*An individual accounting record of increases and decreases in a specific Asset, Liability, or Stockholders Equity item.The Account...

*Three parts :1) the Title of the account2) a left or Debit side3) a right or Credit sideThe Account

*Debits and CreditsDebit means left thus, entry on left side is debiting Credit means right thus, entry on right side is creditingNormal balance is the side the increase happens on.

*Examples

*Total the Entries to Each SideIf the greater sum is on the left, the account has a Debit Balance

*Total the Entries to Each SideIf the greater sum is on the right, the account has a Credit Balance

*Whichever side you increase is the normal balance!

*Normal Balances Assets = Liabilities + Stockholders EquityAssets are on the left side of the accounting equation.

The left side of the T-accountis the debit side,

so the normal balance foran asset is a debit balance

*Normal Balances Assets = Liabilities + Stockholders EquityLiabilities are on the right side of the accounting equation.

The right side of the T-account is the credit side,

so the normal balance for a liability is a credit balance.

*Normal Balances Assets = Liabilities + Stockholders EquityStockholders equity is on the right sideof the accounting equation.

The right side of the T-account is the credit side,

so the normal balance for a stockholder equity account is a credit balance

*Normal Balances Assets = Liabilities + Stockholders EquityStockholders equity (SE)is on the right sideof the accounting equation and carries a credit balance.

Dividends paid to stock-holders reduces their equityIn the business,So dividends decrease SEand carry a debit balance.

*Normal Balances = Liabilities + Stockholders EquityRetained Earnings (RE) is on the right side of the accounting equation and carries a credit balance.Revenues increase RE, so have a credit balance.Expenses decrease RE, so have a debit balance.

*Expansion of Basic Equation

*My ProcessAccounts affected?Type of Account?Normal balance?Increase or Decrease?Debit or credit?

*Lets Practice!Lets practice transaction analysis with Sierra Corporation. . .

*Event 1 Investment of Cash by StockholdersOct. 1 - Owner invested $10,000 Cash in business in exchange for $10,000 of Sierra Corporation Common StockAccounts affected?Type of Account?Normal Balance?Increase or Decrease?Debit or credit?

*Event 1 Investment of Cash by StockholdersOct. 1 - Owner invested $10,000 Cash in business in exchange for $10,000 of Sierra Corporation Common StockAccounts affected? CashCommon StockType of Account? AENormal balance DrCrIncrease or Decrease? ++Debit or credit? DrCrDebit CreditCash 10,000Common Stock 10,000GetGive

*Event 2 Note Issued in Exchange for CashOct. 1 Sierra issued a 3-month, 12%, $5,000 Note Payable to Castle Bank in exchange for cash. Accounts affected?Type of Account?Normal Balance?Increase or Decrease?Debit or credit?

*Event 2 Note Issued in Exchange for CashOct. 1 Sierra issued a 3-month, 12%, $5,000 Note Payable to Castle Bank in exchange for cash. Accounts affected? CashNote PayableType of Account? ALNormal balance? DrCrIncrease or Decrease? ++Debit or credit? DrCrDebit CreditCash 5,000Note Payable 5,000GetGive

*Event 3 Purchase of Office Equipment for CashOct. 2 Sierra acquired office equipment by paying $5,000 cash to Superior Sales Co.Accounts affected?Type of Account?Normal Balance?Increase or Decrease?Debit or credit?

*Event 3 Purchase of Office Equipment for CashOct. 2 Sierra acquired office equipment by paying $5,000 cash to Superior Sales Co.Accounts affected? Equipment CashType of Account? AANormal balance? Dr DrIncrease or Decrease? +-Debit or credit? DrCrDebit CreditOffice Equipment 5,000Cash 5,000GetGive

*Event 4 Receipt of Cash in Advance from CustomerOct. 2 Sierra received a $1,200 cash advance from R. Knox, a client.Accounts affected?Type of Account?Normal Balance?Increase or Decrease?Debit or credit?

*Event 4 Receipt of Cash in Advance from CustomerOct. 2 Sierra received a $1,200 cash advance from R. Knox, a client.Accounts affected? CashUnearned RevenueType of Account? ALNormal balance? DrCrIncrease or Decrease? ++Debit or credit? DrCrDebit CreditCash 1,200Unearned revenue 1,200GetGive

*Event 5 Services Rendered for CashOct. 3 Sierra received $10,000 in cash from Copa Co. for advertising services performedAccounts affected?Type of Account?Normal Balance?Increase or Decrease?Debit or credit?

*Event 5 Services Rendered for CashOct. 3 Sierra received $10,000 in cash from Copa Co. for advertising services performedAccounts affected? CashService RevenueType of Account? AENormal balance? DrCrIncrease or Decrease? ++Debit or credit? DrCrDebit CreditCash 10,000Service Revenue 10,000GetGive

*Event 6 Payment of RentOct. 3 Sierra paid its office rent for the month of October in cash, $900.Accounts affected?Type of Account?Normal Balance?Increase or Decrease?Debit or credit?

*Event 6 Payment of RentOct. 3 Sierra paid its office rent for the month of October in cash, $900.Accounts affected? CashRent ExpenseType of Account? AE (expense)Normal balance? Dr Dr Increase or Decrease? -+ Debit or credit? CrDrDebit CreditRent Expense 900Cash 900GetGive

*Event 7 Purchase of Insurance Policy with CashOct. 4 Sierra paid $600 for a one-year insurance policy that will expire next year on Sept. 30.Accounts affected?Type of Account?Normal Balance?Increase or Decrease?Debit or credit?

*Event 7 Purchase of Insurance Policy with CashOct. 4 Sierra paid $600 for a one-year insurance policy that will expire next year on Sept. 30.Accounts affected? CashPrepaid InsurType of Account? AANormal balance? Dr DrIncrease or Decrease? -+Debit or credit? CrDrDebit CreditPrepaid Insurance 600Cash 600GetGive

*Event 8 Purchase of Supplies on CreditOct. 5 Sierra purchases a three-month supply of advertising materials on account from Aero Supply for $2,500.Accounts affected?Type of Account?Normal Balance?Increase or Decrease?Debit or credit?

*Event 8 Purchase of Supplies on CreditOct. 5 Sierra purchases a three-month supply of advertising materials on account from Aero Supply for $2,500.Accounts affected? Supplies Accounts PayableType of Account? ALNormal balance? DrCrIncrease or Decrease? ++Debit or credit? DrCrDebit CreditSupplies2,500Accounts Payable 2,500GetGive

*Event 9 Hiring of New EmployeesOct. 9 Sierra hired four new employees to begin work on Oct. 15.Accounting transaction has NOT occurred!

*Event 10 Payment of DividendOct. 20 Sierra paid a $500 dividend.Accounts affected?Type of Account?Normal Balance?Increase or Decrease?Debit or credit?

*Event 10 Payment of DividendOct. 20 Sierra paid a $500 dividend.Accounts affected? CashDividendsType of Account? AENormal balance? DrDrIncrease or Decrease? -+Debit or credit? CrDrDebit CreditDividend 500Cash 500GetGive

*Event 11 Payment of Cash for Employee SalariesOct. 26 Paid employees working two weeks, who have earned $4,000 in salaries. Accounts affected?Type of Account?Normal Balance?Increase or Decrease?Debit or credit?

*Event 11 Payment of Cash for Employee SalariesOct. 26 Paid employees working two weeks, who have earned $4,000 in salaries. Accounts affected? CashSalaries ExpenseType of Account? AE (expense) Normal balance? Dr DrIncrease or Decrease? -+ Debit or credit? CrDrDebit CreditSalaries Expense 4,000Cash 4,000GetGive

*1. The effects on the basic accounting equation of performing services for cash isA. increase liabilities and increase equityB. increase assets and decrease equityC. increase assets and increase equityD. increase assets and increase liabilities

*2. Genesis Company buys a $900 machine on credit. This transaction will affect theA. income statement, retained earnings statement and balance sheetB. income statement and retained earnings statement onlyC. balance sheet onlyD. income statement only

*3. DebitsA. decrease assets and increase liabilitiesB. increase assets and decrease liabilities C. decrease both assets and liabilitiesD. increase both assets and liabilities

*4. A revenue accountA. is increased by creditsB. has a normal balance of a debit C. is decreased by creditsD. is increased by debits

*5. Every account has a left or credit side and a right or debit sideA. TrueB. False

*6. Every transaction affects at least two accountsA. TrueB. False

*7. Assets are increased with creditsA. TrueB. False

This is the end of Chapter 3Day 1Work E3 - 7, 9, 11 and P3-4AFor Tuesday, February 12, 2008

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