Download What is double entry accounting and how does it analyze business

Bellringer
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What does the word, “Debit” mean to you?
What does the word, “Credit” mean to you?
Write it down on a separate piece of paper.
Draw an outline of your left hand and right
hand on a different piece of paper.
Essential Questions:
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How is the accounting equation organized ?
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What is double entry accounting and how
does it analyze business transactions?
Students will be able to:
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Demonstrate an understanding of the
fundamental accounting equation.
Classify items as assets, liabilities, or owner’s
equity.
Explain the double-entry system of
accounting and apply debit and credit rules
when analyzing business transactions.
How is the accounting
equation organized ?
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Chart of Accounts – “Chart”
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List of “Accounts” used by a business.
General Ledger - “Ledger”
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Accounts grouped together
Keeping the books
Makes information easy to find
When summarized, forms financial statements
How is the accounting
equation organized ?
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System of Numbering Accounts within the
Ledger
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Makes it easy to find accounts and information.
Usually have at least 2 digits
Example: Look at page 79 in book
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Assets 100’s
Liabilities 200’s
Owner’s Equity 300’s
Revenue 400’s
Expense 500’s
What is double entry accounting and
how does it analyze business
transactions?
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Chapter 3 used the Accounting Equation
Assets = Liabilities + Owner’s Equity
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Double entry accounting – System to analyze
a business transaction.
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Recognizes different sides of business
transactions as DEBITS and CREDITS
T- ACCOUNT – a tool to help analyze transaction
and reflect increases and decreases in an
account .
T-Accounts
Top
Left side
Right side
Account title
Debit
Credit
Rules for Asset Accounts
1.
2.
3.
An asset account is increased (+) on the debit side.
An asset account is decreased (-) on the credit side.
The normal balance for an asset account is a debit balance.
ASSETS
= LIABILITIES + OWNERS EQUITY
Asset Accounts
Debit
+
Increase side
Balance side
Credit
Decrease side
T-Accounts for Assets
Cash in Bank
Debit
+
$200
150
$350
Credit
$70
40
$110
Balance, $240
1.
Asset accounts are increased on the left, or ____________ side
2.
Asset accounts are decreased on the right, or __________ side
3.
The normal balance for asset accounts is a ________ balance
4.
On notebook paper, draw a T account for the asset account Office Equipment. Enter debits
of $2000 and $1500. Enter a credit of $500. What is the balance, and on what side of the T
account is it shown?
Rules for Liability and Owner’s Equity Accounts
The liability and capital accounts are increased (+) on the credit side.
The liability and capital accounts are decreased (-) on the debit side.
The normal balance for the liability and capital accounts is a credit
balance.
1.
2.
3.
RIGHT SIDE
LEFT SIDE
ASSETS
=
LIABILITIES
Asset Accounts
OWNER’S EQUITY
Capital Accounts
Liability Accounts
Debit
Credit
Debit
+
-
-
Increase
side
Decrease
Side
Decrease
Side
Balance
side
+
RIGHT SIDE
Credit
+
Increase side
Balance side
Debit
Decrease
side
Credit
+
Increase side
Balance side
T-Accounts for Liabilities and
Owner’s Equity
Accounts Payable
Debit
$100
75
$175
Credit
+
$200
175
$375
Balance, $200
John Doe, Capital
Debit
$350
200
$550
Credit
+
$1500
2500
$4000
Balance, $3450
Rules
Debits are used to
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Increase (+) assets
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Decrease (-) liabilities
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Decrease (-) owner’s equity
Credits are used to
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Decrease (-) assets
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Increase (+) liabilities
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Increase (+) owner’s equity
Independent Work
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Let’s do Problem 4-1 Page 8-2 in Textbook
and 34 in Workbook.
You have about 7 minutes……
What you should know!
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Double Entry Accounting – Every business
transaction MUST have Debits = Credits.
Regardless of which Account:
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DEBIT = LEFT SIDE
CREDIT = RIGHT SIDE
Debit and Credit Rules vary according to the
type of account classification.