Chapter 2: T Accounts, Debits & Credits, Trial Balance & Financial
Statements
PERFORMANCE OBJECTIVES
1.
Determine balances of T accounts.
2.
Present the fundamental accounting equation using the T account form and label the plus and minus sides.
3.
Present the fundamental accounting equation using the T account form and label the debit and credit sides.
4.
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.
5.
Prepare a trial balance.
6.
Prepare (a) an income statement, (b) a statement of owner’s equity and (c) a balance sheet.
7.
Recognize the effect errors on account balances.
KEY POINTS
1. The T account form is compared with the column arrangement.
2. In the T account form of the fundamental accounting equation, plus (+) and minus (–) signs should be inserted
on the correct side of each of the five classifications of accounts.
3. The normal balance of an account is on the plus side.
4. The debit side of any T account is the left side.
5. The credit side of any T account is the right side.
6. In the recording of every transaction, the amount placed on the left, or debit, side of an account or
accounts must equal the amount placed on the right, or credit, side of another account or other accounts.
7. A trial balance proves the total of debits and credits.
8. The income statement shows the results of operations for a period of time.
9. The statement of owner’s equity shows the activity in the Capital account for a period of time.
10. The balance sheet shows the position or condition of the business at a point in time
Chapter 2 Vocabulary Words:
Chapter 2
olivo

CP ACCOUNTING
Chapter 2: T Account Transactions
Cash----Equipment---Prepaid Ins---Acct Rec---Acct Pay---Arch, Capital---Arch, Drawing---Income from
Services---Rent Expense---Advertising Expense---Utilities Expense---Wages Expense
A: Arch deposited $70,000 in a bank account in the name of the business.
B: Bought equipment, paying cash $33,000.
C: Bought equipment on accounting from Melton Office Supply $7,000.
D: Paid Melton Office Supply, a creditor, $2,000 .
E: Arch invested her own personal data processing equipment in Arch Copy co, having a fair market value of $6,200. olivo 04/10/13

CP ACCOUNTING
Chapter 2: T Account Transactions
Cash----Equipment---Prepaid Ins---Acct Rec---Acct Pay---Arch, Capital---Arch, Drawing---Income from
Services---Rent Expense---Advertising Expense---Utilities Expense---Wages Expense
F: Arch Copy co. sold services for cash, $2,520.
G: Paid rent for the month, $700.
H: Arch Copy Co. bought Equipment on account $600.
I: Arch Copy Co. paid $360 for a one year liability insurance policy.
J: Arch copy co. received a bill for an advertising expense of $200. olivo 04/10/13

CP ACCOUNTING
Chapter 2: T Account Transactions
Cash----Equipment---Prepaid Ins---Acct Rec---Acct Pay---Arch, Capital---Arch, Drawing---Income from
Services---Rent Expense---Advertising Expense---Utilities Expense---Wages Expense
K: Arch Copy Co. completed a printing job and billed Walker Company $1,050 for services performed.
L: Arch Copy Co. paid $1,800 to Melton Office Supply, its creditor, as part payment on account.
M: Arch Copy Co. received and paid a bill from Regional Power, Inc for $160.
N: Arch Copy Co pays on account $200 to the City News.
O: Arch Copy Co. pays wages for a part time employee $2,130. olivo 04/10/13

CP ACCOUNTING
Chapter 2: T Account Transactions
Cash----Equipment---Prepaid Ins---Acct Rec---Acct Pay---Arch, Capital---Arch, Drawing---Income from
Services---Rent Expense---Advertising Expense---Utilities Expense---Wages Expense
P: Arch Copy Co buys additional equipment from Melton Office Supply for $3,520, paying $620 cash, with the remainder of $2,900 on account.
Q: Arch Copy Co receives $850 cash on account from a credit customer.
R: Arch Copy Co receives revenue from cash customers for the rest of the month $4,220.
S: Arch withdraws $2,500 in cash from the business for her personal use.
E: Arch invested her own personal data processing equipment in Arch Copy co, having a fair market value of $6,200. olivo 04/10/13

CP ACCOUNTING
Examples of the Three Financial Statements olivo 04/10/13