Section 2 Applying the Rules of Debit and Credit What You’ll Learn How to analyze a transaction affecting assets, liabilities, and owner’s equity. Why It’s Important You need to analyze transactions properly so that you record them correctly. Section 2 Applying the Rules of Debit and Credit (cont'd.) Business Transaction Analysis: Steps to Success Business Transaction ANALYSIS Identify 1. Identify the accounts affected. Classify 2. Classify the accounts affected. +/- 3. Determine the amount of increase or decrease for each account affected. Section 2 Applying the Rules of Debit and Credit (cont'd.) Business Transaction Analysis: Steps to Success (cont'd.) Business Transaction DEBIT-CREDIT RULE 4. Which account is debited? For what amount? 5. Which account is credited? For what amount? Section 2 Applying the Rules of Debit and Credit (cont'd.) Business Transaction Analysis: Steps to Success (cont'd.) Business Transaction T ACCOUNTS 6. What is the complete entry in T-account form? Account Name Account Name Section 2 Applying the Rules of Debit and Credit (cont'd.) Business Transaction Analysis (cont'd.) Business Transaction 1 (cont'd.) On October 1, Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service. T ACCOUNTS Cash in Bank Maria Sanchez, Capital Debit Credit + + 25,000 25,000 Section 2 Applying the Rules of Debit and Credit (cont'd.) Business Transaction Analysis (cont'd.) Business Transaction 3 (cont'd.) On October 4, Roadrunner issued Check 101 for $3,000 to buy a computer system. T ACCOUNTS Computer Equipment Cash in Bank Debit Credit + – 3,000 3,000 Section 2 Applying the Rules of Debit and Credit (cont'd.) Business Transaction Analysis (cont'd.) Business Transaction 4 (cont'd.) On October 9, Roadrunner bought a used truck on account from North Shore Auto for $12,000. T ACCOUNTS Delivery Equipment Accounts Payable— North Shore Auto Debit Credit + + 12,000 12,000 Section 2 Applying the Rules of Debit and Credit (cont'd.) Check Your Understanding In double-entry accounting, for each transaction there must be at least two entries. If you are increasing the Cash in Bank account, what other accounts might be affected?