Debits and Credits:

Analyzing and Recording

Business Transactions

Chapter 2

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2-1
 Learning Objective 1

Setting up and organizing

a chart of accounts.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2-2
 Learning Unit 2-1
(The T Account)

Account

Standard account

Ledger

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2-3
 Learning Unit 2-1
(The T Account)
The Standard Account Form
Account Title Account No.

Date Item PR Debit Date Item PR Credit

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2-4
 Learning Unit 2-1
(The T Account)

Each T account contains three basic parts.

1. Title of account
2. Left side 3. Right side
Dr. (debit) Cr. (credit)

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2-5
 Learning Unit 2-1
(The T Account)

Account Name (Title)

Dr. (debit) Cr. (credit)
4,000 300
Entries
500 400
Footings 4,500 700
Balance 3,800

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2-6
 Learning Objective 2

Recording transactions in
T accounts according to
the rules of debit and credit.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2-7
 Learning Unit 2-2 (Recording
Business Transactions)

Assets = Liabilities + Owner’s Equity

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2-8
 Learning Unit 2-2 (Recording
Business Transactions)

Assets = Liabilities + Owner’s Equity

Normal Normal Normal
Balance Balance Balance
Debit Credit Credit

Debits Credits Debits Credits Debits Credits

+ – – + – +

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2-9
 Learning Unit 2-2 (Recording
Business Transactions)

Capital Withdrawals

Normal Normal
Balance Balance
Credit Debit

Debits Credits Debits Credits

– + + –

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 10
 Learning Unit 2-2 (Recording
Business Transactions)

Revenues Expenses

Normal Normal
Balance Balance
Credit Debit

Debits Credits Debits Credits

– + + –

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 11
 Chart of Accounts

Assets
111 Cash
112 Accounts Receivable
121 Office Equipment
Liabilities
211 Accounts Payable
Owner’s Equity
311 Cathy Hall, Capital
312 Cathy Hall, Withdrawals
© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 12
 Chart of Accounts

Revenue
411 Legal Fees
Expenses
511 Salaries Expense
512 Rent Expense
513 Advertising Expense

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 13
 The Transaction Analysis

Determine which accounts are affected.

Determine which category the accounts belong.

Determine increases or decreases.

What do the rules of debits and credits say?

What does the T account look like?

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 14
 Applying the
Transaction Analysis

A. August 28: Cathy Hall invests

$7,000 in cash and $800 of
office equipment into the business.

B. August 29: Law practice buys

office equipment for cash, $900.

C. August 30: Buys additional office

equipment on account, $400.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 15
 Applying the
Transaction Analysis

Cash 111 Cathy Hall, Capital 311

(A) 7,000 900 (B) 7,800 (A)

Office Equipment 121 Accounts Payable 211

(A) 800 400 (C)
(B) 900
(C) 400

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 16
 Applying the
Transaction Analysis

D. September 1-30: Cathy Hall provided

legal services for cash, $3,000.
E. September 1-30: Provided legal
services on account, $4,000.
F. September 1-30: Received $700 cash
as partial payment from previous
services performed on account.
G. September 1-30: Paid salaries expense, $600.
© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 17
 Applying the
Transaction Analysis

Cash 111 Accts. Receivable 112

(A) 7,000 900 (B) (E) 4,000 700 (F)
(D) 3,000 600 (G)
(F) 700
Salaries Expense 511 Legal Fees 411
(G) 600 3,000 (D)
4,000 (E)

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 18
 Applying the
Transaction Analysis

H. September 1-30: Paid rent expense, $700.

I. September 1-30: Incurred advertising

expense of $300, to be paid next month.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 19
 Applying the
Transaction Analysis

Cash 111 Accounts Payable 211

(A) 7,000 900 (B) 400 (C)
(D) 3,000 600 (G) 300 (I)
(F) 700 700 (H)
Rent Expense 512 Advertising Expense 513
(H) 700 (I) 300

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 20
 Applying the
Transaction Analysis

J. September 1-30: Hall withdrew

cash for personal use, $200.

Cash 111 C. Hall Withdrawals, 312

(A) 7,000 900 (B) (J) 200
(D) 3,000 600 (G)
(F) 700 700 (H)
200 (J)

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 21
 Learning Objective 3

Preparing a trial balance.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 22
 Learning Unit 2-3
(The Trial Balance)

Cash 111
(A) 7,000 900 (B)
(D) 3,000 600 (G)
(F) 700 700 (H)
200 (J)
10,700 2,400
8,300

New Balance Footings

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 23
 Learning Unit 2-3
(The Trial Balance)

Footings are used to obtain the balance

of each side of every T account
that has more than one entry.

The ending balances are used

to prepare a trial balance.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 24
 Learning Unit 2-3
(The Trial Balance)
Cathy Hall, Attorney-at-Law
Cash Account No.111 Trial Balance
September 30, 200x
Balance $$$ Cash $$$
Balance $$$ Accounts Receivable $$$
Balance $$$ Office Equipment $$$
Balance $$$ Accounts Payable $$$
Balance $$$ Cathy Hall, Capital $$$
Balance $$$ Cathy Hall Withdrawals $$$
Balance $$$ Legal Fees $$$
Balance $$$ Salaries Expenses $$$
Balance $$$ Rent Expense $$$
Balance $$$ Advertising Expense $$$

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 25
 Learning Unit 2-3
(The Trial Balance)
Dr. Cr.
111 Cash 8,300
112 Accounts Receivable 3,300
121 Office Equipment 2,100
211 Accounts Payable 700
311 Cathy Hall, Capital 7,800
312 Cathy Hall, Withdrawals 200
411 Legal Fees 7,000
511 Salaries Expense 600
512 Rent Expense 700
513 Advertising Expense 300
Totals 15,500 15,500
© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 26
 Learning Objective 4

Preparing financial statements

from a trial balance.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 27
 Preparing the
Financial Statements
Cathy Hall, Attorney-at-Law
Income Statement
For Month Ended September 30, 200x
Revenue:
Legal fees $7,000
Operating expenses:
Salaries expense $600
Rent expense 700
Advertising expense 300
Total operating expenses 1,600
Net income $5,400
© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 28
 Preparing the
Financial Statements
Cathy Hall, Attorney-at-Law
Statements of Owner’s Equity
For Month Ended September 30, 200x
Cathy Hall, capital
September 1, 200x $ 7,800
Net income for September $5,400
Less withdrawals 200
Increase in capital 5,200
Cathy Hall, capital,
September 30, 200x $13,000

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 29
 Preparing the
Financial Statements
Cathy Hall, Attorney-at-Law
Balance Sheet
September 30, 200x
Assets Liabilities and Owner’s Equity
Cash $ 8,300 Accounts payable $ 700
Accts. rec. 3,300 Owner’s equity
Office equip. 2,100 Cathy Hall, capital 13,000
Total $13,700 Total $13,700

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 30
 End of Chapter 2

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 2 - 31