Accounting

Chapter 4
 Aim: How are transactions
recorded using T Accounts?

Do Now: Take the packets on my desk.

• Take out the chapter 4 packet.
• On page 76, answer “What Do You Think?”
 Chart of Accounts
Chart of accounts – list of all accounts used by a
business.
– Small business may require only 20-30 accounts
while large businesses could have several
thousand accounts.
 Ledger
• Ledger “general ledger”– a group of accounts.

Grouping accounts together makes information

easy to find.

Information is taken from the ledger and

organized into financial statements.
 Numbering System
A system for numbering accounts makes it easy to locate
individual accounts in the ledger.

These are the five general ledger divisions:

• Asset accounts begin with 1
• Liability accounts begin with 2
• Owner’s equity accounts begin with 3
• Revenue accounts begin with 4
• Expense accounts begin with 5

http://www.accountingcoach.com/chart-of-
accounts/explanation/2
 Chart of Accounts
Number # Account Title To Increase Description of
Account
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 Debit/Credit Video
https://www.youtube.com/watch?v=j71Kmxv7s
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 Double-Entry Accounting
• Double-Entry accounting – system to analyze
and record a transaction.
– Recognizes the different sides of business
transactions as debits and credits.

• Debit – an entry on the left side of an account

• Credit – an entry on the right side of an

account
 The Rules of Debit and Credit
• Debits and credits are used to record the
increase or decrease in each account affected
by a business transaction.

• Under double-entry accounting, for each debit

entry made in one account, a credit of an
equal amount must be made in another
account.
 The Rules of Debit and Credit cont…
• Normal balance – always on the side used to
record increases.
 Accounts
• An account has three elements:
1. A title
2. A left side, which is called the debit side
3. A right side, which is called the credit side

• T Account – a ledger account in its simplest

form
– Called T account because it resembles a “T”
 T Account
Title of
Account
Left or Right or
Debit side Credit Side
 Debit and Credit Entries
Debits and credits affect accounts as follows:

A = L + OE
ASSETS LIABILITIES EQUITIES
Debit for Credit for Debit Credit for Debit Credit for
Increase Decrease for Increase for Increase
Decrease Decrease
Apply the rules to an asset account
• Pg. 80
Cash in Bank

Find balance
 Apply the rules to an liability account
• Pg. 80
Accounts Payable

Find balance
 Fill in each box with the word
Debit or Credit
Asset Accounts Liability Owner’s Equity
Accounts Accounts

Normal Balance

Increase Side

Decrease Side
 Fill in each box with the word
Debit or Credit
Liability Owner’s Equity
Asset Accounts
Accounts Accounts

Normal Balance DEBIT CREDIT CREDIT

Increase Side
DEBIT CREDIT CREDIT

Decrease Side CREDIT DEBIT DEBIT

 Mnemonic Device

Amber Drives a Little Orange Convertible

Increases in Assets are Debited

Increases in Liabilities and Owners Equity are Credited

Can you think of a saying that will help you remember

how increases or decreases in assets, liabilities and
owners equity are recorded in T accounts?
 Problem

Complete Problem 4.1 on page 82

 Aim: How do we apply the rules of
debit and credit?

Do Now:
• Take a Do Now slip and answer:
1. When using the double-entry accounting
system, which side are debits recorded and
which side on credits recorded?
2. Which side is the normal balance on?

• Take out your homework

• Reinforce the Main Idea & 4.1
 Fill in each box with the word
Debit or Credit
Owner’s Equity
Asset Accounts Liability Accounts
Accounts

Normal Balance
(normal means usual)

Increase Side

Decrease Side

*Since the increase side of an asset account is always on the debit

side, asset accounts have a normal debit balance.
- For example, in the normal course of business, total increases to
assets are larger than or exceed total decreases. You would expect
an asset account, then to have a normal debit balance.
 The Rules of Debit and Credit
• Debits and credits are used to record the
increase or decrease in each account affected
by a business transaction.

• Under double-entry accounting, for each debit

entry made in one account, a credit of an
equal amount must be made in another
account.
 Debit and Credit Entries
Debits and credits affect accounts as follows:

A = L + OE
ASSETS LIABILITIES EQUITIES
Debit for Credit for Debit Credit for Debit Credit for
Increase Decrease for Increase for Increase
Decrease Decrease
 Mnemonic Device

Amber Drives a Little Orange Convertible

Increases in Assets are Debited

Increases in Liabilities and Owners Equity are Credited

Can you think of a saying that will help you remember

how increases or decreases in assets, liabilities and
owners equity are recorded in T accounts?
 Business Transaction Analysis
Analysis:
1. Identify the accounts affected.
2. Classify the accounts affected.
3. Determine the amount of increase or decrease for each account
affected.

Debit-Credit Rule:
4. Which account is debited? For what amount?
5. Which account is credited? For what amount?

T-Accounts:
6. What is the complete entry in T-account form?
Account Name Account Name
 Problem 4.2
• Alice Roberts uses the following accounts in her business:
– Cash in Bank
– Accounts Receivable
– Office Furniture
– Office Equipment
– Accounts Payable
– Alice Roberts, Capital
Instructions: Analyze each of the following transactions. In your working
papers, explain the debit and the credit. Use the format shown in the
example.

Example: On June 2 Alice Roberts invested $5,000 of her own money in a

business called Robert Employment Agency.
a. The asset account Cash in Bank is increased. Increases in asset
accounts are recorded in debits.
b. The owners capital account Alice Roberts, Capital is increased.
Increases in the owner’s capital account are recorded as credits.
 4.2
1a.

2a.

3a.
 Homework
• Complete Problem 4-3 in your workbook
(page 35)
• Directions are in the Chapter 4 packet on page
94
 Exit Slip
• In liability accounts, are increases debited or
credited?
 Aim: How do I use T Accounts to record
transactions?

Do Now: Complete problem 4-3 (pg. 35)

1.

2.

3.

4.

Analyze:
 Problem 4.2
• Alice Roberts uses the following accounts in her business:
– Cash in Bank
– Accounts Receivable
– Office Furniture
– Office Equipment
– Accounts Payable
– Alice Roberts, Capital
Instructions: Analyze each of the following transactions. In your working
papers, explain the debit and the credit. Use the format shown in the
example.

Example: On June 2 Alice Roberts invested $5,000 of her own money in a

business called Robert Employment Agency.
a. The asset account Cash in Bank is increased. Increases in asset
accounts are recorded in debits.
b. The owners capital account Alice Roberts, Capital is increased.
Increases in the owner’s capital account are recorded as credits.
 4.2
1a. Asset account office equipment is increased. Increases in
asset accounts are recorded as debits.
1b. Liability account accounts payable increases credit.

2a. Owner’s Equity account capital increases. Increases in

owner’s equity is recorded as credit.
2b. Asset account office furniture increases. This is recorded as
a debit.
3a. Liability account accounts payable decreases. Decreases in
liability accounts are debits.
3b. Decreases in asset accounts recorded as credits.
 Business Transaction Analysis
Analysis:
1. Identify the accounts affected.
2. Classify the accounts affected.
3. Determine the amount of increase or decrease for each account
affected.

Debit-Credit Rule:
4. Which account is debited? For what amount?
5. Which account is credited? For what amount?

T-Accounts:
6. What is the complete entry in T-account form?
Account Name Account Name
 T Account
Title of
Account
Left or Right or
Debit side Credit Side
 Debit and Credit Entries
Debits and credits affect accounts as follows:

A = L + OE
ASSETS LIABILITIES EQUITIES
Debit for Credit for Debit Credit for Debit Credit for
Increase Decrease for Increase for Increase
Decrease Decrease
 Problem 4.4
Regina Delgado owns a business called Hot Suds Car Wash. She uses the
following accounts:

101 Cash in Bank

110 Accounts Receivable – Valley Auto
125 Office Equipment
130 Office Furniture
135 Car Wash Equipment
201 Accounts Payable – Allen Vacuum Systems
301 Regina Delgado, Capital

In your groups, walk around the room and analyze each business transaction.
You will have 2 minutes at each station.
STEPS:
1. Determine the accounts affected.
2. Prepare T accounts for the accounts affected.
3. Enter the debit and credit amount in the T accounts.
Problem 4.4
 Assignment
• Complete Problem 4.5

• *After recording all transactions, write the

word Balance on the normal balance side of
each T Account. Then complete and record
the balance for each account.

• If you do not finish in class, this becomes HW.

 Aim: How can I keep track of business
transactions using T Accounts?

Do Now:
• Take a Do Now slip & answer:
A decrease in an owner’s capital account is
recorded as a . (debit or credit)

• Take out your homework 4-5

• I need 7 volunteers
Problem 4.5
 Group Work
• Complete Problem 4.6 with your group.

• *After recording all transactions, write the

word Balance on the normal balance side of
each T Account. Then complete and record
the balance for each account.

• Add up all of the debit balances, then add up

all of the credit balances. Are they equal?
 Problem 4.6
Accounts Receivable
Cash in Bank – Mary Johnson Office Equipment

Computer Hiking Rafting

Equipment Equipment Equipment

Accounts Payable
– Peak Accounts Payable – Juanita Ortega,
Equipment Premier Processors Capital
 Exit Slip
• True or False:
Every transaction affects two or more accounts
and is recorded by equal amounts of debits and
credits.
 Homework

Study for the Chapter 4 Exam!

 Aim: Am I prepared for the Chapter 4
Exam?
Do Now: Take a post it.
Answer on post it:
1. True or False: A business groups its accounts into a
ledger.
2. True or False: The difference between the debit and
credit amounts in an account is the account
balance.
 Exit Slip
• True or False:
Every transaction affects two or more accounts
and is recorded by equal amounts of debits and
credits.
 Problem 4.6
Accounts Receivable
Cash in Bank – Mary Johnson Office Equipment

Computer Hiking Rafting

Equipment Equipment Equipment

Accounts Payable
– Peak Accounts Payable – Juanita Ortega,
Equipment Premier Processors Capital
 Chapter 4 Exam
• Chart of Accounts
• Ledger
• Numbering System
• Double Entry Accounting System
• Debits/Credits
• Rules of Debits & Credits
– Assets
– Liabilities
– Owner’s Equity
– Normal Balance