Heintz & Parry 20 th Edition College Accounting
Chapter 3 The Double-Entry Framework
1 Define the parts of a T account.
SHAPED LIKE a T Debit Credit
Debit means Left Debit Credit Credit means Right
Abbreviation for Debit Dr. Cr. Abbreviation for Credit
Account Name CASH Dr. Cr.
Every T account has an increase side and a decrease side Some accounts increase on the debit side and some accounts increase on the credit side
2 Foot and balance a T account.
STEP #2: Find the balance by finding the difference between the debit and credit totals. $3,500 debit footing 3,130 credit footing $ 370 balance
STEP #1 FOOT THE DEBIT AND CREDIT SIDES FOOTING 2,000 500 570 430 3,500 CASH 1,200 300 200 50 80 200 300 650 150 3,130 To Foot means to Total FOOTING
BALANCE 2,000 500 570 430 3,500 370 CASH 1,200 300 200 50 80 200 300 650 150 3,130 The balance is written on the side with the larger total.
3 Describe the effects of debits and credits on specific types of accounts.
ASSET ACCOUNTS Increase on the debit side Dr. Cr. Decrease on the credit side +
In every transaction, debits must equal credits.
LIABILITY ACCOUNTS Decrease on the debit side Dr. Cr. Increase on the credit side +
CAPITAL ACCOUNT Decrease on the debit side Dr. Cr. Increase on the credit side + JUST LIKE LIABILITY ACCOUNTS
DRAWING ACCOUNT Increase on the debit side Dr. + Cr. Decrease on the credit side JUST LIKE ASSET ACCOUNTS
REVENUE ACCOUNTS Decrease on the debit side Dr. Cr. Increase on the credit side + JUST LIKE LIABILITY AND CAPITAL ACCOUNTS
EXPENSE ACCOUNTS Increase on the debit side Dr. Cr. + Decrease on the credit side JUST LIKE ASSET ACCOUNTS
4 Use T accounts to analyze transactions.
Purchased office supplies for $800 cash.
Identify the accounts that are affected. CASH OFFICE SUPPLIES
Classify these accounts as assets, liabilities, owner s equity, revenues, or expenses. CASH OFFICE SUPPLIES
Identify the location of the accounts in the accounting equation and/or the owner s equity umbrella left or right. CASH OFFICE SUPPLIES DR. + CR. DR. CR. +
Did Office Supplies increase or decrease in this transaction?
INCREASED OFFICE SUPPLIES DR. 800 CR. +
Did Cash increase or decrease in this transaction?
DECREASED DR. CASH CR. + 800
OFFICE SUPPLIES CASH DR. + 800 CR. DR. CR. + 800
Purchased equipment on account for $3,000.
Identify the accounts that are affected. EQUIPMENT ACCOUNTS PAYABLE
Classify these accounts as assets, liabilities, owner s equity, revenues, or expenses. ACCOUNTS EQUIPMENT PAYABLE
Identify the location of the accounts in the accounting equation and/or the owner s equity umbrella left or EQUIPMENT DR. + CR. right. ACCOUNTS PAYABLE DR. CR. +
Did Equipment increase or decrease in this transaction?
INCREASED EQUIPMENT DR. 3,000 CR. +
Did Accounts Payable increase or decrease in this transaction?
INCREASED ACCOUNTS PAYABLE DR. CR. + 3,000
EQUIPMENT ACCOUNTS PAYABLE DR. + 3,000 CR. DR. CR. + 3,000
Mary Adams, the owner, invested $25,000 in the business.
Identify the accounts that are affected and classify these accounts as assets, liabilities, owner s equity, revenues, or expenses. OWNER S EQUITY ASSET M. ADAMS, CAPITAL CASH DR. CR. DR. CR.
Identify the location of the accounts in the accounting equation and/or the owner s equity umbrella left or DR. CR. + right. M. ADAMS, CAPITAL DR. CASH CR. +
INCREASED INCREASED M. ADAMS, CAPITAL DR. CR. + DR. + 25,000 25,000 CASH CR.
DR. + 25,000 CASH M. ADAMS, CAPITAL CR. DR. CR. + 25,000
Mary withdrew $1,500 for personal expenses.
Identify the accounts that are affected and classify these accounts as assets, liabilities, owner s equity, revenues, or expenses. OWNER S EQUITY ASSET M. ADAMS, DRAWING CASH DR. CR. DR. CR.
Identify the location of the accounts in the accounting equation and/or the owner s equity umbrella left or right. M. ADAMS, DRAWING CASH DR. + CR. DR. + CR.
INCREASED DECREASED M. ADAMS, DRAWING DR. CR. DR. CASH CR. + + 1,500 1,500
M. ADAMS, DRAWING DR. CR. + + 1,500 CASH DR. CR. 1,500
Mary performed services and received $4,500 in cash.
Identify the accounts that are affected and classify these accounts as assets, liabilities, owner s equity, revenues, or expenses. REVENUE ASSET CONSULTING FEES CASH DR. CR. DR. CR.
Identify the location of the accounts in the accounting equation and/or the owner s equity umbrella left or right. CONSULTING FEES CASH DR. CR. DR. + + CR.
INCREASED INCREASED CONSULTING FEES CASH DR. CR. DR. + + 4,500 4,500 CR.
DR. 4,500 CASH CONSULTING FEES CR. DR. CR. + + 4,500
Mary performed $6,000 of services on account.
ACCOUNTS RECEIVABLE DR. CR. CONSULTING FEES DR. + + 6,000 CR. 6,000 ACCOUNTS RECEIVABLE INSTEAD OF CASH
Mary Adams paid her assistant $750 in wages.
Identify the accounts that are affected and classify these accounts as assets, liabilities, owner s equity, revenues, or expenses. EXPENSE ASSET WAGES EXPENSE CASH DR. CR. DR. CR.
Identify the location of the accounts in the accounting equation and/or the owner s equity umbrella left or right. WAGES EXPENSE CASH DR. CR. DR. + + CR.
INCREASED DECREASED WAGES EXPENSE CASH DR. CR. DR. + + CR. 750 750
WAGES EXPENSE DR. CR. + + 750 CASH DR. CR. 750
5 Prepare a trial balance and explain and explain its purposes and linkages with the financial statements.
A listing of all accounts and their balances A totaling of debits and credits Is proof that debits equal credits and that the accounting equation has remained in balance Used as an aid in preparing financial statements
Account Title Debit Balance Credit Balance HEADING should include: Name of the company Title of the document Trial Balance Date of the trial balance
Account Title Debit Balance Credit Balance Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment 370 00 650 00 80 00 200 00 3,600 00 All asset accounts are listed first
Account Title Debit Balance Credit Balance Cash Accounts Receivable 370 00 650 00 Supplies Prepaid Insurance Delivery Equipment 200 00 3,600 00 Accounts Payable 1,800 00 Liabilities are shown next
Account Title Debit Balance Credit Balance Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment 370 00 650 00 80 00 200 00 3,600 00 Accounts Payable Jessica Jane, Capital 1,800 00 2,000 00 Jessica Jane, Drawing 150 00 Now the owner s equity accounts
Account Title Debit Balance Credit Balance Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment 370 00 650 00 80 00 200 00 3,600 00 Accounts Payable Jessica Jane, Capital 1,800 00 2,000 00 Jessica Jane, Drawing 150 00 Delivery Fees 2,150 00
Account Title Debit Balance Credit Balance Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment 370 00 650 00 80 00 200 00 3,600 00 Accounts Payable Jessica Jane, Capital 1,800 00 2,000 00 Jessica Jane, Drawing 150 00 Delivery Fees 2,150 00 Rent Expense Telephone Expense Wages Expense 200 00 50 00 650 00
Account Title Debit Balance Credit Balance Cash Accounts Receivable Supplies Prepaid Insurance Delivery Equipment 370 00 650 00 80 00 200 00 3,600 00 Accounts Payable Jessica Jane, Capital Jessica Jane, Drawing It balances!!! Debits = Credits 150 00 1,800 00 2,000 00 Delivery Fees 2,150 00 Rent Expense Telephone Expense Wages Expense 200 00 50 00 650 00 5,950 00 5,950 00