Chapter Two
T Accounts, Debits
and Credits, Trial
Balance, and
Financial Statements
Performance Objectives
1. Determine balances of T accounts having
entries recorded on both sides of the
accounts
2. Present the fundamental accounting
equation with the T account form, and label
the debit and credit sides
3. Record directly in T accounts a group of
business transactions involving changes in
asset, liability, owner’s equity, revenue, and
expense accounts for a service business
Accounting Is Fun!
2-2
Performance Objectives
4. Prepare a trial balance
5. Prepare:
– Income statement
– Statement of owner’s equity
– Balance sheet
6. Recognize the effect of transpositions
and slides on account balances
Accounting Is Fun!
2-3
T Account Form
• Shaped like the
letter T
• One side for
increases (+) to the
account
• The other side for
decreases (-) to the
account
• Normal Balance
– The increase (plus)
side of any T
account.
Accounting Is Fun!
34,120
2-4
Compare Account Column to T Account
34,120
Accounting Is Fun!
2-5
Debit & Credit
• What does Debit
mean?
• What does Credit
mean?
– Forget what you
know about debit
cards!
– Forget what you
know about credit
cards!
Accounting Is Fun!
2-6
In Accounting
• Debit = Left
• Credit = Right
• Debit = DR = Left
• Credit = CR = Right
Accounting Is Fun!
2-7
T Accounts
• Assets
– The plus side for
assets is placed on
the left, and the
minus side is placed
on the right
Accounting Is Fun!
Assets
+
DR
CR
2-8
T Accounts
• Liabilities and
owner’s equity
– Since these
classifications are
placed on the
opposite side of the
equals sign, the plus
and minus signs are
also placed on the
opposite sides
(switched around)
Accounting Is Fun!
Liabilities
+
DR
CR
Owner's Equity
+
DR
CR
2-9
In Accounting
Asset
DR
=
CR
Liabilities
DR
CR
+
Owner's Equity
DR
CR
• Debit is Left
• Credit is Right
• DR is Left
• CR is Right
• For every account this is true!
Accounting Is Fun!
2 - 10
T Accounts
• Recall that we placed revenue and expenses under
the umbrella of owner’s equity
• Revenue increases owner’s equity
• Expenses decrease owner’s equity
Assets
+
DR
=
CR
Liabilities
+
DR
CR
+
DR
-
Expenses
+
DR
CR
+
Revenues
+
DR
CR
-
Drawing
+
Capital
• Remember:
– Drawing is placed
under the umbrella of
the Capital account
Accounting Is Fun!
Owner's Equity
+
CR
+
DR
CR
DR
+
CR
2 - 11
Present The Fundamental Accounting Equation With The T
Account Form, And Label The Debit And Credit Sides As
Well As The Plus And Minus Sides
Assets
+
DR
=
CR
Liabilities
+
DR
CR
+
Owner's Equity
+
DR
CR
+
Revenues
+
DR
CR
-
Expenses
+
DR
CR
•We switch the plus and minus signs around on the
other side of the equals sign so that we will be able to
carry out double-entry accounting
•Whenever there is a minus in front of the account, we
must “switch the plus & minus around”
Accounting Is Fun!
2 - 12
Debits Must Always Equal Credits
DR = CR
Assets
+
DR
=
CR
Liabilities
+
DR
CR
+
Owner's Equity
+
DR
CR
+
Revenues
+
DR
CR
-
Expenses
+
DR
CR
The critical rule to remember is that the amount
placed on the debit side of one or more
accounts MUST equal that amount placed on
the credit side of another account or accounts.
Accounting Is Fun!
2 - 13
Record Directly In T Accounts A Group Of Business
Transactions Involving Changes In Asset, Liability,
Owner’s Equity, Revenue, And Expense Accounts
For A Service Business
Step 1
Step 3
– Which accounts are
involved?
Step 2
– Are the accounts
increased or decreased?
Step 4
– How should you classify
the accounts?
• Asset
• Liability
• Capital
• Revenue
• Expenses
Accounting Is Fun!
– Which accounts are
debited and which
accounts are credited?
Step 5
– Balance the equations:
– DR = CR
– A = L + OE
2 - 14
Recording Business Transactions for a
Service Business
We will be recording business transactions
for a company with the following details:
Owner name:
L. P. Arch
Business name: Arch Copy Co.
Business type: Sole proprietorship
(one-person business)
Accounting Is Fun!
2 - 15
=
Assets
–
Credit
+
Debit
Cash
+
Debit
a)
Liabilities
–
Debit
+
Credit
Accounts Payable
–
Credit
–
Debit
+
Credit
+
Owner's Equity
–
Debit
+
Credit
L.P. Arch, Capital
–
Debit
70,000
+
Credit
a)
+
Revenue
–
Debit
+
Credit
Income from Services
–
Debit
+
Credit
–
Expenses
+
Debit
–
Credit
Wages Expense
+
Debit
–
Credit
70,000
Rent Expense
L.P. Arch, Drawing
+
Debit
+
Debit
–
Credit
Credit
Supplies Expense
+
Debit
–
Credit
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Utilities Expense
+
Debit
Prepaid Insurance
+
Debit
–
Credit
Equipment
+
Debit
–
Credit
–
Credit
Transaction (a): Arch deposited $70,000
in a bank account in name of business.
Accounting Is Fun!
2 - 16
=
Assets
–
Credit
+
Debit
Cash
+
Debit
a)
Liabilities
–
Debit
+
Credit
Accounts Payable
–
Credit
70,000 b)
–
Debit
+
Credit
+
Owner's Equity
–
Debit
+
Credit
L.P. Arch, Capital
–
Debit
33,000
+
Credit
a)
+
Revenue
–
Debit
+
Credit
Income from Services
–
Debit
+
Credit
–
Expenses
+
Debit
–
Credit
Wages Expense
+
Debit
–
Credit
70,000
Rent Expense
L.P. Arch, Drawing
+
Debit
+
Debit
–
Credit
Credit
Supplies Expense
+
Debit
–
Credit
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Utilities Expense
+
Debit
Prepaid Insurance
+
Debit
–
Credit
Equipment
+
Debit
b)
33,000
–
Credit
–
Credit
Transaction (b): Bought equipment, paying
cash, $33,000.
Accounting Is Fun!
2 - 17
=
Assets
–
Credit
+
Debit
Cash
+
Debit
a)
+
Liabilities
–
Debit
+
Credit
Accounts Payable
–
Credit
70,000 b)
33,000
–
Debit
+
Credit
c)
Owner's Equity
–
Debit
+
Credit
L.P. Arch, Capital
–
Debit
7,000
+
Credit
a)
+
Revenue
–
Debit
+
Credit
Income from Services
–
Debit
+
Credit
–
Expenses
+
Debit
–
Credit
Wages Expense
+
Debit
–
Credit
70,000
Rent Expense
L.P. Arch, Drawing
+
Debit
+
Debit
–
Credit
Credit
Supplies Expense
+
Debit
–
Credit
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Utilities Expense
+
Debit
Prepaid Insurance
+
Debit
–
Credit
Equipment
+
Debit
b)
c)
33,000
7,000
–
Credit
–
Credit
Transaction (c): Bought equipment on
account from Melton Office Supply,
$7,000.
Accounting Is Fun!
2 - 18
=
Assets
–
Credit
+
Debit
–
Debit
Cash
+
Debit
a)
+
Liabilities
+
Credit
Accounts Payable
–
Credit
70,000 b)
d)
33,000
2,000
–
Debit
d)
+
Credit
2,000 c)
Owner's Equity
–
Debit
+
Credit
L.P. Arch, Capital
–
Debit
7,000
+
Credit
a)
+
Revenue
–
Debit
+
Credit
Income from Services
–
Debit
+
Credit
–
Expenses
+
Debit
–
Credit
Wages Expense
+
Debit
–
Credit
70,000
Rent Expense
L.P. Arch, Drawing
+
Debit
+
Debit
–
Credit
Credit
Supplies Expense
+
Debit
–
Credit
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Utilities Expense
+
Debit
Prepaid Insurance
+
Debit
–
Credit
Equipment
+
Debit
b)
c)
33,000
7,000
–
Credit
–
Credit
Transaction (d): Paid Melton Office
Supply, a creditor, $2,000.
Accounting Is Fun!
2 - 19
=
Assets
–
Credit
+
Debit
–
Debit
Cash
+
Debit
a)
+
Liabilities
+
Credit
Accounts Payable
–
Credit
70,000 b)
d)
33,000
2,000
–
Debit
d)
+
Credit
2,000 c)
Owner's Equity
–
Debit
+
Credit
L.P. Arch, Capital
–
Debit
7,000
+
Credit
a)
e)
+
Revenue
–
Debit
+
Credit
Income from Services
–
Debit
+
Credit
–
Expenses
+
Debit
–
Credit
Wages Expense
+
Debit
–
Credit
70,000
6,200
Rent Expense
L.P. Arch, Drawing
+
Debit
+
Debit
–
Credit
Credit
Supplies Expense
+
Debit
–
Credit
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Utilities Expense
+
Debit
Prepaid Insurance
+
Debit
–
Credit
Equipment
+
Debit
b)
c)
e)
33,000
7,000
6,200
–
Credit
–
Credit
Transaction (e): Arch invested her personal
computer equipment having a fair market
value of $6,200 in Arch Copy Co.
Accounting Is Fun!
2 - 20
=
Assets
–
Credit
+
Debit
–
Debit
Cash
+
Debit
a)
f)
+
Liabilities
+
Credit
Accounts Payable
–
Credit
70,000 b)
2,520 d)
33,000
2,000
–
Debit
d)
+
Credit
2,000 c)
Owner's Equity
–
Debit
+
Credit
L.P. Arch, Capital
–
Debit
7,000
+
Credit
a)
e)
70,000
6,200
+
–
Revenue
–
Debit
+
Credit
Income from Services
–
Debit
+
Credit
f)
Expenses
+
Debit
–
Credit
Wages Expense
+
Debit
–
Credit
2,520
Rent Expense
L.P. Arch, Drawing
+
Debit
+
Debit
–
Credit
Credit
Supplies Expense
+
Debit
–
Credit
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Utilities Expense
+
Debit
Prepaid Insurance
+
Debit
–
Credit
Equipment
+
Debit
b)
c)
e)
33,000
7,000
6,200
–
Credit
–
Credit
Transaction (f): Arch Copy Co. sold
services for cash, $2,520.
Accounting Is Fun!
2 - 21
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
+
Credit
Accounts Payable
–
Credit
+
Debit
+
Liabilities
70,000 b)
2,520 d)
33,000
2,000
g)
700
–
Debit
d)
+
Credit
2,000 c)
Owner's Equity
–
Debit
+
Credit
L.P. Arch, Capital
–
Debit
7,000
+
Credit
a)
e)
70,000
6,200
+
–
Revenue
–
Debit
Expenses
+
Credit
+
Debit
Income from Services
–
Debit
Wages Expense
+
Credit
f)
–
Credit
+
Debit
–
Credit
2,520
Rent Expense
+
Debit
L.P. Arch, Drawing
+
Debit
Credit
g)
–
Credit
700
Supplies Expense
+
Debit
–
Credit
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Utilities Expense
+
Debit
Prepaid Insurance
+
Debit
–
Credit
Equipment
+
Debit
b)
c)
e)
33,000
7,000
6,200
–
Credit
–
Credit
Transaction (g): Paid rent for the
month, $700.
Accounting Is Fun!
2 - 22
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
+
Credit
Accounts Payable
–
Credit
+
Debit
+
Liabilities
70,000 b)
2,520 d)
33,000
2,000
g)
700
–
Debit
d)
+
Credit
2,000 c)
h)
Owner's Equity
–
Debit
+
Credit
L.P. Arch, Capital
–
Debit
7,000
600
+
Credit
a)
e)
70,000
6,200
+
–
Revenue
–
Debit
Expenses
+
Credit
+
Debit
Income from Services
–
Debit
Wages Expense
+
Credit
f)
–
Credit
+
Debit
–
Credit
2,520
Rent Expense
+
Debit
L.P. Arch, Drawing
+
Debit
Credit
g)
–
Credit
700
Supplies Expense
+
Debit
h)
–
Credit
600
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Utilities Expense
+
Debit
Prepaid Insurance
+
Debit
–
Credit
Equipment
+
Debit
b)
c)
e)
33,000
7,000
6,200
–
Credit
–
Credit
Transaction (h): Bought supplies (toner
and paper) on credit. These supplies are
used immediately; therefore, they are
recorded as an expense ($600).
Accounting Is Fun!
2 - 23
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
+
Credit
Accounts Payable
–
Credit
+
Debit
+
Liabilities
70,000 b)
2,520 d)
33,000
2,000
g)
700
i)
360
–
Debit
d)
+
Credit
2,000 c)
h)
Owner's Equity
–
Debit
+
Credit
L.P. Arch, Capital
–
Debit
7,000
600
+
Credit
a)
e)
70,000
6,200
+
–
Revenue
–
Debit
Expenses
+
Credit
+
Debit
Income from Services
–
Debit
Wages Expense
+
Credit
f)
–
Credit
+
Debit
–
Credit
2,520
Rent Expense
+
Debit
L.P. Arch, Drawing
+
Debit
Credit
g)
–
Credit
700
Supplies Expense
+
Debit
h)
–
Credit
600
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Utilities Expense
+
Debit
Prepaid Insurance
+
Debit
i)
–
Credit
360
Equipment
+
Debit
b)
c)
e)
–
Credit
33,000
7,000
6,200
–
Credit
Transaction (i): Arch Copy Co. paid
$360 for a one-year liability insurance
policy.
Accounting Is Fun!
2 - 24
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
+
Credit
Accounts Payable
–
Credit
+
Debit
+
Liabilities
70,000 b)
2,520 d)
33,000
2,000
g)
700
i)
360
–
Debit
d)
+
Credit
2,000 c)
h)
7,000
600
j)
200
Owner's Equity
–
Debit
+
Credit
L.P. Arch, Capital
–
Debit
+
Credit
a)
e)
70,000
6,200
+
–
Revenue
–
Debit
Expenses
+
Credit
+
Debit
Income from Services
–
Debit
Wages Expense
+
Credit
f)
–
Credit
+
Debit
–
Credit
2,520
Rent Expense
+
Debit
L.P. Arch, Drawing
+
Debit
Credit
g)
–
Credit
700
Supplies Expense
+
Debit
h)
–
Credit
600
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
j)
–
Credit
200
Utilities Expense
+
Debit
Prepaid Insurance
+
Debit
i)
–
Credit
360
Equipment
+
Debit
b)
c)
e)
–
Credit
33,000
7,000
6,200
–
Credit
Transaction (j): Received bill for
newspaper advertising, $200.
Accounting Is Fun!
2 - 25
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
+
Credit
Accounts Payable
–
Credit
+
Debit
+
Liabilities
70,000 b)
2,520 d)
33,000
2,000
g)
700
i)
360
–
Debit
d)
+
Credit
2,000 c)
h)
j)
Owner's Equity
–
Debit
+
Credit
L.P. Arch, Capital
–
Debit
7,000
600
+
Credit
a)
e)
70,000
6,200
+
–
Revenue
–
Debit
Expenses
+
Credit
+
Debit
Income from Services
–
Debit
Wages Expense
+
Credit
f)
k)
–
Credit
+
Debit
–
Credit
2,520
1,050
Rent Expense
200
+
Debit
L.P. Arch, Drawing
+
Debit
Credit
g)
–
Credit
700
Supplies Expense
+
Debit
h)
–
Credit
600
Advertising Expense
Accounts Receivable
+
Debit
k)
+
Debit
–
Credit
j)
–
Credit
200
1,050
Utilities Expense
+
Debit
Prepaid Insurance
+
Debit
i)
–
Credit
360
Equipment
+
Debit
b)
c)
e)
–
Credit
33,000
7,000
6,200
–
Credit
Transaction (k): Arch Copy Co. completed
a printing job and billed Walker Company
$1,050 for services performed.
Accounting Is Fun!
2 - 26
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
+
Credit
Accounts Payable
–
Credit
+
Debit
+
Liabilities
70,000 b)
2,520 d)
33,000
2,000
g)
700
i)
360
l)
1,800
–
Debit
d)
l)
+
Credit
2,000 c)
1,800 h)
j)
Owner's Equity
–
Debit
+
Credit
L.P. Arch, Capital
–
Debit
7,000
600
+
Credit
a)
e)
70,000
6,200
+
–
Revenue
–
Debit
Expenses
+
Credit
+
Debit
Income from Services
–
Debit
Wages Expense
+
Credit
f)
k)
–
Credit
+
Debit
–
Credit
2,520
1,050
Rent Expense
200
+
Debit
L.P. Arch, Drawing
+
Debit
Credit
g)
–
Credit
700
Supplies Expense
+
Debit
h)
–
Credit
600
Advertising Expense
Accounts Receivable
+
Debit
k)
+
Debit
–
Credit
j)
–
Credit
200
1,050
Utilities Expense
+
Debit
Prepaid Insurance
+
Debit
i)
–
Credit
360
Equipment
+
Debit
b)
c)
e)
–
Credit
33,000
7,000
6,200
–
Credit
Transaction (l): Arch Copy Co. paid $1,800
to Melton Office Supply, its creditor, as part
payment on account.
Accounting Is Fun!
2 - 27
=
Assets
–
Credit
+
Debit
–
Debit
Cash
–
Credit
+
Debit
a)
f)
70,000 b)
2,520 d)
33,000
2,000
g)
700
i)
360
l)
1,800
m)
+
Liabilities
d)
l)
+
Credit
Owner's Equity
–
Debit
+
Credit
Accounts Payable
L.P. Arch, Capital
–
Debit
–
Debit
+
Credit
2,000 c)
1,800 h)
7,000
600
j)
200
+
Credit
a)
e)
70,000
6,200
+
–
Revenue
–
Debit
Expenses
+
Credit
Income from Services
–
Debit
Wages Expense
+
Credit
f)
k)
–
Credit
+
Debit
2,520
1,050
Rent Expense
+
Debit
Credit
–
Credit
+
Debit
L.P. Arch, Drawing
160
–
Credit
+
Debit
g)
700
Supplies Expense
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
k)
–
Credit
+
Debit
–
Credit
+
Debit
j)
200
1,050
Utilities Expense
–
Credit
+
Debit
i)
m)
160
360
Equipment
+
Debit
b)
c)
e)
–
Credit
+
Debit
Prepaid Insurance
33,000
7,000
6,200
–
Credit
Transaction (m): Arch Copy Co.
received and paid electric bill, $160.
Accounting Is Fun!
2 - 28
=
Assets
–
Credit
+
Debit
–
Debit
Cash
–
Credit
+
Debit
a)
f)
+
Liabilities
+
Credit
–
Debit
+
Credit
Accounts Payable
L.P. Arch, Capital
–
Debit
–
Debit
+
Credit
70,000 b)
2,520 d)
33,000
2,000
d)
l)
2,000 c)
1,800 h)
7,000
600
g)
700
n)
200 j)
200
i)
360
l)
1,800
m)
n)
Owner's Equity
+
Credit
a)
e)
70,000
6,200
+
–
Revenue
–
Debit
Expenses
+
Credit
Income from Services
–
Debit
Wages Expense
+
Credit
f)
k)
–
Credit
+
Debit
2,520
1,050
Rent Expense
+
Debit
Credit
–
Credit
+
Debit
L.P. Arch, Drawing
160
200
–
Credit
+
Debit
g)
700
Supplies Expense
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
k)
–
Credit
+
Debit
–
Credit
+
Debit
j)
200
1,050
Utilities Expense
–
Credit
+
Debit
i)
m)
160
360
Equipment
+
Debit
b)
c)
e)
–
Credit
+
Debit
Prepaid Insurance
33,000
7,000
6,200
–
Credit
Transaction (n): Arch Copy Co. paid on
account $200 to City News for advertising.
Accounting Is Fun!
2 - 29
=
Assets
–
Credit
+
Debit
–
Debit
Cash
–
Credit
+
Debit
a)
f)
+
Liabilities
+
Credit
–
Debit
–
Debit
+
Credit
d)
l)
2,000 c)
1,800 h)
7,000
600
g)
700
n)
200 j)
200
i)
360
l)
1,800
o)
2,130
+
Credit
L.P. Arch, Capital
33,000
2,000
160
200
–
Debit
Accounts Payable
70,000 b)
2,520 d)
m)
n)
Owner's Equity
+
Credit
a)
e)
70,000
6,200
+
–
Revenue
–
Debit
Expenses
+
Credit
Income from Services
–
Debit
Wages Expense
+
Credit
f)
k)
2,520
1,050
–
Credit
+
Debit
–
Credit
+
Debit
o)
2,130
Rent Expense
+
Debit
Credit
–
Credit
+
Debit
L.P. Arch, Drawing
g)
700
Supplies Expense
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
k)
–
Credit
+
Debit
–
Credit
+
Debit
j)
200
1,050
Utilities Expense
–
Credit
+
Debit
i)
m)
160
360
Equipment
+
Debit
b)
c)
e)
–
Credit
+
Debit
Prepaid Insurance
33,000
7,000
6,200
–
Credit
Transaction (o): Arch Copy Co. paid
wages of a part-time employee, $2,130.
Accounting Is Fun!
2 - 30
=
Assets
–
Credit
+
Debit
–
Debit
Cash
–
Credit
+
Debit
a)
f)
+
Credit
–
Debit
+
Credit
2,000 c)
1,800 h)
g)
700
n)
200 j)
i)
360
l)
1,800
2,130
p)
620
+
Credit
–
Debit
d)
l)
o)
–
Debit
L.P. Arch, Capital
33,000
2,000
160
200
Owner's Equity
Accounts Payable
70,000 b)
2,520 d)
m)
n)
+
Liabilities
p)
7,000
600
+
Credit
a)
e)
70,000
6,200
+
–
Revenue
–
Debit
Expenses
+
Credit
Income from Services
–
Debit
Wages Expense
+
Credit
f)
k)
2,520
1,050
–
Credit
+
Debit
–
Credit
+
Debit
o)
2,130
Rent Expense
200
L.P. Arch, Drawing
+
Debit
Credit
–
Credit
+
Debit
2,900
g)
700
Supplies Expense
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
k)
–
Credit
+
Debit
–
Credit
+
Debit
j)
200
1,050
Utilities Expense
–
Credit
+
Debit
i)
m)
160
360
Equipment
+
Debit
b)
c)
e)
p)
–
Credit
+
Debit
Prepaid Insurance
33,000
7,000
6,200
3,520
–
Credit
Transaction (p): Bought additional
equipment from Melton Office Supply,
$3,520, paying $620 down with the
remaining $2,900 on account.
Accounting Is Fun!
2 - 31
=
Assets
–
Credit
+
Debit
–
Debit
Cash
–
Credit
+
Debit
+
Liabilities
+
Credit
–
Debit
–
Debit
+
Credit
33,000
2,000
d)
l)
2,000 c)
1,800 h)
q)
850 g)
700
n)
200 j)
200
i)
360
p)
2,900
l)
1,800
o)
2,130
p)
620
+
Credit
L.P. Arch, Capital
70,000 b)
2,520 d)
160
200
–
Debit
Accounts Payable
a)
f)
m)
n)
Owner's Equity
7,000
600
+
Credit
a)
e)
70,000
6,200
+
–
Revenue
–
Debit
Expenses
+
Credit
Income from Services
–
Debit
Wages Expense
+
Credit
f)
k)
2,520
1,050
–
Credit
+
Debit
–
Credit
+
Debit
o)
2,130
Rent Expense
+
Debit
Credit
–
Credit
+
Debit
L.P. Arch, Drawing
g)
700
Supplies Expense
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
k)
1,050 q)
–
Credit
+
Debit
–
Credit
+
Debit
j)
200
850
Utilities Expense
–
Credit
+
Debit
i)
m)
160
360
Equipment
+
Debit
b)
c)
e)
p)
–
Credit
+
Debit
Prepaid Insurance
33,000
7,000
6,200
3,520
–
Credit
Transaction (q): Arch Copy Co. received
$850 cash on account from a credit
customer.
Accounting Is Fun!
2 - 32
=
Assets
–
Credit
+
Debit
–
Debit
Cash
–
Credit
+
Debit
a)
f)
+
Liabilities
+
Credit
–
Debit
–
Debit
+
Credit
d)
l)
2,000 c)
1,800 h)
q)
850 g)
700
n)
200 j)
200
r)
4,220 i)
360
p)
2,900
l)
1,800
o)
2,130
p)
620
+
Credit
L.P. Arch, Capital
33,000
2,000
160
200
–
Debit
Accounts Payable
70,000 b)
2,520 d)
m)
n)
Owner's Equity
7,000
600
+
Credit
a)
e)
70,000
6,200
+
–
Revenue
–
Debit
Expenses
+
Credit
Income from Services
–
Debit
Wages Expense
+
Credit
f)
k)
2,520
1,050
r)
4,220
Credit
–
Credit
+
Debit
o)
2,130
Rent Expense
–
Credit
+
Debit
L.P. Arch, Drawing
+
Debit
–
Credit
+
Debit
g)
700
Supplies Expense
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
k)
1,050 q)
–
Credit
+
Debit
–
Credit
+
Debit
j)
200
850
Utilities Expense
–
Credit
+
Debit
i)
m)
160
360
Equipment
+
Debit
b)
c)
e)
p)
–
Credit
+
Debit
Prepaid Insurance
33,000
7,000
6,200
3,520
–
Credit
Transaction (r): Arch Copy Co. received
revenue from cash customers for the rest
of the month, $4,220.
Accounting Is Fun!
2 - 33
=
Assets
–
Credit
+
Debit
–
Debit
Cash
–
Credit
+
Debit
a)
f)
+
Liabilities
L.P. Arch, Capital
–
Debit
–
Debit
+
Credit
d)
l)
2,000 c)
1,800 h)
q)
850 g)
700
n)
200 j)
200
r)
4,220 i)
360
p)
2,900
l)
1,800
o)
2,130
p)
s)
620
2,500
+
Credit
Accounts Payable
33,000
2,000
160
200
–
Debit
+
Credit
70,000 b)
2,520 d)
m)
n)
Owner's Equity
7,000
600
+
Credit
a)
e)
70,000
6,200
+
–
Revenue
–
Debit
Expenses
+
Credit
Income from Services
–
Debit
Wages Expense
+
Credit
f)
k)
2,520
1,050
r)
4,220
s)
Credit
–
Credit
+
Debit
o)
2,130
Rent Expense
–
Credit
+
Debit
L.P. Arch, Drawing
+
Debit
–
Credit
+
Debit
g)
700
Supplies Expense
2,500
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
k)
1,050 q)
–
Credit
+
Debit
–
Credit
+
Debit
j)
200
850
Utilities Expense
–
Credit
+
Debit
i)
m)
160
360
Equipment
+
Debit
b)
c)
e)
p)
–
Credit
+
Debit
Prepaid Insurance
33,000
7,000
6,200
3,520
–
Credit
Transaction (s): Arch withdrew $2,500 in
cash from the business for her personal
use.
Accounting Is Fun!
2 - 34
=
Assets
–
Credit
+
Debit
–
Debit
Cash
–
Credit
+
Debit
a)
f)
70,000 b)
2,520 d)
33,000
2,000
d)
l)
q)
850 g)
700
n)
r)
4,220 i)
360
77,590 l)
1,800
m)
n)
160
200
o)
2,130
p)
s)
620
2,500
43,470
+
Liabilities
Owner's Equity
–
Debit
+
Credit
+
Credit
Accounts Payable
L.P. Arch, Capital
–
Debit
–
Debit
+
Credit
2,000 c)
1,800 h)
7,000
600
200 j)
200
4,000 p)
2,900
+
Credit
a)
e)
+
–
Revenue
–
Debit
Expenses
+
Credit
Income from Services
–
Debit
Wages Expense
+
Credit
70,000
6,200
f)
k)
2,520
1,050
76,200
r)
4,220
o)
2,130
Rent Expense
s)
Credit
–
Credit
+
Debit
L.P. Arch, Drawing
+
Debit
–
Credit
+
Debit
7,790
10,700
–
Credit
+
Debit
g)
700
Supplies Expense
2,500
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
k)
1,050 q)
–
Credit
+
Debit
–
Credit
+
Debit
j)
200
850
Utilities Expense
–
Credit
+
Debit
i)
m)
160
360
Equipment
+
Debit
b)
c)
e)
p)
–
Credit
+
Debit
Prepaid Insurance
–
Credit
Footing
33,000
7,000
6,200
3,520
49,720
Accounting Is Fun!
2 - 35
=
Assets
–
Credit
+
Debit
–
Debit
Cash
–
Credit
+
Debit
a)
f)
70,000 b)
2,520 d)
33,000
2,000
d)
l)
q)
850 g)
700
n)
r)
4,220 i)
360
77,590 l)
1,800
Bal.
m)
n)
160
200
o)
2,130
p)
s)
620
2,500
43,470
34,120
+
Liabilities
Owner's Equity
–
Debit
+
Credit
+
Credit
Accounts Payable
L.P. Arch, Capital
–
Debit
–
Debit
+
Credit
2,000 c)
1,800 h)
7,000
600
200 j)
200
4,000 p)
2,900
–
Revenue
–
Debit
Expenses
+
Credit
Income from Services
–
Debit
Wages Expense
+
Credit
a)
e)
70,000
6,200
f)
k)
2,520
1,050
Bal.
76,200
r)
4,220
Bal.
7,790
+
Debit
6,700
s)
Credit
–
Credit
+
Debit
–
Credit
+
Debit
o)
2,130
Rent Expense
–
Credit
+
Debit
L.P. Arch, Drawing
10,700
Bal.
+
Credit
+
g)
700
Supplies Expense
2,500
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
k)
1,050 q)
Bal.
j)
Utilities Expense
–
Credit
m)
160
360
Equipment
+
Debit
b)
c)
e)
p)
Bal.
–
Credit
+
Debit
Prepaid Insurance
i)
200
850
200
+
Debit
–
Credit
+
Debit
–
Credit
+
Debit
–
Credit
Balances
33,000
7,000
6,200
3,520
49,720
Accounting Is Fun!
2 - 36
Performance Objective 5
Prepare a trial balance
Accounting Is Fun!
2 - 37
Prepare a Trial Balance
• List the account balances in two
columns
– Left column = Debits
– Right column = Credits
• List the accounts in the same order as
the chart of accounts
– First the balance sheet accounts
– Then the income statement accounts
Accounting Is Fun!
2 - 38
Trial Balance
• A trial run to prove that DR = CR
• If DR = CR, then A = L + OE
Accounting Is Fun!
2 - 39
Trial Balance
• Not a financial statement
• Don’t use dollar signs
• Use a single underline under the list of figures
to be added
• Use a double underline under column totals
Accounting Is Fun!
2 - 40
Accounting
Process of:
Summarizing means
• Analyzing
preparing financial
• Classifying
statements
• Recording
• Summarizing
• Interpreting business transactions
Accounting Is Fun!
2 - 41
Performance Objective 6
Prepare
– Income statement
– Statement of owner’s equity
– Balance sheet
Accounting Is Fun!
2 - 42
All Financial Statements
• Summarize useful financial information
for users of accounting information:
– Owners/investors
– Managers
– Creditors
– Government agencies
Accounting Is Fun!
2 - 43
All Financial Statements
• Have a three-line title
– Who: Name of the company (or owner)
– What: Title of financial statement
– When: Period of time or a single date
Income Statement
Or
Statement of OE
Accounting Is Fun!
Balance Sheet
2 - 44
Income Statement
Total Revenue – Total Expenses = Net Income (or Net Loss)
Accounting Is Fun!
2 - 45
Income Statement
• Answers the questions
– How profitable was the
company over the past period?
– How much net income did the
entity earn?
Accounting Is Fun!
Revenues
– Expenses
Net Income
2 - 46
What the Income Statement Tells Us
• Is the business profitable?
• What is the net income?
– Revenue > Expenses
• What is the net loss?
– Expenses > Revenue
Accounting Is Fun!
2 - 47
Income Statement
• Income Statement—Also Known As
– Statement of income and expenses
– Profit and loss statement
– Results of operations
• Net Income—Also Known As
– Profit
– Earnings
Accounting Is Fun!
2 - 48
Net Income
• Use the net income figure on the income
statement to complete the statement of
owner’s equity
Accounting Is Fun!
2 - 49
Statement of Owner’s Equity
• Prepared after you finish the income statement
• Answers the questions
– How did the owner’s equity change over the last period?
– How and why did the Capital account change?
• Provides ending Capital amount for use on the
balance sheet
00
Accounting Is Fun!
2 - 50
Additional Investment in the Company
• Can you invest assets other than cash?
– Tools?
– Trucks?
– Equipment?
• Yes!
– They must be recorded at their fair market
value (what they would be sold for on the
open market)
Accounting Is Fun!
2 - 51
Balance Sheet
Accounting Is Fun!
2 - 52
Balance Sheet
• Answers the questions
– What is the entity’s financial position on the last
day of the period?
– What assets, liabilities, and equities does the
entity have on the last day of the period?
• Uses the ending capital figure shown on the
statement of owner’s equity
• Resembles a snapshot—shows a point in
time
• Be careful of the date!
Accounting Is Fun!
2 - 53
Balance Sheet
• List accounts in the same order as the chart of accounts
• Why?
– Listed in order of liquidity
– Liquidity: How quickly it can be turned into cash
• Report Form
– Balance Sheet presentation where Assets are above
Liabilities and Owner’s Equity
Accounting Is Fun!
2 - 54
Errors Exposed by the Trial Balance
• DR ≠ CR?
• Arithmetic error
– Trial balance columns
added correctly?
– Accounts added
correctly?
• Half an entry
– DR without a CR?
– Example: If Trial Balance
is off by $100, did you
record the DR without the
CR?
Accounting Is Fun!
• DR ≠ CR?
• Both sides of an entry
on one side (two DRs)
– Example: If the Trial
Balance is off by $200,
divide by 2 to get $100
and look for transactions
for the amount $100
($100 DR to Cash and
$100 DR to Revenue)
• Recording amounts
incorrectly
– Look back to original
receipt, source
document, or problem
2 - 55
Errors Exposed by the Trial Balance
When DR = CR, there can still be an error
if you:
– Forgot to record a transaction
– Recorded the transaction twice
– Recorded the transaction for an incorrect
amount
– Recorded the amount in the incorrect
account
Accounting Is Fun!
2 - 56
How Do You Find the Errors?
• Pay careful attention as you record
transactions.
• Look to see if a normal balance was
placed in the wrong column.
• Re-add the columns.
• Check to see if account totals were
transferred correctly.
• Recalculate the footings and balances
in the accounts.
Accounting Is Fun!
2 - 57
Performance Objective 7
Recognize the effect of transpositions
and slides on account balances
Accounting Is Fun!
2 - 58
Transpositions and Slides
• Transposition error
– Digits have been transposed (switched around)
• Slide error
– The decimal point in an amount has been
misplaced
– “Slide the decimal place”
Error Type
DR or CR written as:
n
96
t io
i
549
os
p
s
197
an
r
513
T
27430
e
d
230
i
Sl
44
430
th
o
B
64390
Accounting Is Fun!
The other DR or CR
written as:
69
945
791
315
2743
23
440
34
9436
Difference after
subtracting the DR
and CR side of the
Trial Balance
27
-396
-594
198
24687
207
-396
396
54954
If evenly divided by
9, then you have a
Transposition, Slide,
Both
3
-44
-66
22
2743
23
-44
44
6106
2 - 59
Transpositions and Slides
• Finding an error
– Divide the difference between two trial
balance totals by 2, or multiply by 2. See if
the result matches a transaction amount.
– Errors divisible by 9: If an error exists and
the amount of difference between the totals
of the trial balance is evenly divisible by 9,
the error consists of either a transposition
or a slide or both.
Accounting Is Fun!
2 - 60
Demonstration Problem
We will be recording business
transactions for a company with the
following details:
Owner name:
R. P. Nelson
Business name: WindSport Boomerang & Kite Demos
Business type: Sole proprietorship
(one-person business)
Accounting Is Fun!
2 - 61
=
Assets
–
Credit
+
Debit
Cash
+
Debit
a)
Liabilities
–
Debit
+
Credit
Accounts Payable
–
Credit
–
Debit
+
Credit
+
Owner's Equity
–
Debit
+
Credit
R. P. Nelson, Capital
–
Debit
43,000
+
Credit
a)
+
Revenue
–
Debit
+
Credit
Income from Demos
–
Debit
+
Credit
–
Expenses
+
Debit
–
Credit
Wages Expense
+
Debit
–
Credit
43,000
Rent Expense
R. P. Nelson, Drawing
+
Debit
+
Debit
–
Credit
Credit
Supplies Expense
+
Debit
–
Credit
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Traveling Expense
+
Debit
Prepaid Insurance
+
Debit
–
Credit
Equipment
+
Debit
–
Credit
–
Credit
Transaction (a): Nelson deposited $43,000 in a
bank account in the name of business.
Accounting Is Fun!
2 - 62
=
Assets
–
Credit
+
Debit
Cash
+
Debit
a)
Liabilities
–
Debit
+
Credit
Accounts Payable
–
Credit
43,000 b)
–
Debit
+
Credit
+
Owner's Equity
–
Debit
+
Credit
R. P. Nelson, Capital
–
Debit
23,000
+
Credit
a)
+
Revenue
–
Debit
+
Credit
Income from Demos
–
Debit
+
Credit
–
Expenses
+
Debit
–
Credit
Wages Expense
+
Debit
–
Credit
43,000
Rent Expense
R. P. Nelson, Drawing
+
Debit
+
Debit
–
Credit
Credit
Supplies Expense
+
Debit
–
Credit
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Traveling Expense
+
Debit
Prepaid Insurance
+
Debit
–
Credit
Equipment
+
Debit
b)
–
Credit
–
Credit
Transaction (b): Bought truck, paying cash,
$23,000.
23,000
Accounting Is Fun!
2 - 63
=
Assets
–
Credit
+
Debit
Cash
+
Debit
a)
+
Liabilities
–
Debit
+
Credit
Accounts Payable
–
Credit
43,000 b)
–
Debit
23,000
+
Credit
c)
Owner's Equity
–
Debit
+
Credit
R. P. Nelson, Capital
–
Debit
2,500
+
Credit
a)
+
Revenue
–
Debit
+
Credit
Income from Demos
–
Debit
+
Credit
–
Expenses
+
Debit
–
Credit
Wages Expense
+
Debit
–
Credit
43,000
Rent Expense
R. P. Nelson, Drawing
+
Debit
+
Debit
–
Credit
Credit
Supplies Expense
+
Debit
–
Credit
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Traveling Expense
+
Debit
Prepaid Insurance
+
Debit
–
Credit
Equipment
+
Debit
b)
c)
–
Credit
–
Credit
Transaction (c): Bought camper shell for truck on
account from Louie's Trucks & Campers, $2,500.
23,000
2,500
Accounting Is Fun!
2 - 64
=
Assets
–
Credit
+
Debit
–
Debit
Cash
+
Debit
a)
+
Liabilities
+
Credit
Accounts Payable
–
Credit
43,000 b)
d)
23,000
1,500
–
Debit
d)
1,500 c)
+
Credit
Owner's Equity
–
Debit
+
Credit
R. P. Nelson, Capital
–
Debit
2,500
+
Credit
a)
+
Revenue
–
Debit
+
Credit
Income from Demos
–
Debit
+
Credit
–
Expenses
+
Debit
–
Credit
Wages Expense
+
Debit
–
Credit
43,000
Rent Expense
R. P. Nelson, Drawing
+
Debit
+
Debit
–
Credit
Credit
Supplies Expense
+
Debit
–
Credit
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Traveling Expense
+
Debit
Prepaid Insurance
+
Debit
–
Credit
Equipment
+
Debit
b)
c)
–
Credit
–
Credit
Transaction (d): Paid Louie's Trucks &
Campers, a creditor, $1,500.
23,000
2,500
Accounting Is Fun!
2 - 65
=
Assets
–
Credit
+
Debit
–
Debit
Cash
+
Debit
a)
+
Liabilities
+
Credit
Accounts Payable
–
Credit
43,000 b)
d)
23,000
1,500
–
Debit
d)
1,500 c)
+
Credit
Owner's Equity
–
Debit
+
Credit
R. P. Nelson, Capital
–
Debit
2,500
+
Credit
a)
e)
+
Revenue
–
Debit
+
Credit
Income from Demos
–
Debit
+
Credit
–
Expenses
+
Debit
–
Credit
Wages Expense
+
Debit
–
Credit
43,000
3,400
Rent Expense
R. P. Nelson, Drawing
+
Debit
+
Debit
–
Credit
Credit
Supplies Expense
+
Debit
–
Credit
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Traveling Expense
+
Debit
Prepaid Insurance
+
Debit
–
Credit
Equipment
+
Debit
b)
c)
e)
23,000
2,500
3,400
–
Credit
–
Credit
Transaction (e): Nelson invested his own personal
computer equipment, having a fair market value of
$3,400, in WindSport Boomerang & Kite Demos.
Accounting Is Fun!
2 - 66
=
Assets
–
Credit
+
Debit
–
Debit
Cash
+
Debit
a)
f)
+
Liabilities
+
Credit
Accounts Payable
–
Credit
43,000 b)
2,500 d)
23,000
1,500
–
Debit
d)
1,500 c)
+
Credit
Owner's Equity
–
Debit
+
Credit
R. P. Nelson, Capital
–
Debit
2,500
+
Credit
a)
e)
43,000
3,400
+
–
Revenue
–
Debit
+
Credit
Income from Demos
–
Debit
+
Credit
f)
Expenses
+
Debit
–
Credit
Wages Expense
+
Debit
–
Credit
2,500
Rent Expense
R. P. Nelson, Drawing
+
Debit
+
Debit
–
Credit
Credit
Supplies Expense
+
Debit
–
Credit
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Traveling Expense
+
Debit
Prepaid Insurance
+
Debit
–
Credit
Equipment
+
Debit
b)
c)
e)
23,000
2,500
3,400
–
Credit
–
Credit
Transaction (f): Nelson and employee
performed boomerang & kite demo for Girl
Scouts and received cash, $2,500.
Accounting Is Fun!
2 - 67
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
+
Credit
Accounts Payable
–
Credit
+
Debit
+
Liabilities
–
Debit
43,000 b)
2,500 d)
23,000
1,500
g)
700
d)
1,500 c)
+
Credit
Owner's Equity
–
Debit
+
Credit
R. P. Nelson, Capital
–
Debit
2,500
+
Credit
a)
e)
43,000
3,400
+
–
Revenue
–
Debit
Expenses
+
Credit
+
Debit
Income from Demos
–
Debit
Wages Expense
+
Credit
f)
–
Credit
+
Debit
–
Credit
2,500
Rent Expense
+
Debit
R. P. Nelson, Drawing
+
Debit
Credit
g)
–
Credit
700
Supplies Expense
+
Debit
–
Credit
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Traveling Expense
+
Debit
Prepaid Insurance
+
Debit
–
Credit
Equipment
+
Debit
b)
c)
e)
–
Credit
–
Credit
Transaction (g): Paid rent for the month,
$700.
23,000
2,500
3,400
Accounting Is Fun!
2 - 68
=
Assets
–
Credit
+
Debit
–
Debit
Cash
+
Debit
a)
f)
+
Liabilities
+
Credit
Accounts Payable
–
Credit
43,000 b)
2,500 d)
g)
23,000
1,500
700
–
Debit
d)
1,500 c)
h)
+
Credit
Owner's Equity
–
Debit
+
Credit
R. P. Nelson, Capital
–
Debit
2,500
600
+
Credit
a)
e)
43,000
3,400
+
–
Revenue
–
Debit
Expenses
+
Credit
+
Debit
Income from Demos
–
Debit
Wages Expense
+
Credit
f)
–
Credit
+
Debit
–
Credit
2,500.0
Rent Expense
+
Debit
R. P. Nelson, Drawing
+
Debit
Credit
g)
–
Credit
700
Supplies Expense
+
Debit
h)
–
Credit
600
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Traveling Expense
+
Debit
Prepaid Insurance
+
Debit
–
Credit
Equipment
+
Debit
b)
c)
e)
23,000
2,500
3,400
–
Credit
–
Credit
Transaction (h): WindSport B&K Demos bought
supplies (toner and paper) on credit. These supplies
are used immediately so they are recorded as an
expense ($600).
Accounting Is Fun!
2 - 69
=
Assets
–
Credit
+
Debit
–
Debit
Cash
+
Debit
a)
f)
+
Liabilities
+
Credit
Accounts Payable
–
Credit
43,000 b)
2,500 d)
g)
i)
23,000
1,500
700
2,000
–
Debit
d)
1,500 c)
h)
+
Credit
Owner's Equity
–
Debit
+
Credit
R. P. Nelson, Capital
–
Debit
2,500
600
+
Credit
a)
e)
43,000
3,400
+
–
Revenue
–
Debit
Expenses
+
Credit
+
Debit
Income from Demos
–
Debit
Wages Expense
+
Credit
f)
–
Credit
+
Debit
–
Credit
2,500
Rent Expense
+
Debit
R. P. Nelson, Drawing
+
Debit
Credit
g)
–
Credit
700
Supplies Expense
+
Debit
h)
–
Credit
600
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
–
Credit
Traveling Expense
+
Debit
Prepaid Insurance
+
Debit
i)
–
Credit
2,000
Equipment
+
Debit
b)
c)
e)
–
Credit
–
Credit
Transaction (i): WindSport B & K Demos paid
$2,000 for a one-year liability insurance policy.
23,000
2,500
3,400
Accounting Is Fun!
2 - 70
=
Assets
–
Debit
Cash
+
Debit
a)
f)
+
Liabilities
–
Credit
+
Debit
+
Credit
Accounts Payable
–
Credit
43,000 b)
2,500 d)
g)
i)
23,000
1,500
700
2,000
–
Debit
d)
1,500 c)
h)
j)
+
Credit
Owner's Equity
–
Debit
+
Credit
R. P. Nelson, Capital
–
Debit
2,500
600
200
+
Credit
a)
e)
43,000
3,400
+
–
Revenue
–
Debit
Expenses
+
Credit
+
Debit
Income from Demos
–
Debit
Wages Expense
+
Credit
f)
–
Credit
+
Debit
–
Credit
2,500
Rent Expense
+
Debit
R. P. Nelson, Drawing
+
Debit
Credit
g)
–
Credit
700
Supplies Expense
+
Debit
h)
–
Credit
600
Advertising Expense
Accounts Receivable
+
Debit
+
Debit
–
Credit
j)
–
Credit
200
Traveling Expense
+
Debit
Prepaid Insurance
+
Debit
i)
–
Credit
2,000
Equipment
+
Debit
b)
c)
e)
–
Credit
23,000
2,500
3,400
–
Credit
Transaction (j): WindSport B & K Demos
received an advertising bill from City News for
advertising, $200.
Accounting Is Fun!
2 - 71
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
+
Credit
Accounts Payable
–
Credit
+
Debit
+
Liabilities
43,000 b)
2,500 d)
–
Debit
23,000
1,500
g)
d)
1,500 c)
h)
700
i)
+
Credit
j)
Owner's Equity
–
Debit
+
Credit
R. P. Nelson, Capital
–
Debit
2,500
600
+
Credit
a)
e)
43,000
3,400
+
–
Revenue
–
Debit
Expenses
+
Credit
+
Debit
Income from Demos
–
Debit
Wages Expense
+
Credit
f)
k)
–
Credit
+
Debit
–
Credit
2,500
2,500
Rent Expense
200
+
Debit
2,000
R. P. Nelson, Drawing
+
Debit
Credit
g)
–
Credit
700
Supplies Expense
+
Debit
h)
–
Credit
600
Advertising Expense
Accounts Receivable
+
Debit
k)
+
Debit
–
Credit
j)
–
Credit
200
2,500
Traveling Expense
+
Debit
Prepaid Insurance
+
Debit
i)
–
Credit
2,000
Equipment
+
Debit
b)
c)
e)
–
Credit
23,000
2,500
3,400
–
Credit
Transaction (k): Nelson and employee performed
boomerang & kite demo for Boy Scouts and earned
income on account ("sold services on account"),
$2,500.
Accounting Is Fun!
2 - 72
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
+
Credit
Accounts Payable
–
Credit
+
Debit
+
Liabilities
43,000 b)
2,500 d)
–
Debit
23,000
1,500
g)
d)
l)
1,500 c)
1,000 h)
700
i)
2,000
l)
1,000
+
Credit
j)
Owner's Equity
–
Debit
+
Credit
R. P. Nelson, Capital
–
Debit
2,500
600
+
Credit
a)
e)
43,000
3,400
+
–
Revenue
–
Debit
Expenses
+
Credit
+
Debit
Income from Demos
–
Debit
Wages Expense
+
Credit
f)
k)
–
Credit
+
Debit
–
Credit
2,500
2,500
Rent Expense
200
+
Debit
R. P. Nelson, Drawing
+
Debit
Credit
g)
–
Credit
700
Supplies Expense
+
Debit
h)
–
Credit
600
Advertising Expense
Accounts Receivable
+
Debit
k)
+
Debit
–
Credit
j)
–
Credit
200
2,500
Traveling Expense
+
Debit
Prepaid Insurance
+
Debit
i)
–
Credit
2,000
Equipment
+
Debit
b)
c)
e)
–
Credit
23,000
2,500
3,400
–
Credit
Transaction (l): WindSport B & K Demos paid
$1,000 to Louie's Trucks & Campers, its creditor,
as final payment on account.
Accounting Is Fun!
2 - 73
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
+
Credit
Accounts Payable
–
Credit
+
Debit
+
Liabilities
43,000 b)
2,500 d)
–
Debit
23,000
1,500
g)
700
i)
2,000
l)
1,000
m)
d)
l)
Owner's Equity
–
Debit
+
Credit
R. P. Nelson, Capital
+
Credit
1,500 c)
1,000 h)
2,500
600
j)
200
–
Debit
+
Credit
a)
e)
43,000
3,400
+
–
Revenue
–
Debit
Expenses
+
Credit
Income from Demos
–
Debit
Wages Expense
+
Credit
f)
k)
–
Credit
+
Debit
2,500
2,500
Rent Expense
+
Debit
Credit
–
Credit
+
Debit
R. P. Nelson, Drawing
160
–
Credit
+
Debit
g)
700
Supplies Expense
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
+
Debit
k)
–
Credit
+
Debit
–
Credit
j)
200
2,500
Traveling Expense
+
Debit
i)
–
Credit
m)
160
2,000
Equipment
+
Debit
b)
c)
e)
–
Credit
+
Debit
Prepaid Insurance
–
Credit
Transaction (m): WindSport B & K Demos received
and paid the gas card bill, $160 (Traveling Expense).
23,000
2,500
3,400
Accounting Is Fun!
2 - 74
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
+
Credit
Accounts Payable
–
Credit
+
Debit
+
Liabilities
43,000 b)
2,500 d)
–
Debit
–
Debit
+
Credit
R. P. Nelson, Capital
+
Credit
23,000
1,500
d)
l)
1,500 c)
1,000 h)
2,500
600
g)
700
n)
200 j)
200
i)
2,000
l)
1,000
m)
n)
Owner's Equity
–
Debit
+
Credit
a)
e)
43,000
3,400
+
–
Revenue
–
Debit
Expenses
+
Credit
Income from Demos
–
Debit
Wages Expense
+
Credit
f)
k)
–
Credit
+
Debit
2,500
2,500
Rent Expense
+
Debit
Credit
–
Credit
+
Debit
R. P. Nelson, Drawing
160
200
–
Credit
+
Debit
g)
700
Supplies Expense
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
+
Debit
k)
–
Credit
+
Debit
–
Credit
j)
200
2,500
Traveling Expense
+
Debit
i)
–
Credit
m)
160
2,000
Equipment
+
Debit
b)
c)
e)
–
Credit
+
Debit
Prepaid Insurance
–
Credit
Transaction (n): WindSport B & K Demos pays $200
on account to City News for advertising.
23,000
2,500
3,400
Accounting Is Fun!
2 - 75
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
+
Credit
Accounts Payable
–
Credit
+
Debit
+
Liabilities
43,000 b)
2,500 d)
–
Debit
+
Credit
d)
l)
1,500 c)
1,000 h)
2,500
600
g)
700
n)
200 j)
200
i)
2,000
l)
1,000
160
200
o)
1,030
–
Debit
+
Credit
R. P. Nelson, Capital
23,000
1,500
m)
n)
Owner's Equity
–
Debit
+
Credit
a)
e)
43,000
3,400
+
–
Revenue
–
Debit
Expenses
+
Credit
Income from Demos
–
Debit
Wages Expense
+
Credit
f)
k)
2,500
2,500
–
Credit
+
Debit
–
Credit
+
Debit
o)
1,030
Rent Expense
+
Debit
Credit
–
Credit
+
Debit
R. P. Nelson, Drawing
g)
700
Supplies Expense
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
+
Debit
k)
–
Credit
+
Debit
–
Credit
j)
200
2,500
Traveling Expense
+
Debit
i)
–
Credit
m)
160
2,000
Equipment
+
Debit
b)
c)
e)
–
Credit
+
Debit
Prepaid Insurance
–
Credit
Transaction (o): WindSport B & K Demos pays
wages for a part-time employee, $1,030.
23,000
2,500
3,400
Accounting Is Fun!
2 - 76
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
+
Credit
Accounts Payable
–
Credit
+
Debit
+
Liabilities
43,000 b)
2,500 d)
–
Debit
d)
l)
1,500 c)
1,000 h)
g)
700
n)
200 j)
i)
2,000
l)
1,000
m)
n)
160
200
o)
1,030
p)
620
p)
–
Debit
+
Credit
R. P. Nelson, Capital
+
Credit
23,000
1,500
Owner's Equity
–
Debit
2,500
600
+
Credit
a)
e)
43,000
3,400
+
–
Revenue
–
Debit
Expenses
+
Credit
Income from Demos
–
Debit
Wages Expense
+
Credit
f)
k)
2,500
2,500
–
Credit
+
Debit
–
Credit
+
Debit
o)
1,030
Rent Expense
200
R. P. Nelson, Drawing
+
Debit
Credit
–
Credit
+
Debit
1,500
g)
700
Supplies Expense
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
+
Debit
k)
–
Credit
+
Debit
–
Credit
j)
200
2,500
Traveling Expense
+
Debit
i)
–
Credit
m)
160
2,000
Equipment
+
Debit
b)
c)
e)
p)
–
Credit
+
Debit
Prepaid Insurance
23,000
2,500
3,400
2,120
–
Credit
Transaction (p): WindSport B&K Demos buys
a trailer from Louie's Trucks & Campers for $2,120,
paying $620 down with the remaining $1,500 on
account (Equipment, A/P, and Cash accounts).
Accounting Is Fun!
2 - 77
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
43,000 b)
2,500 d)
q)
+
Credit
Accounts Payable
–
Credit
+
Debit
+
Liabilities
–
Debit
+
Credit
d)
l)
1,500 c)
1,000 h)
850 g)
700
n)
200 j)
200
i)
2,000
p)
1,500
l)
1,000
160
200
o)
1,030
p)
620
–
Debit
+
Credit
R. P. Nelson, Capital
23,000
1,500
m)
n)
Owner's Equity
–
Debit
2,500
600
+
Credit
a)
e)
43,000
3,400
+
–
Revenue
–
Debit
Expenses
+
Credit
Income from Demos
–
Debit
Wages Expense
+
Credit
f)
k)
2,500
2,500
–
Credit
+
Debit
–
Credit
+
Debit
o)
1,030
Rent Expense
+
Debit
Credit
–
Credit
+
Debit
R. P. Nelson, Drawing
g)
700
Supplies Expense
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
+
Debit
k)
2,500 q)
–
Credit
+
Debit
–
Credit
j)
200
850
Traveling Expense
+
Debit
i)
–
Credit
m)
160
2,000
Equipment
+
Debit
b)
c)
e)
p)
–
Credit
+
Debit
Prepaid Insurance
–
Credit
Transaction (q): WindSport B & K Demos receives
$850 cash on account from a credit customer.
23,000
2,500
3,400
2,120
Accounting Is Fun!
2 - 78
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
+
Credit
Accounts Payable
–
Credit
+
Debit
+
Liabilities
43,000 b)
2,500 d)
–
Debit
+
Credit
d)
l)
1,500 c)
1,000 h)
n)
200 j)
200
p)
1,500
850 g)
700
r)
4,220 i)
2,000
l)
1,000
m)
n)
160
200
o)
1,030
p)
620
–
Debit
+
Credit
R. P. Nelson, Capital
23,000
1,500
q)
Owner's Equity
–
Debit
2,500
600
+
Credit
a)
e)
43,000
3,400
+
–
Revenue
–
Debit
Expenses
+
Credit
Income from Demos
–
Debit
Wages Expense
+
Credit
f)
k)
2,500
2,500
r)
4,220
Credit
–
Credit
+
Debit
o)
1,030
Rent Expense
–
Credit
+
Debit
R. P. Nelson, Drawing
+
Debit
–
Credit
+
Debit
g)
700
Supplies Expense
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
+
Debit
k)
2,500 q)
–
Credit
+
Debit
–
Credit
j)
200
850
Traveling Expense
+
Debit
i)
–
Credit
m)
160
2,000
Equipment
+
Debit
b)
c)
e)
p)
–
Credit
+
Debit
Prepaid Insurance
23,000
2,500
3,400
2,120
–
Credit
Transaction (r): WindSport B & K Demos receives
revenue from cash customers for the rest of the
month, $4,220.
Accounting Is Fun!
2 - 79
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
43,000 b)
2,500 d)
–
Debit
1,500 c)
1,000 h)
n)
200 j)
200
p)
1,500
850 g)
700
4,220 i)
2,000
l)
1,000
m)
n)
160
200
o)
1,030
p)
s)
620
2,500
+
Credit
–
Debit
+
Credit
d)
l)
r)
–
Debit
R. P. Nelson, Capital
23,000
1,500
q)
Owner's Equity
+
Credit
Accounts Payable
–
Credit
+
Debit
+
Liabilities
2,500
600
+
Credit
a)
e)
43,000
3,400
+
–
Revenue
–
Debit
Expenses
+
Credit
Income from Demos
–
Debit
Wages Expense
+
Credit
f)
k)
2,500
2,500
r)
4,220
s)
Credit
–
Credit
+
Debit
o)
1,030
Rent Expense
–
Credit
+
Debit
R. P. Nelson, Drawing
+
Debit
–
Credit
+
Debit
g)
700
Supplies Expense
2,500
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
+
Debit
k)
2,500 q)
–
Credit
+
Debit
–
Credit
j)
200
850
Traveling Expense
+
Debit
i)
–
Credit
m)
160
2,000
Equipment
+
Debit
b)
c)
e)
p)
–
Credit
+
Debit
Prepaid Insurance
23,000
2,500
3,400
2,120
–
Credit
Transaction (s): Nelson withdraws $2,500 in cash
from the business for his personal living costs.
Accounting Is Fun!
2 - 80
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
43,000 b)
2,500 d)
–
Debit
23,000
1,500
d)
l)
n)
q)
850 g)
700
r)
4,220 i)
2,000
50,570 l)
1,000
m)
n)
160
200
o)
1,030
p)
s)
620
2,500
32,710
Owner's Equity
–
Debit
+
Credit
Accounts Payable
–
Credit
+
Debit
+
Liabilities
R. P. Nelson, Capital
–
Debit
+
Credit
1,500 c)
1,000 h)
+
Credit
2,500
600
200 j)
200
2,700 p)
1,500
4,800
+
Credit
a)
e)
+
–
Revenue
–
Debit
Expenses
+
Credit
Income from Demos
–
Debit
Wages Expense
+
Credit
43,000
3,400
f)
k)
2,500
2,500
46,400
r)
4,220
o)
1,030
Rent Expense
s)
–
Credit
+
Debit
R. P. Nelson, Drawing
Credit
–
Credit
+
Debit
9,220
+
Debit
–
Credit
+
Debit
g)
700
Supplies Expense
2,500
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
+
Debit
k)
2,500 q)
–
Credit
+
Debit
–
Credit
j)
200
850
Traveling Expense
+
Debit
i)
–
Credit
m)
160
2,000
Equipment
+
Debit
b)
c)
e)
p)
–
Credit
+
Debit
Prepaid Insurance
–
Credit
Footing
23,000
2,500
3,400
2,120
31,020
Accounting Is Fun!
2 - 81
=
Assets
–
Credit
+
Debit
–
Debit
Cash
a)
f)
–
Debit
+
Credit
43,000 b)
2,500 d)
–
Debit
23,000
1,500
d)
l)
n)
q)
850 g)
700
r)
4,220 i)
2,000
50,570 l)
1,000
Bal.
Owner's Equity
Accounts Payable
–
Credit
+
Debit
+
Liabilities
m)
n)
160
200
o)
1,030
p)
s)
620
2,500
32,710
17,860
R. P. Nelson, Capital
–
Debit
+
Credit
1,500 c)
1,000 h)
2,500
600
200 j)
200
2,700 p)
1,500
4,800
Bal.
+
Credit
+
Credit
+
–
Revenue
–
Debit
Expenses
+
Credit
Income from Demos
–
Debit
Wages Expense
+
Credit
a)
e)
43,000
3,400
f)
k)
2,500
2,500
Bal.
46,400
r)
4,220
Bal.
9,220
+
Debit
s)
Credit
–
Credit
+
Debit
o)
1,030
Rent Expense
–
Credit
+
Debit
R. P. Nelson, Drawing
2,100
–
Credit
+
Debit
g)
700
Supplies Expense
2,500
–
Credit
+
Debit
h)
600
Advertising Expense
Accounts Receivable
+
Debit
k)
2,500 q)
Bal.
1,650
j)
i)
Traveling Expense
–
Credit
+
Debit
–
Credit
m)
160
2,000
Equipment
+
Debit
b)
c)
e)
p)
Bal.
200
850
Prepaid Insurance
+
Debit
–
Credit
+
Debit
–
Credit
–
Credit
Balances
23,000
2,500
3,400
2,120
31,020
Accounting Is Fun!
2 - 82
Trial Balance
WindSport Boomerang & Kite Demos
Trial Balance
June 30, 2003
Cash
Accounts Receivable
Prepaid Insurance
Equipment
Accounts Payable
R. P. Nelson, Capital
R. P. Nelson, Drawing
Income from Demos
Wages Expense
Rent Expense
Supplies Expense
Advertising Expense
Traveling Expense
Accounting Is Fun!
17,860
1,650
2,000
31,020
2,100
46,400
2,500
9,220
1,030
700
600
200
160
57,720
57,720
2 - 83
Income Statement
WindSport Boomerang & Kite Demos
Income Statement
For Month Ended June 30, 2003
Revenues:
Income from Demos
Expenses:
Wages Expense
Rent Expense
Supplies Expense
Advertising Expense
Traveling Expense
Accounting Is Fun!
$
$
9,220
$
2,690
6,530
1,030
700
600
200
160
2 - 84
Statement of Owner’s Equity
WindSport Boomerang & Kite Demos
Statement of Owner's Equity
For Month Ended June 30, 2003
R. P. Nelson, Capital, June 1, 2003
Net Income for June
Less Withdrawals for June
Increase in Capital
R. P. Nelson, Capital, June 30, 2003
Accounting Is Fun!
$
$
46,400
$
4,030
50,430
6,530
2,500
2 - 85
Balance Sheet
WindSport Boomerang & Kite Demos
Balance Sheet
June 30, 2003
Assets
Cash
Accounts Receivable
Prepaid Insurance
Equipment
$
17,860
1,650
2,000
31,020
$
52,530
$
2,100
$
50,430
52,530
Liabilities
Accounts Payable
Owner's Equity
R. P. Nelson, Capital
Total Liabilities and Owner's Equity
Accounting Is Fun!
2 - 86