Transactions that Effect Assets, Liabilities, and Owner’s Equity Chapter 4.
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Transactions that Effect Assets, Liabilities, and Owner’s Equity Chapter 4
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Transcript of Transactions that Effect Assets, Liabilities, and Owner’s Equity Chapter 4.
Transactions that Effect Assets, Liabilities, and Owner’s Equity Chapter 4
Exploring the Real World of Business Review the American Airlines Web Site
www.aa.com
****************Name at least three business transactions that
would affect the assets and liabilities of American Airlines.
Accounts and the Double-Entry Accounting System
Section 1
You Will Learn
How to use T accounts Why you need a ledger The rule of debit and credit
Key Terms
Ledger
Chart of accounts
T account
Double-entry accounting
Credit
Debit
Normal balance
The Account
Ledger – referred to as keeping the books Grouping accounts makes information
easy to find. When financial statements are needed
information is taken from the ledger and organized into reports
The Chart of Accounts
List of all the accounts and their assigned numbersAssets accounts begin with 1Liability accounts begin with 2Owner’s equity accounts begins with 3Revenue accounts begins with 4.Expense accounts begin with 5.
Double-Entry Accounting
A system of recordkeeping in which each business transaction affects at least two accounts
T Accounts
T-accounts shows the dollar increase or decrease in an account that is caused by a transaction
The left side of the T accounts is always used for debit amounts (DR)
The right side of the T accounts is always used for credit amounts (CR)
The words debit and credit are simply the accountants terms for left and right.
T-Accounts
Account Name
Left Side Right Side
Debit Side Credit Side
Debit Credit
The Rules of Debit and Credit
An account’s normal balance is always on the side used to record the increases to the account.
Rules for Asset Accounts1. An asset account is increased on the debit side (left
side).2. An asset account is decreased on the credit side
(right side).3. The normal balance for an asset is the increase
side or debit side. Assets normally have debit balances.
The Rules of Debit and Credit
Rules for Liability and Owner’s Capital Accounts
1. Liability an owner’s capital accounts are increased on the credit side (right side).
2. Liability and owners capital accounts are decreased on the debit side (left side).
3. The normal balance for liability and owner’s capital is the increase side, or credit side. Liability and owner’s capital normally have credit balances.
Check Your Understanding
Please completeThinking CriticallyComputing in the Business WorldProblem 4-1, page 77
Applying the Rules of Debit and Credit
Section 2
You Will Learn
How to analyze a transaction affecting assets, liabilities and owner’s equity.
Business Transaction Analysis
Key Points
For every transaction, total debits must equal total credits
Business Transactions
1. On October 1 Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery service
2. On October 2 Maria Sanchez took two telephones valued at $200 each from her home and transferred them to the business as office equipment.
3. On October 4 Roadrunner issued a check for $3,000 to buy a computer system.
Business Transaction
1. On October 9 Roadrunner bought a used truck on account from North Shore auto for $12,000.
2. On October 11Roadrunner sold on phone on account to Green Company for $200.
3. On October 12 Roadrunner mailed Check 102 for $350 as the first installment payment on the truck from North Shore Auto on October 9
Business Transaction
On October 14, Roadrunner received and deposited a check for $200 from Green Company. The check is full payment for the telephone sold on account to Green Company on October 11.
A Matter of Ethics
Software Piracy Imagine you’re a bookkeeper for an attorney who
likes to use state of the art technology. The business just received the latest update on its Web site design software. You would like to use the software at home, so your assistant offers to make you a copy. Although you know that copyright laws protect software from unauthorized use, you figure that one little sale can’t hurt a multimillion dollar software company; besides, you’re not doing the actual copying.
A Matter of Ethics
Ethical Decision MakingWhat are the ethical issues?What are the alternatives?Who are the effected parties?How do the alternatives effective the parties?What would you do?
