CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 2-1 Focus questions: What is a...
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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 2-1 Focus questions: • What is a debit, credit, and T Account? • How do these terms relate to the accounting equation?
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Transcript of CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 2-1 Focus questions: What is a...
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 2-1
Focus questions: • What is a debit, credit,
and T Account?• How do these terms
relate to the accounting equation?
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
How do companies keep accurate records of transactions?
Why would it be inefficient to use the accounting equation, like we have done so far, to keep record of transactions?
A separate record is typically used to keep track of each account
2
LESSON 2-1
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
3
LESSON 2-1
ANALYZING THE ACCOUNTING EQUATION page 28
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
4
LESSON 2-1
ACCOUNTS page 29
• T account is used to analyze how transactions change an account balance.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
5
LESSON 2-1
ACCOUNT BALANCES page 29
• Normal balance – side of the account that increases the account balance
• Debit does NOT mean good and credit does NOT mean bad!
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
6
LESSON 2-1
INCREASES AND DECREASES IN ACCOUNTS page 30
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Rules for increases/decreases of account balances
1. Account balances increase on the normal balance side of an account.
2. Account balances decrease on the side opposite the normal balance side of an account.
7
LESSON 2-1
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
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LESSON 2-1
TERMS REVIEW
T account debit credit normal balance
page 31
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 2-2
Focus question: How do business transaction affect account balances?
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Chart of Accounts
List of accounts used by a business Why is a chart of accounts important?
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LESSON 2-2
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
11
LESSON 2-2
RECEIVED CASH FROM OWNER AS AN INVESTMENT
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
August 1. Received cash from owner as an investment, $5,000.00.
1 12 2
3 3
4 4
page 32
1. Which accounts are affected?
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Analyzing accounts
Debits MUST equal credits for each transaction After each transaction is recorded, total debits must
equal total credits The same four questions are used each time a
transaction is analyzed:1. Which accounts are affected?
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
12
LESSON 2-2
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
13
LESSON 2-2
PAID CASH FOR SUPPLIES
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
August 3. Paid cash for supplies, $275.00.
1 12
3 3
4 4
page 33
1. Which accounts are affected?
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
14
LESSON 2-2
1. Which accounts are affected?
PAID CASH FOR INSURANCE
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
August 4. Paid cash for insurance, $1,200.00.
1 12
3 3
4 4
page 34
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
15
LESSON 2-2
BOUGHT SUPPLIES ON ACCOUNT page 35
August 7. Bought supplies on account from Supply Depot, $500.00.
1. Which accounts are affected?
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
1 1
3 3
4 4
2 2
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
16
LESSON 2-2
PAID CASH ON ACCOUNT page 36
August 11. Paid cash on account to Supply Depot, $300.00.
1. Which accounts are affected?
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
1 1
3 3
4 4
2 2
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
17
LESSON 2-2
TERM REVIEW
chart of accounts
page 37
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 2-3
Focus question: How do we analyze transactions that affect owner’s equity accounts?
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Accounting for revenue/sales
What effect does revenue have on owner’s equity? Why?
Revenue is recorded in a separate account, sales, in order to avoid a large number of entries in the capital account and to keep it separate from other entries that affect capital
Revenue increases owner’s equity, which has a normal credit balance; therefore, sales also has a normal credit balance
19
LESSON 2-3
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
20
LESSON 2-3
RECEIVED CASH FROM SALES page 38
August 12. Received cash from sales, $295.00.
1. Which accounts are affected?
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
1 1
3 3
4 4
2 2
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
21
LESSON 2-3
SOLD SERVICES ON ACCOUNT page 39
August 12. Sold services on account to Oakdale School, $350.00.
1. Which accounts are affected?
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
1 1
3 3
4 4
2 2
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Accounting for expenses
What effect do expenses have on owner’s equity? Why?
Expenses are accounted for in a separate account to keep a large number of entries out of the capital account and to give a clear picture of expenses
Owner’s equity – normal credit balance Expenses decrease owner’s equity
Expenses – normal debit balance
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LESSON 2-3
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
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LESSON 2-3
PAID CASH FOR AN EXPENSE page 40
August 12. Paid cash for rent, $300.00.
1. Which accounts are affected?
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
1
1
4
4
2 2
3
3
3
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
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LESSON 2-3
RECEIVED CASH ON ACCOUNT page 41
August 18. Received cash on account from Oakdale School, $200.00.
1. Which accounts are affected?
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
1 1
3 3
4 4
2
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Accounting for owner withdrawals
What effect do withdrawals have on owner’s equity? Why?
Withdrawals are accounted for in a separate account to keep a large number of entries out of the capital account and to give a clear picture of owner withdrawals
Owner’s equity – normal credit balance Withdrawals decrease owner’s equity
Drawing – normal debit balance
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LESSON 2-3
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
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LESSON 2-3
PAID CASH TO OWNER FOR PERSONAL USE page 42
August 12. Paid cash to owner for personal use, $125.00.
1. Which accounts are affected?
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
4
4
2
2
3
3
3
1
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