Accounting

Chapter 4

Aim: How are transactions recorded using T Accounts?

Do Now: Take the packets on my desk. • Take out the chapter 4 packet. • On page 76, answer “What Do You Think?”

Chart of accounts – list of all accounts used by a business.

– Small business may require only 20-30 accounts while large businesses could have several thousand accounts.

Chart of Accounts

Ledger

• Ledger “general ledger”– a group of accounts.

Grouping accounts together makes information easy to find. Information is taken from the ledger and organized into financial statements.

Numbering System A system for numbering accounts makes it easy to locate individual accounts in the ledger. These are the five general ledger divisions: • Asset accounts begin with 1 • Liability accounts begin with 2 • Owner’s equity accounts begin with 3 • Revenue accounts begin with 4 • Expense accounts begin with 5

http://www.accountingcoach.com/chart-of-

accounts/explanation/2

Chart of Accounts

Number # Account Title To Increase Description of Account

- - - - - - -

Debit/Credit Video

https://www.youtube.com/watch?v=j71Kmxv7smk

Double-Entry Accounting

• Double-Entry accounting – system to analyze and record a transaction. – Recognizes the different sides of business

transactions as debits and credits.

• Debit – an entry on the left side of an account • Credit – an entry on the right side of an

account

The Rules of Debit and Credit

• Debits and credits are used to record the increase or decrease in each account affected by a business transaction.

• Under double-entry accounting, for each debit entry made in one account, a credit of an equal amount must be made in another account.

The Rules of Debit and Credit cont…

• Normal balance – always on the side used to record increases.

Accounts

• An account has three elements: 1. A title 2. A left side, which is called the debit side 3. A right side, which is called the credit side

• T Account – a ledger account in its simplest form – Called T account because it resembles a “T”

T Account

Title of Account

Left or Debit side

Right or Credit Side

A = L + OE ASSETS

Debit for Increase

Credit for Decrease

EQUITIES

Debit for

Decrease

Credit for Increase

LIABILITIES

Debit for

Decrease

Credit for Increase

Debits and credits affect accounts as follows:

Debit and Credit Entries

Apply the rules to an asset account

• Pg. 80 Cash in Bank Find balance

Apply the rules to an liability account

• Pg. 80 Accounts Payable Find balance

Fill in each box with the word Debit or Credit

Asset Accounts Liability Accounts

Owner’s Equity Accounts

Normal Balance

Increase Side

Decrease Side

Fill in each box with the word Debit or Credit

Asset Accounts Liability Accounts

Owner’s Equity Accounts

Normal Balance DEBIT CREDIT CREDIT

Increase Side DEBIT CREDIT CREDIT

Decrease Side CREDIT DEBIT DEBIT

Mnemonic Device

Amber Drives a Little Orange Convertible

Increases in Assets are Debited Increases in Liabilities and Owners Equity are Credited Can you think of a saying that will help you remember how increases or decreases in assets, liabilities and owners equity are recorded in T accounts?

Problem

Complete Problem 4.1 on page 82

Aim: How do we apply the rules of debit and credit?

Do Now: • Take a Do Now slip and answer:

1. When using the double-entry accounting system, which side are debits recorded and which side on credits recorded?

2. Which side is the normal balance on?

• Take out your homework • Reinforce the Main Idea & 4.1

Fill in each box with the word Debit or Credit

Asset Accounts Liability Accounts Owner’s Equity Accounts

Normal Balance (normal means usual)

Increase Side

Decrease Side

*Since the increase side of an asset account is always on the debit side, asset accounts have a normal debit balance. - For example, in the normal course of business, total increases to assets are larger than or exceed total decreases. You would expect an asset account, then to have a normal debit balance.

The Rules of Debit and Credit

• Debits and credits are used to record the increase or decrease in each account affected by a business transaction.

• Under double-entry accounting, for each debit entry made in one account, a credit of an equal amount must be made in another account.

A = L + OE ASSETS

Debit for Increase

Credit for Decrease

EQUITIES

Debit for

Decrease

Credit for Increase

LIABILITIES

Debit for

Decrease

Credit for Increase

Debits and credits affect accounts as follows:

Debit and Credit Entries

Mnemonic Device

Amber Drives a Little Orange Convertible

Increases in Assets are Debited Increases in Liabilities and Owners Equity are Credited Can you think of a saying that will help you remember how increases or decreases in assets, liabilities and owners equity are recorded in T accounts?

Business Transaction Analysis Analysis: 1. Identify the accounts affected. 2. Classify the accounts affected. 3. Determine the amount of increase or decrease for each account affected. Debit-Credit Rule: 4. Which account is debited? For what amount? 5. Which account is credited? For what amount? T-Accounts: 6. What is the complete entry in T-account form? Account Name Account Name

Problem 4.2 • Alice Roberts uses the following accounts in her business:

– Cash in Bank – Accounts Receivable – Office Furniture – Office Equipment – Accounts Payable – Alice Roberts, Capital

Instructions: Analyze each of the following transactions. In your working papers, explain the debit and the credit. Use the format shown in the example. Example: On June 2 Alice Roberts invested $5,000 of her own money in a business called Robert Employment Agency. a. The asset account Cash in Bank is increased. Increases in asset

accounts are recorded in debits. b. The owners capital account Alice Roberts, Capital is increased.

Increases in the owner’s capital account are recorded as credits.

4.2

1a.

2a.

3a.

Homework

• Complete Problem 4-3 in your workbook (page 35)

• Directions are in the Chapter 4 packet on page 94

Exit Slip

• In liability accounts, are increases debited or credited?

Aim: How do I use T Accounts to record transactions?

Do Now: Complete problem 4-3 (pg. 35) 1.

2.

3.

4.

Analyze:

Problem 4.2 • Alice Roberts uses the following accounts in her business:

– Cash in Bank – Accounts Receivable – Office Furniture – Office Equipment – Accounts Payable – Alice Roberts, Capital

Instructions: Analyze each of the following transactions. In your working papers, explain the debit and the credit. Use the format shown in the example. Example: On June 2 Alice Roberts invested $5,000 of her own money in a business called Robert Employment Agency. a. The asset account Cash in Bank is increased. Increases in asset

accounts are recorded in debits. b. The owners capital account Alice Roberts, Capital is increased.

Increases in the owner’s capital account are recorded as credits.

4.2

1a. Asset account office equipment is increased. Increases in asset accounts are recorded as debits. 1b. Liability account accounts payable increases credit.

2a. Owner’s Equity account capital increases. Increases in owner’s equity is recorded as credit. 2b. Asset account office furniture increases. This is recorded as a debit. 3a. Liability account accounts payable decreases. Decreases in liability accounts are debits. 3b. Decreases in asset accounts recorded as credits.

Business Transaction Analysis Analysis: 1. Identify the accounts affected. 2. Classify the accounts affected. 3. Determine the amount of increase or decrease for each account affected. Debit-Credit Rule: 4. Which account is debited? For what amount? 5. Which account is credited? For what amount? T-Accounts: 6. What is the complete entry in T-account form? Account Name Account Name

T Account

Title of Account

Left or Debit side

Right or Credit Side

A = L + OE ASSETS

Debit for Increase

Credit for Decrease

EQUITIES

Debit for

Decrease

Credit for Increase

LIABILITIES

Debit for

Decrease

Credit for Increase

Debits and credits affect accounts as follows:

Debit and Credit Entries

Problem 4.4 Regina Delgado owns a business called Hot Suds Car Wash. She uses the following accounts: 101 Cash in Bank 110 Accounts Receivable – Valley Auto 125 Office Equipment 130 Office Furniture 135 Car Wash Equipment 201 Accounts Payable – Allen Vacuum Systems 301 Regina Delgado, Capital

In your groups, walk around the room and analyze each business transaction. You will have 2 minutes at each station.

STEPS: 1. Determine the accounts affected. 2. Prepare T accounts for the accounts affected. 3. Enter the debit and credit amount in the T accounts.

Problem 4.4

Assignment

• Complete Problem 4.5

• *After recording all transactions, write the word Balance on the normal balance side of each T Account. Then complete and record the balance for each account.

• If you do not finish in class, this becomes HW.

Aim: How can I keep track of business transactions using T Accounts?

Do Now: • Take a Do Now slip & answer:

A decrease in an owner’s capital account is recorded as a . (debit or credit)

• Take out your homework 4-5 • I need 7 volunteers

Problem 4.5

Group Work

• Complete Problem 4.6 with your group.

• *After recording all transactions, write the word Balance on the normal balance side of each T Account. Then complete and record the balance for each account.

• Add up all of the debit balances, then add up all of the credit balances. Are they equal?

Problem 4.6

Cash in Bank

Accounts Receivable – Mary Johnson Office Equipment

Computer Equipment

Hiking Equipment

Rafting Equipment

Accounts Payable – Peak

Equipment Accounts Payable – Premier Processors

Juanita Ortega, Capital

Exit Slip

• True or False: Every transaction affects two or more accounts and is recorded by equal amounts of debits and

credits.

Homework

Study for the Chapter 4 Exam!

Aim: Am I prepared for the Chapter 4 Exam?

Do Now: Take a post it. Answer on post it: 1. True or False: A business groups its accounts into a

ledger. 2. True or False: The difference between the debit and

credit amounts in an account is the account balance.

Exit Slip

• True or False: Every transaction affects two or more accounts and is recorded by equal amounts of debits and

credits.

Problem 4.6

Cash in Bank

Accounts Receivable – Mary Johnson Office Equipment

Computer Equipment

Hiking Equipment

Rafting Equipment

Accounts Payable – Peak

Equipment Accounts Payable – Premier Processors

Juanita Ortega, Capital

Chapter 4 Exam

• Chart of Accounts • Ledger • Numbering System • Double Entry Accounting System • Debits/Credits • Rules of Debits & Credits

– Assets – Liabilities – Owner’s Equity – Normal Balance