CHAPTER 2-1

Using T Accounts /
Analyzing the Accounting
Equation
 Accounting Equation
Assets = Liabilities + OE

LEFT SIDE RIGHT SIDE

DEBIT CREDIT
 Account Balances
Assets = Liabilities + OE
Any Liability
Any Asset Debit Credit
Normal Balance

Decrease
Debit Credit

Increase
Normal Balance
Decrease
Increase

Any Owners Equity

Debit Credit
Normal Balance
Decrease

Increase
 Definitions
 T Account: An accounting device used to analyze
transactions.
 Debit: The number recorded on the left side of the
equation.
 Credit: The number recorded on the right side of the
equation.
 Normal Balance: The side of the account that is
increased .
CHAPTER 2-2
ANALYZING HOW
TRANSACTIONS AFFECT
ACCOUNTS
 Account Balances
Assets = Liabilities + OE
Any Liability
Any Asset Debit Credit
Normal Balance

Decrease
Debit Credit

Increase
Normal Balance
Decrease
Increase

Any Owners Equity

Debit Credit
Normal Balance
Decrease

Increase
 Chart of Accounts
 A list of all
accounts used
by a business
is called a
Chart of
Accounts
 Steps for Analyzing a Transaction into Debit
and Credit Parts
1. Which accounts are affected?
 Cash, Supplies, Capital, Accounts Payable, etc.

2. How is each account classified?

 Asset, Liability, or Owner’s Equity

3. How is each classification changed?

 Increases or Decreases?

4. How is each amount entered into the account?

 Debit Side or Credit Side? Increase or Decrease?

 DEBITS MUST EQUAL CREDITS ON

EACH TRANSACTION! TOTAL DEBITS
MUST EQUAL TOTAL CREDITS!
 August 1. Received Cash from owner as an
investment, $5,000
Assets = Liabilities + OE

CASH Kim Park, Capital

Debit Credit Debit Credit
Normal Balance Normal Balance
$5,000 $5,000
 August 3. Paid Cash for Supplies, $275.00

Assets = Liabilities + OE
Supplies

Debit Credit
Normal Balance
$275.00
Cash

Debit Credit
Normal Balance
$275.00
 August 4. Paid Cash for Insurance, $1,200.00

Assets = Liabilities + OE
Prepaid Insurance

Debit Credit
Normal Balance
$1,200.00
Cash

Debit Credit
Normal Balance
$1,200.00
 August 7. Bought Supplies on account from Supply
Depot, $500.00
Assets = Liabilities + OE

Supplies AP – Supply Depot

Debit Credit Debit Credit
Normal Balance Normal Balance
$500.00 $500.00
 August 11. Paid Cash on account to Supply Depot,
$300.00
Assets = Liabilities + OE

Cash AP – Supply Depot

Debit Credit Debit Credit
Normal Balance Normal Balance
$300.00 $300.00
 DO NOW: On Your Own
Pg. 37

 Home Work: Application

problem 2-2 Pg. 46
CHAPTER 2-3
ANALYZING HOW
TRANSACTIONS AFFECT
OWNER’S EQUITY
ACCOUNTS
 SALES ACCOUNTS
 Revenue increases Owner’s Equity
 HOWEVER, to avoid a Capital account with a
large number of entries and to summarize
revenue records separately, TechKnow
Consulting uses a separate revenue account
titled SALES.
 August 12. Received cash from sales, $295.00

Assets = Liabilities + OE

Cash Sales
Debit Credit Debit Credit
Normal Balance Normal Balance
$295.00 $295.00
 August 12. Sold services on account to Oakdale
School, $350.00
Assets = Liabilities + OE

AR - Oakdale School Sales

Debit Credit Debit Credit
Normal Balance Normal Balance
$350.00 $350.00
 EXPENSE ACCOUNTS
 Expenses decrease Owner’s Equity
 HOWEVER, to avoid a Capital account with a
large number of entries and to summarize
information separately, TechKnow Consulting
uses separate Expense Accounts.
 Expense Accounts have NORMAL DEBIT
BALANCES!!
Debit Credit
Normal Balance
 August 12. Paid cash for rent, $300.00

Assets = Liabilities + OE
Capital
Debit Credit
Cash Normal Balance

Debit Credit
Normal Balance

$300.00

Rent Expense

Debit
Normal Balance
Credit
$300.00
 August 18. Received cash on account from Oakdale
School.
Assets = Liabilities + OE
Cash

Debit Credit
Normal Balance
$200.00
AR – Oakdale School

Debit Credit
Normal Balance
$200.00
 PAID CASH TO OWNER FOR
PERSONAL USE
 Withdrawals decrease Owner’s Equity
 HOWEVER, to avoid a Capital account with a large
number of entries and to summarize information
separately, TechKnow Consulting uses a separate
Withdrawal account titled, Kim Park, Drawing.
 Withdrawal Accounts have NORMAL DEBIT
BALANCES!!

Debit Credit
Normal Balance
 August 18. Paid cash to owner for personal use,
$125.00.
Assets = Liabilities + OE
Capital
Debit Credit
Cash Normal Balance

Debit Credit
Normal Balance

$125.00

Kim Park, Drawing

Debit
Normal Balance
Credit
$125.00