Transactions That Affect
Assets, Liabilities, and
Owner’s Equity
Making Accounting Relevant
Accounting and finance professionals
are key to every business operation.
How might the work performed by
the accountant affect the day-to-day
decisions made by the business
owner?
Section 1 Accounts and the
Double-Entry
Accounting System
What You’ll Learn
 How to use T accounts.
 Why you need a ledger.
 The rules of debit and credit.
Section 1 Accounts and the Double-Entry
Accounting System (cont'd.)
Why It’s Important
The rules of debit and credit are the
basis for entering transactions into the
records of a business.
Key Terms







ledger
chart of accounts
double-entry accounting
T account
debit
credit
normal balance
Section 1 Accounts and the Double-Entry
Accounting System (cont'd.)
The Chart of Accounts
A list of all the accounts and their
assigned account numbers.
Roadrunner Delivery Service
155 Gateway Blvd.
Sacramento, CA 94230
CHART OF ACCOUNTS
ASSETS
LIABILITIES
OWNER’S EQUITY
REVENUE
EXPENSES
101
105
110
115
120
125
201
205
Cash in Bank
Accounts Receivable--City News
Accounts Receivable--Green Company
Computer Equipment
Office Equipment
Delivery Equipment
Accounts Payable--Beacon Advertising
Accounts Payable--North Shore Auto
301
302
303
401
501
505
510
515
Maria Sanchez, Capital
Maria Sanchez, Withdrawals
Income Summary
Delivery Revenue
Advertising Expense
Maintenance Expense
Rent Expense
Utilities Expense
Section 1 Accounts and the Double-Entry
Accounting System (cont'd.)
Double-Entry Accounting
• A system of recordkeeping
• Each business transaction
affects at least two
accounts.
Section 1 Accounts and the Double-Entry
Accounting System (cont'd.)
T Accounts
•
Shows the dollar increase or
decrease in an account that is
caused by a transaction.
Account Name
Left Side
Right Side
Debit Side
Credit Side
Debit
Credit
Section 1 Accounts and the Double-Entry
Accounting System (cont'd.)
The Rules of Debit and Credit
 Different for the different
accounts - asset, a liability, or
an owner’s capital account.
 Normal balance is always on
the side used to record
increases to the account.
Section 1 Accounts and the Double-Entry
Accounting System (cont'd.)
Rules for Asset Accounts
Assets
Debit
+
(1) Increase Side
(3) Normal Balance
Credit
–
(2) Decrease Side
Section 1 Accounts and the Double-Entry
Accounting System (cont'd.)
Rules for Liability and Owner’s
Capital Accounts
Liabilities
Debit
Debit
– –
Credit
+
(2) Decrease (1) Increase
Side
Side
(3) Normal
Balance
Owner’s Equity
Debit
Credit
Credit
–
++
(2) Decrease (1)
(1)Increase
Increase
Side
Side
Side
(3)
(3)Normal
Normal
Balance
Balance