset, for
    each liability, and for the owners equity on the
    balance sheet.
  • The beginning, or opening amounts on the balance
    sheet are called balances.

5
  • Asset accounts have a normal DEBIT balance
  • to increase, debit the account
  • any ASSET account
  • debit credit
  • balance
  • increase decrease

6
  • Liability accounts have a normal credit balance
  • To increase, credit the account
  • any LIABILITY account
  • debit credit
  • balance
  • decrease increase

7
  • The owners equity account has a normal credit
    balance
  • To increase, credit the account
  • owners equity account
  • debit credit
  • balance
  • decrease increase

8
Introducing ledgers
  • A ledger is a group of accounts.
  • To open accounts in the ledger, these steps
    should be followed
  • Place the account name in the middle of each
    account
  • Record the date and opening balance from the
    balance sheet on the appropriate side in the
    account.

9
Double-entry accounting
  • One of the most important principles in
    accounting is that for every transaction,
    double-entry accounting requires that a debit
    amount equal to a credit amount must be recorded.
  • The total of the debit amount must always equal
    the total of the credit amount for each
    transaction.

10
Recording transactions in accounts
  • Step 1 determine which accounts change in value
    as a result of the transaction. (two or more
    accounts will change in value as a result of each
    transaction)
  • Step 2 identify the type of account that has
    changed. (asset? Liability? Or owners equity?)

11
Recording transactions in accounts
  • Step 3 decide whether the change is an increase
    or a decrease in the account.
  • Step 4 Decide whether the change is recorded as
    a debit or a credit in the account. (Note that
    the ledger must remain in balance.)

12
Transaction 1 Aug 2 Received 500 cash as
payments on membership dues owing.
  • The two accounts that are affected are Cash and
    Accounts Receivable.
  • The Cash account is increased with a debit
  • The Accounts Receivable account is decreased with
    a credit
  • Cash
    Accounts Receivable
  • Aug 2 500
    Aug 2 500

13
Transaction 2 Aug 5 Purchased 25 worth of
office supplies from Central Supply Co., with 30
days to pay.
  • Office Supplies
    Accounts Payable
  • Aug 5 25
    Aug 5 25

14
Transaction 3 Aug 5 Paid 705 now due to
Equipment Unlimited for goods previously
purchased but not paid for.
  • Accounts Payable Cash
  • Aug 5 705 Aug 5 25
    Aug 2 500 Aug 5 705

15
Transaction 4 Aug 7 Purchased three new
tennis trainers for 545 each (total 1635). A
cash down payment of 535 was made. The remaining
amount (1100) is to be paid at a later date.
  • Training Equipment Cash
    Accounts Payable
  • Aug 7 1635 Aug
    2 500 Aug 5 705 Aug 5
    705 Aug 5 25

  • 7 535
    7 1100

16
Transaction 5 Aug 7 Owner invested an
additional 5000 in the business.
  • Cash
    R. Millar, Capital
  • Aug 2 500 Aug 5 705
    Aug 7 5000
  • 7 5000 7 535

17
Calculating New Balances
  • Add up the debit side of the account.
  • 2. Add up the credit side of the account.
  • 3. Subtract the smaller amount from the larger
    and place the answer on the larger side of the
    account. This is the new balance for the account.

18
Calculating New Balances
  • Cash

Aug 2 500 Aug 5 705


7 5000 7 535
5500 1240 Balance 4260
19
Preparing a Trial Balance
  • A trial balance is prepared to verify that the
    total debits are still equal to the total credits
    in the ledger.
  • The trial balance is a list of accounts with
    their current balances.
  • They are listed in the order that they appear in
    the ledger.
  • Two columns are required to prepare the trial
    balance, one for debits, one for credits.
  • The trial balance must have a heading.
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