CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 2-3 Analyzing How Transactions Affect...

CENTURY 21 ACCOUNTING © Thomson/South-Western

LESSON 2-3LESSON 2-3

Analyzing How Transactions Affect Owner’s Equity Accounts


Review:Review:

What is “An accounting device used to analyze transactions and how accounting balances are changed?”

T Account

A list of accounts used by a business is called?

“Chart of Accounts”.

What is the left side of the Accounting Equation called?

Assets

What is the right side of the Accounting Equation called?

Equities: Liabilities and Owner’s Equity

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LESSON 2-2


True or False:True or False:

Transactions: Must change the balances of at least two accounts

True

Each transaction must have one debit and one credit? True

Debits do not need to = credits for each transaction False

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LESSON 2-3


Review ContinuedReview Continued

Is the normal balance of an asset account a debit or credit? Does it increase or decrease?

Debit

Is the “Normal Balance” of a liability account a debit or credit?

Credit

The side of the T account that is always increased is called?

Normal Balance

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LESSON 2-2


Review AssetsReview Assets

What are the 4 Asset accounts we learned thus far? Cash, Prepaid Insurance, Supplies and Accounts

Receivables:

If you paid Cash, does the balance decrease (you have less) or does it increase (you have more)? It would decrease, you spent money, you have less

Is it a debit or Credit? It is a credit.

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LESSON 2-3


Liabilities & Owners EquityLiabilities & Owners Equity What is the one liability account we have discussed

Accounts Payables

What is the 1 Owner’s Equity Account we have discussed? Capital

What side of the T account does the balance increase for a liability? What about the Capital? Right

If you paid on account, does Accounts payable decrease (you owe less) or does it increase (you owe more)? Is it a debit or Credit? It would decrease, you paid your account, so you owe less It is a debit.

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LESSON 2-3


Owner’s EquityOwner’s Equity

What Account is considered Owner’s equity?

What four types of transactions impact this account? Investments Revenue (sales for cash; sales on account) Expenses (costs to operating the business/ no $$ value Withdrawal (owner take assets for personal use)

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LESSON 2-3

Capital


Owner’s EquityOwner’s Equity

What four types of transactions impact this account? Investments, Revenue, Expenses, and withdrawals

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LESSON 2-3

Capital, Kim Parker

DR CR 2000 250850 1000600 850

Which transaction is a withdrawal for

personal use?

Which transaction is Sales?

Which transaction is an Investment?


DIVIDE INTO DIVIDE INTO INDIVIDUAL ACCOUNTSINDIVIDUAL ACCOUNTS

LESSON 2-3

• Businesses must track each of the four transaction types in separate accounts (still considered OE accounts)


Capital AccountCapital Account

Capital Account remains the account to track any investments by the owner

Drawing, Sales and Expenses are moved out of the Capital account and tracked separately

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LESSON 2-3


DIVIDE INTO DIVIDE INTO INDIVIDUAL ACCOUNTSINDIVIDUAL ACCOUNTS

LESSON 2-3

Left Right


Sales AccountSales Account

Expenses and Sales are moved to a “division” outside the equation as they are not permanent accounts Income Summary Division Still a division of OE technically

Sales account on right side of Income summary - has a normal balance of what? Increases on what side?

Credit Side

Decreases on what side? Debit Side

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LESSON 2-3

Income Summary

Left Right


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LESSON 2-3

RECEIVED CASH FROM SALESRECEIVED CASH FROM SALES page 38

August 12. Received cash from sales, $295.00.

33 33

2. How is each account classified?

3. Where is the normal balance?

1. Which accounts are affected?

Income Summary

Left Right

Sales

Cash & Sales

Cash = Assets Sales = OE

Cash increases as a debit, Sales increases as credit


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LESSON 2-3

SALES ON ACCOUNTSALES ON ACCOUNT page 38

33 331. Which accounts are affected?


3. How is each classification changed?

August 12. Sold services on account to Oakdale School, $350.00.


Income Summary

Left Right

Sales Accts. Receivable & Sales

Accts. Receivable = Assets Sales = OE

Accts. Rec. = increases , Sales = increases

Accts. Rec.= debit, Sales = credit


Expenses – A different BeastExpenses – A different Beast

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LESSON 2-3


Expense AccountsExpense Accounts

Expense payments are moved from OE and tracked in the appropriate Expense account

Falls under a “division” outside the equation (still OE) Income Summary Division

Expense accounts are on the left of Income summary Normal Balance on what side? Increases on what side? Decreases on what side? Increases the amount you paid this year for that expense

(not what you owe)

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LESSON 2-3

Debit

Credit

Debit


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LESSON 2-3

RECEIVED CASH FROM SALESRECEIVED CASH FROM SALES page 38

1. Which accounts are changed?



4. How is each amount entered in the accounts?

33 33

Income Summary

Left Right

Rent Exp:

August 12. Paid cash for rent, $300.00.

PAID CASH FOR AN EXPENSEPAID CASH FOR AN EXPENSE


ExpensesExpenses

Expenses decrease owners equity To avoid a capital account with a large # of entries,

they have their own accounts Expenses = rent, equipment repairs, advertising,

miscellaneous, utilities, and charitable contributions. Utilities:

TelephoneHeatElectricityWater, garbage and sewer

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LESSON 2-3


Drawing AccountDrawing Account

Withdrawal payments are moved from OE and tracked in the Drawing account

Tracks the amount you paid this year to the owner so always increases.

Drawing account is on left side of Income Summary, what is the normal balance? Normal Balance

Debit

Increases on what side? Debit

Decreases on what side? Credit

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LESSON 2-3


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page 38

1. Which accounts are affected?



4. How is each amount entered in the accounts?

33 33

August 12. Paid cash to owner for personal use, $125.00.

PAID CASH TO OWNER PAID CASH TO OWNER FOR PERSONAL USEFOR PERSONAL USE

Income Summary

Left Right

Drawing, Kim Parker:


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LESSON 2-3


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LESSON 2-3


WORK TOGETHER 2-3WORK TOGETHER 2-3

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LESSON 2-3

CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 2-3 Analyzing How Transactions Affect...

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