2 - 1 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Debits and Credits:
Analyzing and Recording
Business Transactions
Chapter 2
2 - 2 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Setting up and organizing
a chart of accounts.
Learning Objective 1
2 - 3 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 2-1
(The T Account)
Account
Standard account
Ledger
2 - 4 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 2-1
(The T Account)
Account Title Account No.

Date








Item

PR

Debit

Date

Item

PR

Credit
The Standard Account Form
2 - 5 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 2-1
(The T Account)
Each T account contains three basic parts.
2. Left side
Dr. (debit)
1. Title of account
3. Right side
Cr. (credit)
2 - 6 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 2-1
(The T Account)
Account Name (Title)
Dr. (debit)
4,000
500
Cr. (credit)
300
400
4,500 700
3,800
Entries
Footings
Balance
2 - 7 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Recording transactions in
T accounts according to
the rules of debit and credit.
Learning Objective 2
2 - 8 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 2-2 (Recording
Business Transactions)
Owner’s Equity Assets Liabilities = +
2 - 9 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 2-2 (Recording
Business Transactions)
Normal
Balance
Debit
Debits
+
Credits

Normal
Balance
Credit
Debits

Credits
+
Normal
Balance
Credit
Debits

Credits
+
Owner’s Equity Assets Liabilities
= +
2 - 10 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 2-2 (Recording
Business Transactions)
Normal
Balance
Debit
Debits
+
Credits

Withdrawals
Normal
Balance
Credit
Debits

Credits
+
Capital
2 - 11 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 2-2 (Recording
Business Transactions)
Normal
Balance
Credit
Debits

Credits
+
Revenues
Normal
Balance
Debit
Debits
+
Credits

Expenses
2 - 12 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Assets
111 Cash
112 Accounts Receivable
121 Office Equipment
Chart of Accounts
Liabilities
211 Accounts Payable
Owner’s Equity
311 Cathy Hall, Capital
312 Cathy Hall, Withdrawals
2 - 13 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Chart of Accounts
Revenue
411 Legal Fees
Expenses
511 Salaries Expense
512 Rent Expense
513 Advertising Expense
2 - 14 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
The Transaction Analysis
Determine which accounts are affected.
Determine which category the accounts belong.
Determine increases or decreases.
What do the rules of debits and credits say?
What does the T account look like?
2 - 15 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Applying the
Transaction Analysis
A. August 28: Cathy Hall invests
$7,000 in cash and $800 of
office equipment into the business.
B. August 29: Law practice buys
office equipment for cash, $900.
C. August 30: Buys additional office
equipment on account, $400.
2 - 16 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Applying the
Transaction Analysis
(A) 7,000
(A) 800
7,800 (A)
Office Equipment 121
Cathy Hall, Capital 311 Cash 111
Accounts Payable 211
900 (B)
(B) 900
400 (C)
(C) 400
2 - 17 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Applying the
Transaction Analysis
D. September 1-30: Cathy Hall provided
legal services for cash, $3,000.
E. September 1-30: Provided legal
services on account, $4,000.
F. September 1-30: Received $700 cash
as partial payment from previous
services performed on account.
G. September 1-30: Paid salaries expense, $600.
2 - 18 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Applying the
Transaction Analysis
Salaries Expense 511
Accts. Receivable 112 Cash 111
(A) 7,000 900 (B)
Legal Fees 411
3,000 (D)
(D) 3,000
700 (F)
(F) 700
(E) 4,000
4,000 (E)
(G) 600
600 (G)
2 - 19 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Applying the
Transaction Analysis
H. September 1-30: Paid rent expense, $700.
I. September 1-30: Incurred advertising
expense of $300, to be paid next month.
2 - 20 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Applying the
Transaction Analysis
Rent Expense 512
Accounts Payable 211 Cash 111
(A) 7,000
(D) 3,000
(F) 700
400 (C) 900 (B)
600 (G)
Advertising Expense 513
(H) 700
700 (H)
(I) 300
300 (I)
2 - 21 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Applying the
Transaction Analysis
J. September 1-30: Hall withdrew
cash for personal use, $200.
Cash 111
(A) 7,000
(D) 3,000
(F) 700
900 (B)
600 (G)
700 (H)
C. Hall Withdrawals, 312
(J) 200
200 (J)
2 - 22 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Objective 3
Preparing a trial balance.
2 - 23 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 2-3
(The Trial Balance)
Cash 111
(A) 7,000
(D) 3,000
(F) 700

10,700
8,300
900 (B)
600 (G)
700 (H)
200 (J)
2,400
New Balance Footings
2 - 24 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 2-3
(The Trial Balance)
Footings are used to obtain the balance
of each side of every T account
that has more than one entry.
The ending balances are used
to prepare a trial balance.
2 - 25 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 2-3
(The Trial Balance)
Balance $$$
Balance $$$
Balance $$$
Balance $$$
Balance $$$
Balance $$$
Balance $$$
Balance $$$
Balance $$$
Cash Account No.111


Balance $$$
Cathy Hall, Attorney-at-Law
Trial Balance
September 30, 200x
Cash $$$
Accounts Receivable $$$
Office Equipment $$$
Accounts Payable $$$
Cathy Hall, Capital $$$
Cathy Hall Withdrawals $$$
Legal Fees $$$
Salaries Expenses $$$
Rent Expense $$$
Advertising Expense $$$
2 - 26 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 2-3
(The Trial Balance)
Dr.
8,300
3,300
2,100


200

600
700
300
15,500
Cr.



700
7,800

7,000



15,500

111 Cash
112 Accounts Receivable
121 Office Equipment
211 Accounts Payable
311 Cathy Hall, Capital
312 Cathy Hall, Withdrawals
411 Legal Fees
511 Salaries Expense
512 Rent Expense
513 Advertising Expense
Totals
2 - 27 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Objective 4
Preparing financial statements
from a trial balance.
2 - 28 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Preparing the
Financial Statements
Cathy Hall, Attorney-at-Law
Income Statement
For Month Ended September 30, 200x
Revenue:
Legal fees $7,000
Operating expenses:
Salaries expense $600
Rent expense 700
Advertising expense 300
Total operating expenses 1,600
Net income $5,400
2 - 29 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Preparing the
Financial Statements
Cathy Hall, capital
September 1, 200x $ 7,800
Net income for September $5,400
Less withdrawals 200
Increase in capital 5,200
Cathy Hall, capital,
September 30, 200x $13,000
Cathy Hall, Attorney-at-Law
Statements of Owner’s Equity
For Month Ended September 30, 200x
2 - 30 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Preparing the
Financial Statements
Assets
Cash $ 8,300
Accts. rec. 3,300
Office equip. 2,100
Total $13,700
Liabilities and Owner’s Equity
Accounts payable $ 700
Owner’s equity
Cathy Hall, capital 13,000
Total $13,700
Cathy Hall, Attorney-at-Law
Balance Sheet
September 30, 200x
2 - 31 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
End of Chapter 2