Using T-Accounts to Analyze Transactions

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Using T-Accounts to Analyze Transactions
Chapter 4
Cash
DEBIT
CREDIT
Normal Balance
-

Vocabulary T-Account Debit Credit
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What you already (should) know!
Chapter 4

• Basic Accounting Equation
• Assets Liabilities Owners Equity
• Assets
• Anything of value owned by a business.
• Cash, Supplies, Prepaid Insurance
• Liability
• Anything owed by a business
• Accounts Payable (Tractor Supply Company)
• Owners Equity
• The rights the owner has to the things owned by
  the business.
• Capitalinvestment from the owner
• Drawingpaid to the owner for personal use
• Revenue
• Money received from the operation of the business
• Sales, Fees
• Expenses
• Money paid out from the operation of the
  business.
• Rent Expense, Uttilities Expense,

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What you are going to learn
Chapter 4

• T-Accounts
• A simple tool used to aid in the analysis of
  business transactions.
• Represents the left and right side of an account
• DebitLeft side of an account
• CreditRight side of an account
• Every transaction
• Changes at least 2 accounts
• Involves 1 Debit entry and 1 Credit entry
• Account Balances
• Are increased on the same side as an accounts
  normal balance
• Are decreased on the opposite side of an
  accounts normal balance

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Chapter 4
Account Title
Debit Left Side of an Account
Credit Right Side of an Account
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Normal balance of Accounts are determined by
their placement on the basic Accounting Equation
Chapter 4
Debit
Credit
ASSETS Accounts have DEBIT balances
LIABILITIES And OWNERS EQUITY Accounts have
CREDIT balances
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Going back to our new rule--Increase on SAME
side as normal balance --Decrease on OPPOSITE
side of normal balance
Chapter 4

• Asset
• Increases on the debit (left) side
• Decreases on the credit (right) side
• Liability
• Increases on the credit (right) side
• Decreases on the debit (left) side
• Capital
• Increases on the credit (right) side
• Decreases on the debit (left) side

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Normal balances of Revenue, Expenses and Drawing
are determined by their relationship to the
Capital account.
Chapter 4
John Smith, Captial
Debit
Credit
Normal Balance
Debit to decrease Capital
Credit to increase Capital
Expenses and Drawing have Debit balances because
they decrease Capital
Revenue has a Credit balance because it increases
Capital
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How Do We Determine If An Account Is Debited or
Credited?
Chapter 4

• Memorization at first
• Determine an accounts balance side
• Increase on balance side
• Decrease on opposite side
• It will eventually become intuitive

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Remember for every transaction
Chapter 4

• Every business transaction must have at least one
  debit and one credit.

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Samples
Chapter 4
Analyze transactions into Debit and Credit parts.
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Received Cash from the owner as an investment
1,000.
Chapter 4
Cash
Capital
Debit
Credit
Debit
Credit
NB
NB


1,000
1,000
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Paid Cash for Supplies 500.
Chapter 4
Cash
Supplies
Debit
Credit
Debit
Credit
NB
NB
-

500
500
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Paid Cash for Insurance 1,200.
Chapter 4
Cash
Prepaid Insurance
Debit
Credit
Debit
Credit
NB
NB
-

1,200
1,200
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Bought Supplies on account from Smith Company, AP
800.
Chapter 4
Supplies
Smith Co.,AP
Debit
Credit
Debit
Credit
NB
NB


800
800
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Paid Cash on account to Smith Company, AP 500.
Chapter 4
Cash
Smith Co.,AP
Debit
Credit
Debit
Credit
NB
NB
-
-
500
500
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Received Cash from Sales 2,000.
Chapter 4
Cash
Sales
Debit
Credit
Debit
Credit
NB
NB


2,000
2,000
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Paid Cash for the Electric Bill 200.
Chapter 4
Cash
Utilities Expense
Debit
Credit
Debit
Credit
NB
NB
-

200
200
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Paid Cash to the owner for Personal Use 500.
Chapter 4
Cash
Drawing
Debit
Credit
Debit
Credit
NB
NB
-

500
500