Transactions That Affect Assets, Liabilities, and Owner’s Equity

Transactions That Affect Assets, Liabilities, and Owner’s EquityMaking Accounting Relevant

Accounting and finance professionals

are key to every business operation.

Making Accounting Relevant

Accounting and finance professionals

are key to every business operation.

How might the work performed by the accountant affect the day-to-day decisions made by the business owner?

How might the work performed by the accountant affect the day-to-day decisions made by the business owner?

Section 1Accounts and the Double-Entry Accounting System

Section 1Accounts and the Double-Entry Accounting System

What You’ll Learn

How to use T accounts.

Why you need a ledger.

The rules of debit and credit.

What You’ll Learn

How to use T accounts.

Why you need a ledger.

The rules of debit and credit.

Why It’s ImportantThe rules of debit and credit are the

basis for entering transactions into the records of a business.

Why It’s ImportantThe rules of debit and credit are the

basis for entering transactions into the records of a business.

Section 1 Accounts and the Double-Entry Accounting System (cont'd.)

Section 1 Accounts and the Double-Entry Accounting System (cont'd.)

Key Terms ledger chart of accounts double-entry accounting T account debit credit normal balance

Key Terms ledger chart of accounts double-entry accounting T account debit credit normal balance

The Chart of AccountsA list of all the accounts and their

assigned account numbers.

The Chart of AccountsA list of all the accounts and their

assigned account numbers.

Section 1 Accounts and the Double-Entry Accounting System (cont'd.)

Section 1 Accounts and the Double-Entry Accounting System (cont'd.)

Roadrunner Delivery Service155 Gateway Blvd.

Sacramento, CA 94230

CHART OF ACCOUNTS

ASSETS 101 Cash in Bank105 Accounts Receivable--City News110 Accounts Receivable--Green Company115 Computer Equipment120 Office Equipment125 Delivery Equipment

LIABILITIES 201 Accounts Payable--Beacon Advertising205 Accounts Payable--North Shore Auto

OWNER’S EQUITY 301 Maria Sanchez, Capital302 Maria Sanchez, Withdrawals303 Income Summary

REVENUE 401 Delivery Revenue

EXPENSES 501 Advertising Expense505 Maintenance Expense510 Rent Expense515 Utilities Expense

Roadrunner Delivery Service155 Gateway Blvd.

Sacramento, CA 94230

CHART OF ACCOUNTS

ASSETS 101 Cash in Bank105 Accounts Receivable--City News110 Accounts Receivable--Green Company115 Computer Equipment120 Office Equipment125 Delivery Equipment

LIABILITIES 201 Accounts Payable--Beacon Advertising205 Accounts Payable--North Shore Auto

OWNER’S EQUITY 301 Maria Sanchez, Capital302 Maria Sanchez, Withdrawals303 Income Summary

REVENUE 401 Delivery Revenue

EXPENSES 501 Advertising Expense505 Maintenance Expense510 Rent Expense515 Utilities Expense

Double-Entry Accounting

•A system of recordkeeping

•Each business transaction

affects at least two accounts.

Double-Entry Accounting

•A system of recordkeeping

•Each business transaction

affects at least two accounts.

Section 1 Accounts and the Double-Entry Accounting System (cont'd.)

Section 1 Accounts and the Double-Entry Accounting System (cont'd.)

T Accounts• Shows the dollar increase or decrease in an account that is caused by a transaction.

T Accounts• Shows the dollar increase or decrease in an account that is caused by a transaction.

Section 1 Accounts and the Double-Entry Accounting System (cont'd.)

Section 1 Accounts and the Double-Entry Accounting System (cont'd.)

Account Name

Left Side Right Side

Debit Side Credit Side

Debit Credit

Account Name

Left Side Right Side

Debit Side Credit Side

Debit Credit

The Rules of Debit and Credit

Different for the different

accounts - asset, a liability, or

an owner’s capital account.

Normal balance is always on

the side used to record

increases to the account.

The Rules of Debit and Credit

Different for the different

accounts - asset, a liability, or

an owner’s capital account.

Normal balance is always on

the side used to record

increases to the account.

Section 1 Accounts and the Double-Entry Accounting System (cont'd.)

Section 1 Accounts and the Double-Entry Accounting System (cont'd.)

Rules for Asset AccountsRules for Asset Accounts

Section 1 Accounts and the Double-Entry Accounting System (cont'd.)

Section 1 Accounts and the Double-Entry Accounting System (cont'd.)

Assets

Credit

–(2) Decrease Side

Debit

+

(1) Increase Side

(3) Normal Balance

Rules for Liability and Owner’s Capital AccountsRules for Liability and Owner’s Capital Accounts

Section 1 Accounts and the Double-Entry Accounting System (cont'd.)

Section 1 Accounts and the Double-Entry Accounting System (cont'd.)

Liabilities

Debit Credit

– +

(1) Increase Side

(3) Normal Balance

Debit

–

(2) Decrease

Side

Owner’s Equity

Debit Credit

– +

(2) Decrease (1) Increase Side Side

(3) Normal Balance

Credit

+

(1) Increase

Side

(3) Normal

Balance