Understanding T-Accounts and Analyzing the Accounting Equation
This content provides a detailed explanation of using T-Accounts to analyze the accounting equation, highlighting the relationship between assets, liabilities, and owner's equity. It covers concepts like debit, credit, normal balance, account classification, and how transactions affect accounts through examples. By following the principles of debits equaling credits, it demonstrates how transactions impact various accounts like cash, supplies, capital, and shows how amounts are entered using the debit or credit side.
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Using T Accounts / Analyzing the Accounting Equation
Assets = Liabilities + OE LEFT SIDE RIGHT SIDE DEBIT CREDIT
Assets = Liabilities + OE Any Liability Any Asset Debit Credit Normal Balance Decrease Debit Normal Balance Credit Increase Decrease Increase Any Owners Equity Debit Credit Normal Balance Decrease Increase
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 .
ANALYZING HOW TRANSACTIONS AFFECT ACCOUNTS
Assets = Liabilities + OE Any Liability Any Asset Debit Credit Normal Balance Decrease Debit Normal Balance Credit Increase Decrease Increase Any Owners Equity Debit Credit Normal Balance Decrease Increase
A list of all accounts used by a business is called a Chart of Accounts
Which accounts are affected? Cash, Supplies, Capital, Accounts Payable, etc. How is each account classified? Asset, Liability, or Owner s Equity How is each classification changed? Increases or Decreases? 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! 1. 2. 3. 4.
August 1. Received Cash from owner as an investment, $5,000 Assets = Liabilities + OE CASH Debit Normal Balance Kim Park, Capital Credit Debit Credit 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 Prepaid Insurance = Liabilities + OE 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 Debit Normal Balance AP Supply Depot Credit Debit Credit 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 Normal Balance Credit Debit Credit Normal Balance $300.00 $300.00
DO NOW: On Your Own Pg. 37 Home Work: Application problem 2-2 Pg. 46
ANALYZING HOW TRANSACTIONS AFFECT OWNER S EQUITY ACCOUNTS
Revenue increases Owners 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 Normal Balance Credit Debit Credit Normal Balance $295.00 $295.00
August 12. Sold services on account to Oakdale School, $350.00 Assets = Liabilities + OE Sales AR - Oakdale School Debit Normal Balance Credit Debit Credit Normal Balance $350.00 $350.00
Expenses decrease Owners 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 Normal Balance Credit
August 12. Paid cash for rent, $300.00 Assets = Liabilities + OE Capital Debit Credit Normal Balance Cash Debit Normal Balance Credit $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
Withdrawals decrease Owners 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 Normal Balance Credit
August 18. Paid cash to owner for personal use, $125.00. Assets = Liabilities + OE Capital Debit Credit Normal Balance Cash Debit Normal Balance Credit $125.00 Kim Park, Drawing Debit Normal Balance Credit $125.00
