Business Accounts. That sounds a little confusing. All the accounts of a business are grouped together in a ledger.

Transcription

1 Business Accounts An account is a location within an accounting system in which the increases and decreases in a specific asset, liability, or owner s equity are recorded and stored. That sounds a little confusing. All the accounts of a business are grouped together in a ledger. A ledger is a book or a file containing a separate page for each business account. The ledger serves as a permanent record of financial transactions.

2 Chart of Accounts To keep track of its accounts, a business develops a Chart of Accounts. Let s take another look at the list of accounts for Roadrunner Delivery Service Assets = Liabilities + Owner s Equity Cash in Bank Accounts Receivable Computer Equipment Office Equipment Delivery Equipment Accounts Payable We should probably make this look a little more official. M. Sanchez, Capital

3 Numbering the Chart of Accounts All Asset accounts begin with 1. All Liability accounts begin with 2. All Owner s Equity accounts begin with 3. Let s see what the Roadrunner Delivery Service Accounts would look like. All Revenue accounts begin with 4. All Expense accounts begin with 5.

4 Roadrunner Delivery Service Chart of Accounts Roadrunner Delivery Service Chart of Accounts Assets Owner s Equity Cash in Bank Accounts Receivable City News Accounts Receivable Green Company Computer Equipment Office Equipment Delivery Equipment M. Sanchez, Capital M. Sanchez, Withdrawals Income Summary Revenue Delivery Revenue Liabilities 201 Accounts Payable Beacon Advertising 205 Accounts Payable North Shore Auto Expenses Advertising Expense Maintenance Expense Rent Expense Utilities Expense

5 Terms You Need to Know Double-Entry Accounting A system of recordkeeping in which each business transaction affects at least two accounts. T Account Shows the dollar increase or decrease in an account that is caused by a transaction. It is called a T Account because it is shaped like a T.

6 Debit and Credit Debit An amount entered on the left side of the T account. Credit An amount entered on the right side of the T account. Let s take a look at a T account. Account Name Left Side Right Side Debit Side Credit Side Debit means left side Credit means right side

7 Rules for Asset Accounts An asset account is increased on the debit side. An asset account is decreased on the credit side. The normal balance for an asset account is the debit side. Debit Side Normal Balance Asset Account Credit Side + - Normal balance on the debit side Increase on the left side Decrease on the right side

8 Rules for Liability Accounts A liability account is increased on the credit side. A liability account is decreased on the debit side. The normal balance for a liability account is the credit side. Debit Side Liability Account Credit Side - + Normal Balance Decrease on the left side Increase on the right side Normal balance on the credit side

9 Rules for Owner s Equity Accounts An owner s equity account is increased on the credit side. An owner s equity account is decreased on the debit side. The normal balance for an owner s equity account is the credit side. Owner s Equity Account Debit Side Credit Side - + Normal Balance Decrease on the left side Increase on the right side Normal balance on the credit side

10 Summary of Rules for Debits and Credits Asset Account Debit Side + Normal Balance Credit Side - = Liability Account + Debit Side Credit Side - + Normal Balance Owner s Equity Account Debit Side Credit Side - + Normal Balance Let s review the basic accounting equation. Hey, the accounts on the left side of the equation are increased on the left side, and the accounts on the right side of the equation are increased on the right side. The normal balance side is the increase side

11 Debits and Credits for Business Transactions Before we can apply the rules of debits and credits to business transactions, there is one very important rule that needs to be pointed out. Balance Daniel Son Balance. That s very important. Don t forget it!

12 Homework Textbook Page: 77 Workbook Page: 48 Problem 4-1

13 Investments by the Owner Business Transaction 1 Maria Sanchez took $ 25,000 from her personal savings and deposited that amount to open a business account in the name of Roadrunner Delivery Service. 1) Identify 2) Classify 3) Increase or Decrease 4) Debit and Credit Rule 5) Do Debits Equal Credits Accounts affected are Cash in Bank and M. Sanchez, Capital Cash in Bank is an asset account and M. Sanchez, Capital is an owner s equity account Cash in Bank is increased by $ 25,000 and M. Sanchez, Capital is increased by $ 25,000 Asset accounts are increased on the debit side and owner s equity accounts are increased on the credit side Debits equal credits Cash in Bank ,000 M. Sanchez, Capital ,000 25,000 = 25,000 Debit Credit

14 Additional Investments by the Owner Business Transaction 2 The owner, Maria Sanchez, took two telephones valued at $ 200 each (total $ 400) from her home and transferred them to the business as Office Equipment. 1) Identify 2) Classify 3) Increase or Decrease 4) Debit and Credit Rule 5) Do Debits Equal Credits Accounts affected are Office Equipment and M. Sanchez, Capital Office Equipment is an asset account and M. Sanchez, Capital is an owner s equity account Office Equipment is increased by $ 400 and M. Sanchez, Capital is increased by $ 400 Asset accounts are increased on the debit side and owner s equity accounts are increased on the credit side Debits equal credits Office Equipment M. Sanchez, Capital = 400 Debit Credit

15 Cash Payment Transactions Business Transaction 3 Roadrunner issued a $ 3,000 check to purchase a computer system. 1) Identify 2) Classify 3) Increase or Decrease 4) Debit and Credit Rule 5) Do Debits Equal Credits Accounts affected are Computer Equipment and Cash in Bank Computer Equipment is an asset account and Cash in Bank is an asset account Computer Equipment is increased by $ 3,000 and Cash in Bank is decreased by $ 3,000 Asset accounts are increased on the debit side and asset accounts are decreased on the credit side Debits equal credits Office Equipment + - 3,000 Cash in Bank - + 3,000 3,000 = 3,000 Debit Credit

16 Buying on Credit Transactions Business Transaction 4 Roadrunner bought a used truck on account from North Shore Auto for $ 12,000. 1) Identify 2) Classify 3) Increase or Decrease 4) Debit and Credit Rule 5) Do Debits Equal Credits Accounts affected are Delivery Equipment and Accounts Payable Delivery Equipment is an asset account and Accounts Payable is a liability account Delivery Equipment is increased by $ 12,000 and Accounts Payable is increased by $ 12,000 Asset accounts are increased on the debit side and liability accounts are increased on the credit side Debits equal credits Delivery Equipment ,000 Acct Pay North Shore Auto ,000 12,000 = 12,000 Debit Credit

17 Selling on Credit Transactions Business Transaction 5 Roadrunner sold one telephone to Green Company for $ 200 on account. 1) Identify 2) Classify 3) Increase or Decrease 4) Debit and Credit Rule 5) Do Debits Equal Credits Accounts affected are Accounts Receivable and Office Equipment Accounts Receivable is an asset account and Office Equipment is an asset account Accounts Receivable is increased by $ 200 and Office Equipment is decreased by $ 200 Asset accounts are increased on the debit side and asset accounts are decreased on the credit side Debits equal credits Acct Rec Green Co Office Equipment = 200 Debit Credit

18 Credit Payment Transactions Business Transaction 6 Roadrunner issued a check for $ 350 in partial payment of the amount owed to its creditor, North Shore Auto. 1) Identify 2) Classify 3) Increase or Decrease 4) Debit and Credit Rule 5) Do Debits Equal Credits Accounts affected are Cash in Bank and Accounts Payable Cash in Bank is an asset account and Accounts Payable is a liability account Cash in Bank is decreased by $ 350 and Accounts Payable is decreased by $ 350 Asset accounts are decreased on the credit side and liability accounts are decreased on the debit side Debits equal credits Cash in Bank Acct Pay North Shore Auto = 350 Credit Debit

19 Credit Receivable Transactions Business Transaction 7 Roadrunner received and deposited a check for $200 from Green Company. The check received was full payment for the telephone sold on account in transaction 5. 1) Identify 2) Classify 3) Increase or Decrease 4) Debit and Credit Rule 5) Do Debits Equal Credits Accounts affected are Cash in Bank and Accounts Receivable Cash in Bank is an asset account and Accounts Receivable is an asset account Cash in Bank is increased by $ 200 and Accounts Receivable is decreased by $ 200 Asset accounts are increased on the debit side and asset accounts are decreased on the credit side Debits equal credits Cash in Bank Acct Rec Green Co = 200 Debit Credit

20 Summary of Debit and Credit Transactions Cash in Bank Office Equipment Acct pay - North Shore Auto (1) 25,000 (7) 200 Bal 21,850 3,000 (3) 350 (6) (2) 400 Bal (5) (6) ,000 (4) 11,650 Bal Delivery Equipment M. Sanchez, Capital Acct Rec - Green Co (5) (7) Bal Computer Equipment (3) 3,000 Bal 3,000 (4) 12,000 Bal 12,000 Total Debits 37,050 = 25,000 (1) 400 (2) 25,400 Bal Total Credits 37,050 Assets Liabilities Owner s Equity = + 37,050 11,650 25,400

21 Homework Textbook Page: 91 & 92 Workbook Page: 53 Problem 4-6

22 Problem 4-1 Account Account Increase Decrease Normal Title Clasification Side Side Balance Cash in Bank Office Equip Accts Payable Accts Receivable R Lewis, Capital Asset Debit Credit Debit Asset Debit Credit Debit Liability Credit Debit Credit Asset Debit Credit Debit Owner s Equity Credit Debit Credit That was easy

23 Problem 4-5 Textbk: P & Wkbk: P. 52 Cash in Bank (1) 45, (3) (8) 100 3,000 (5) 1,500 (7) Office Furniture (3) 85 Bal 85 Accts Pay - Dogs & Cats (5) 3,000 8,500 (2) 5,500 Bal Bal 40,515 Accts Rec - M. Giles (6) (8) Bal 100 Office Equipment (4) (6) (7) 1,500 Bal 1,500 Grooming Equipment A. Schultz, Capital (2) 8,500 45,000 (1) 200 (4) Bal 8,500 45,200 Bal Total Debits 50,700 = Total Credits 50,700 Assets Liabilities Owner s Equity = + 50,700 5,500 45,200

24 Homework Textbook Page: 89 & 90 Workbook Page: 51 Problem 4-4