century 21 accounting © thomson/south-western accounting equation 1 lesson 2-1 value of all things...
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CENTURY 21 ACCOUNTING © Thomson/South-Western
Accounting EquationAccounting Equation
1
LESSON 2-1
value of all things owned (assets)
values of all equities (claims against)
In Chapter 1 we learned the accounting equation: Left side of equation = Right side of equation = Left side always = right side or:
Assets = Liabilities + Owners Equity
Large number of accounts = cumbersome to use as a financial record.
CENTURY 21 ACCOUNTING © Thomson/South-Western
In Chapter 1 we learned How a transaction impacts accounts:
Two accounts always adjusted in a transaction Are the accounts impacted: an asset, liability, or owner’s equity Determine if the balance of the account goes up or down Transactions change the balance of an account in the equation.
The equation is unchanged Assets = Liabilities + Owner’s Equity
2
LESSON 2-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 2-1LESSON 2-1
Using T Accounts Account: a record summarizing all the information for a single
item in the accounting equation T Account: is the accounting device (tool) used to analyze
accounting transactions Determines how a transaction changes the balances of
accounts – does the account increase or decrease
CENTURY 21 ACCOUNTING © Thomson/South-Western
4
LESSON 2-1
ANALYZING THE ACCOUNTING ANALYZING THE ACCOUNTING EQUATIONEQUATION page 28
We represent the accounting equation as a “T” Account:
CENTURY 21 ACCOUNTING © Thomson/South-Western
List Our AccountsList Our Accounts
5
LESSON 2-1
Cash, Supplies, Account’s Receivables, Petty Cash and Prepaid Insurance
Accounts Payables Capital Account
AND we list each account on the appropriate side, each with it’s own T account:
CENTURY 21 ACCOUNTING © Thomson/South-Western
TERMSTERMS
T Account: is the accounting device used to analyze accounting transactions
Debit: = an amount recorded on the left side of a T account
Credit:= an amount recorded on the right side of a T account
Normal balance: the side of the account that is increased (hint : the side of the T account that corresponds with the side of the accounting equation)
LESSON 2-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
ACCOUNTSACCOUNTS
Where is the Debit and Credit side of a T account?
CENTURY 21 ACCOUNTING © Thomson/South-Western
NORMAL BALANCENORMAL BALANCE
Where is the normal balance Same side of T account that corresponds with the side of the
accounting equation The “normal balance” side increases the account Decreases on the opposite side of normal balance
LESSON 2-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
DRAW IT Examples:DRAW IT Examples:
Draw it:
Cash is an Asset Assets are on which side of equation? What side is considered the “normal balance” for cash? Which side of Cash increases? Which side
decreases? Does it increase as a Debit or a Credit?
LESSON 2-1
RightLeft
Left
Debit
Left
Cash
CENTURY 21 ACCOUNTING © Thomson/South-Western
DRAW ITDRAW IT
Examples:
Draw in your notes the Capital account (Owner’s Equity) Owner’s Equity is on which side of equation? What side is the Normal Balance? Which side increases? Which side decreases? Does it increase as a Debit or a Credit?
10
LESSON 2-1
Credit
Right
LeftRight
Right
Cash Capital
Normal Bal.+ - Normal Bal.
+ -
CENTURY 21 ACCOUNTING © Thomson/South-Western
11
LESSON 2-1
ASSET NORMAL BALANCESASSET NORMAL BALANCES page 29
CENTURY 21 ACCOUNTING © Thomson/South-Western
12
LESSON 2-1
LIABILITY NORMAL BALANCELIABILITY NORMAL BALANCE page 29
CENTURY 21 ACCOUNTING © Thomson/South-Western
13
LESSON 2-1
OWNER’S EQUITY NORMAL BALANCEOWNER’S EQUITY NORMAL BALANCE page 29
CENTURY 21 ACCOUNTING © Thomson/South-Western
TERMS REVIEWTERMS REVIEW
T account debit credit normal balance
CENTURY 21 ACCOUNTING © Thomson/South-Western
WORK TOGETHER 2-1WORK TOGETHER 2-1
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