Chapter Outline Notes. Transactions That Affect Assets, Liabilities, and Owner s Capital

Transcription

1 Chapter Outline Notes Transactions That Affect Assets, Liabilities, and Owner s Capital Section 1: Accounts and the Double-Entry Accounting System A. The Chart of Accounts chart of accounts a list of all accounts used by a business a chart of accounts is organized as a table An account is a record of changes and balances. ledger a group of accounts the ledger is often referred to as the general ledger A numbering system makes it easy to locate individual accounts in the ledger. B. Double-Entry Accounting double-entry accounting recognizes the different sides of a business transaction as debits and credits debit an entry on the left side of an account credit an entry on the right side of an account 1. T Accounts T account shows the increase or decrease in an account from a transaction A T account has an account name, a left side, and a right side. Accountants sometimes use DR for debit and CR for credit. 2. The Rules of Debit and Credit for each debit entry in one account, a credit of an equal amount must be made in another account The left side is always the debit side; the right side is always the credit side. normal balance an account s usual balance; always on the side used to record increases to the account a. Rules for Asset Accounts increased ( ) on the debit side (left side). decreased ( ) on the credit side (right side). normal balance is the increase, or the debit side. b. Rules for Liability and Owner s Capital Accounts increased ( ) on the credit side (right side). decreased ( ) on the debit side (left side). normal balance is the increase, or the credit side. Section 2: Applying the Rules of Debit and Credit A. Business Transaction Analysis 1. Identify each account affected. 2. Classify the accounts affected. 3. Determine the amount of increase or decrease for each account affected. 4. Determine which account is debited and for what amount. 5. Determine which account is credited and for what amount. 6. Complete the entry in T account form. B. Asset and Equities Transactions 1. Assets and Owner s Capital 2. Assets and Liabilities 24 Spanish Chapter Outline Language Notes Resources

2 Demonstration Problems Transactions That Affect Assets, Liabilities, and Owner s Capital PROBLEM 4 1 Ordering and Numbering a Chart of Accounts The following accounts are used by Gordan Enterprises. Accounts Payable Accounts Receivable Miscellaneous Expense Custom Craft Inc. Hanover Company Office Equipment Accounts Payable Advertising Expense Gail Gordan, Capital Sorenson Ltd. Cash in Bank Gail Gordan, Withdrawals Accounts Receivable Fees Income Supplies Beisler Inc. Income Summary Utilities Expense 1. Rearrange the accounts in the order in which they would be listed in the chart of accounts for Gordan Enterprises. 2. Assign each account an account number. Assets ( ) Gordan Enterprises Chart of Accounts Liabilities ( ) Owner s Equity ( ) Revenue ( ) Expenses ( ) Demonstration Chapter Outline Problems Notes 25

3 Demonstration Problems cont. PROBLEM 4 2 Analyzing a Cash Purchase On July 12, ABC Computers issued Check 602 for $4,700 for office equipment. 1. Which accounts are affected? 2. What is the classification of each account? is a(n) is a(n) account. account. 3. Is each account increased or decreased? is. is. 4. Which account is debited, and for what amount? is debited for $. 5. Which account is credited, and for what amount? is credited for $. 6. What is the complete entry in T-account form? 26 Math Demonstration Review for Problems Accounting

4 Demonstration Problems cont. PROBLEM 4 3 Analyzing a Credit Purchase On August 10, ABC Computers bought office supplies on account from Top Drawer Supplies for $ Which accounts are affected? 2. What is the classification of each account? is a(n) is a(n) account. account. 3. Is each account increased or decreased? is. is. 4. Which account is debited, and for what amount? is debited for $. 5. Which account is credited, and for what amount? is credited for $. 6. What is the complete entry in T-account form? Math Demonstration Review for Lesson Accounting Problems Footer Plans 27

5 Concept Assessment Transactions That Affect Assets, Liabilities, and Owner s Capital Total Points 81 Student s Score PART A Accounting Vocabulary (6 points) Directions: Using terms from the following list, complete the sentences below. Write the letter of the term you have chosen in the space provided. A. normal balance C. debit E. T account G. chart of accounts B. credit D. double-entry accounting F. ledger E 0. A is a tool used by accountants to analyze business transactions. 1. The of an account is the same side used to increase the account. 2. The left side of the T account is the side. 3. The side is the right side of the T account. 4. is the financial recordkeeping system in which each business transaction affects at least two accounts. 5. A is a list of all the accounts a business uses. 6. Accounts are grouped together in a. Part B The Rules of Debit and Credit (15 points) Directions: Read each of the following statements to determine whether the statement is true or false. Answer T F 0. Each account has a specific side that is its normal balance side. T F 1. Every business transaction affects at least two accounts that are on different sides of the basic accounting equation. T F 2. For every debit entry made in one account, a credit entry must be made in another account. T F 3. The T account is an inefficient method for analyzing many business transactions. T F 4. Double-entry accounting is the recordkeeping system in which each business transaction affects at least one account. T F 5. Debit means to increase an account balance. T F 6. The normal balance side of an account is the same side that is used to record increases to the account. T F 7. Liability and capital accounts are increased on the debit side. T F 8. Debits and credits are used to record increases and decreases in each account affected by a business transaction. T F 9. Asset accounts are increased on the credit side. T F 10. A credit is an amount entered on the right side of the T account. T F 11. If the accounting equation is not in balance after a transaction has been recorded, one reason may be that the debit or credit part of the transaction was not recorded. T F 12. When analyzing business transactions, you should ask yourself which accounts are affected. T F 13. The normal balance side of an owner s capital account is the debit side. Concept Assessment 1

6 Concept Assessment cont. PART C Analyzing Asset, Liability, and Capital Accounts (20 points) Directions: For each T account below, indicate the debit and credit sides, the increase and decrease sides, and the normal balance side. The first account has been completed as an example. Store Equipment Accounts Payable Cash in Bank Debit Increase Balance Credit Decrease Accounts Receivable Abe Dunn, Capital PART D Analyzing Business Transactions (40 points) Directions: Analyze the following transactions by answering the questions in the table below. Use the account names that follow. The first transaction has been completed as an example. Cash in Bank Office Equipment Accounts Payable Accounts Receivable Office Supplies J. Adams, Capital 0. The business bought office supplies from Central Supply for $850 cash. 1. The business sold a used laser printer on account for $1, Ms. Adams invested $75,000 of her personal savings in the business. 3. The business purchased word processing equipment for $9,500 on account from Northern Office Equipment Company. 4. The business paid $3,500 on account to Northern Office Equipment Company. 5. Ms. Adams transferred an office file cabinet of her own valued at $375 to the business. Trans. No Which acounts are affected? What is the classification of each account? Is each account increased or decreased? Which account is debited and for what amount? Which account is credited and for what amount? 0 Office Supplies Asset Increased $ 850 Cash in Bank Asset Decreased $ Quick Concept Quiz Assessment

7 Quick Quiz Transactions That Affect Assets, Liabilities, and Owner s Capital PART A True or False Directions: Read each of the following statements to determine whether the statement is true or false. Answer T F 1. The normal balance side for an asset account is the debit side. T F 2. Debit means the increase side of an account. T F 3. A credit to a liability account decreases the account balance. T F 4. Assets are increased on the debit side. T F 5. Capital is increased on the credit side. T F 6. Liabilities are decreased on the credit side. T F 7. The basic accounting equation may be expressed as A L OE T F 8. The right side of a T account is always the debit side. T F 9. For every debit there must be an equal credit. T F 10. A debit to one asset account and a credit to another asset account will result in the basic accounting equation being out of balance. T F 11. The left side of a T account is always the credit side. T F 12. Credit means to decrease a liability. Quick Quiz 3

8 Quick Quiz cont. PART B Identify the Normal Balance Directions: For each T account below, indicate with an (N) the normal balance side. Computer Equipment Accounts Payable Cash in Bank Debit Credit Debit Credit Debit Credit (N) Accounts Receivable Abe Dunn, Capital Office Equipment Debit Credit Debit Credit Debit Credit PART C Complete the T Account Directions: Analyze the transactions below and enter them in the T accounts provided. 1. Ms. Adams invested $12,000 cash in the business. 2. Bought office equipment for cash, $1, Bought a computer on account, $3,000. Cash in Bank Office Equipment Computer Equipment Accounts Payable J. Adams, Capital 4 Chapter Quick Quiz Quiz

9 Chapter Quiz Transactions That Affect Assets, Liabilities, and Owner s Capital Short Answer Directions: Complete the following questions with a short answer. 1. What is an account? 2. Describe the purpose of a ledger in an accounting system. 3. Explain double-entry accounting. 4. What is a debit? 5. What is a credit? 6. How does a debit affect an asset account? 7. How does a credit affect the owner s capital account? 8. What is a normal balance? 9. Why must the accounting equation remain in balance after each transaction? 10. How would you decrease a liability account? Chapter Quiz 5

10 Math Review for Accounting Using Tax Tables This tax table can be used to compute yearly federal tax for filers earning between $20,000 and $21,000. Earl Jones is the head of a household and earned $20,553. $20,553 is between $20,550 and $20,600. Earl Jones federal income tax is $3,086. Find the tax for each income and filing status. 1. Sara Stein; $20,017; married filing separately 2. Roberto Gonzales; $20,956; single 3. Li Goh; $20,834; head of household 4. Amir and Fara Mohau; $20,333; married filing jointly Solve. 5. Which filing statuses pay the same tax for incomes between $20,000 and $21,000? 6. Which filing status pays the most income tax for income between $20,000 and $21,000? 7. Both Kathy Anderson and Max Gruen earn $20,947. Kathy is head of a household; Max is married and filing separately. Who pays more tax? How much more? 8. Both Ed Antico and Sally Byrne are single. Ed earns $20,557 and Sally earns $20,594. Who pays more tax? How much more? 28 Math Review for Accounting