Chapter 2 Balance Sheet Accounts UNIT 3 Recording Transactions in T-Accounts

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Chapter 2 Balance Sheet AccountsUNIT 3 Recording
Transactions in T-Accounts

• Accounting 11
• September 2011

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• Transaction analysis sheets are useful in
  learning how to record transactions, however they
  are impractical due to the large number of
  financial events that occur each day in a
  business.
• A more efficient method to collect, record, and
  summarize these events is to keep a separate
  account for each item.
• An account is a form in which changes caused by
  transactions are recorded.
• A simplified form of this record is called a
  T-account.

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Introducing T-accounts

• DEBIT CREDIT
• Debit is the accounting term used for the left
  side of the account, Credit is the accounting
  term used for the right side of the account.
• T-accounts are not needed in business but are
  often used by accountants for rough work when
  they analyze transactions.

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• A separate account is required or each asset, for
  each liability, and for the owners equity on the
  balance sheet.
• The beginning, or opening amounts on the balance
  sheet are called balances.

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• Asset accounts have a normal DEBIT balance
• to increase, debit the account
• any ASSET account
• debit credit
• balance
• increase decrease

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• Liability accounts have a normal credit balance
• To increase, credit the account
• any LIABILITY account
• debit credit
• balance
• decrease increase

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• The owners equity account has a normal credit
  balance
• To increase, credit the account
• owners equity account
• debit credit
• balance
• decrease increase

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Introducing ledgers

• A ledger is a group of accounts.
• To open accounts in the ledger, these steps
  should be followed
• Place the account name in the middle of each
  account
• Record the date and opening balance from the
  balance sheet on the appropriate side in the
  account.

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Double-entry accounting

• One of the most important principles in
  accounting is that for every transaction,
  double-entry accounting requires that a debit
  amount equal to a credit amount must be recorded.
  
• The total of the debit amount must always equal
  the total of the credit amount for each
  transaction.

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Recording transactions in accounts

• Step 1 determine which accounts change in value
  as a result of the transaction. (two or more
  accounts will change in value as a result of each
  transaction)
• Step 2 identify the type of account that has
  changed. (asset? Liability? Or owners equity?)

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Recording transactions in accounts

• Step 3 decide whether the change is an increase
  or a decrease in the account.
• Step 4 Decide whether the change is recorded as
  a debit or a credit in the account. (Note that
  the ledger must remain in balance.)

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Transaction 1 Aug 2 Received 500 cash as
payments on membership dues owing.

• The two accounts that are affected are Cash and
  Accounts Receivable.
• The Cash account is increased with a debit
• The Accounts Receivable account is decreased with
  a credit
• Cash
  Accounts Receivable
• Aug 2 500
  Aug 2 500

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Transaction 2 Aug 5 Purchased 25 worth of
office supplies from Central Supply Co., with 30
days to pay.

• Office Supplies
  Accounts Payable
• Aug 5 25
  Aug 5 25

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Transaction 3 Aug 5 Paid 705 now due to
Equipment Unlimited for goods previously
purchased but not paid for.

• Accounts Payable Cash
• Aug 5 705 Aug 5 25
  Aug 2 500 Aug 5 705

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Transaction 4 Aug 7 Purchased three new
tennis trainers for 545 each (total 1635). A
cash down payment of 535 was made. The remaining
amount (1100) is to be paid at a later date.

• Training Equipment Cash
  Accounts Payable
• Aug 7 1635 Aug
  2 500 Aug 5 705 Aug 5
  705 Aug 5 25
• 
  7 535
  7 1100

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Transaction 5 Aug 7 Owner invested an
additional 5000 in the business.

• Cash
  R. Millar, Capital
• Aug 2 500 Aug 5 705
  Aug 7 5000
• 7 5000 7 535

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Calculating New Balances

• Add up the debit side of the account.
• 2. Add up the credit side of the account.
• 3. Subtract the smaller amount from the larger
  and place the answer on the larger side of the
  account. This is the new balance for the account.

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Calculating New Balances

• Cash

Aug 2 500 Aug 5 705


7 5000 7 535
5500 1240 Balance 4260
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Preparing a Trial Balance

• A trial balance is prepared to verify that the
  total debits are still equal to the total credits
  in the ledger.
• The trial balance is a list of accounts with
  their current balances.
• They are listed in the order that they appear in
  the ledger.
• Two columns are required to prepare the trial
  balance, one for debits, one for credits.
• The trial balance must have a heading.