Analyzing
Transactions
into Debit and
Credit Parts
PRINCIPLES OF ACCOUNTING I
Objectives
• By the end of the lesson, I will be able to:
• define accounting terms related to analyzing
transactions into debit and credit parts.
• identify accounting practices related to analyzing
transactions into debit and credit parts.
• use “T” accounts to analyze transactions showing
which accounts are debited or credited for each
transaction.
• verify the equality of debits and credits for each
transaction.
What We Know
• We have learned how business transactions
affect accounts in an accounting equation.
• Procedure is not practical in an actual
accounting system.
• the number of accounts most businesses have
would make the accounting equation cumbersome
to use
• a separate record is commonly used for each
account
Accounting Terms
• Accounting equation: shows relationship among assets, liabilities,
and owner’s equity
• Asset: anything of value that is owned or controlled
• Capital: account used to summarize the owner’s equity
• Chart of accounts: list of accounts used in a business
• Credit: amount recorded on the right side of a T-account
• Debit: amount recorded on the left side of a T-account
• Liability: amount of money owed to the creditors of a business
• Normal balance: side of the account that is increased
• Owner’s equity: amount remaining after the value of all liabilities is
subtracted from the value of all assets
• T-account: accounting device used to analyze transactions
• Transaction: business activity that changes assets, liabilities, or
owner’s equity
The Accounting Equation
Assets = Liabilities + Owner’s Equity
• The accounting equation can be represented as a
“T”:
• Always draw T accounts when analyzing
transactions to see the debit and credit sides.
What Does a T Account Look
Like?
Location, location, location
• The normal balance side of an asset, liability, or
capital account is based on the location of the
account in the accounting equation
All about the sides….
• The sides of the T account also show increases
and decreases in account balances
Rules
• Two basic accounting rules regulate the increases
and decreases of account balances:
• Account balances increase on the normal side of
an account
• Account balances decrease on the opposite side of
an account
Remember This…
• Asset accounts have normal debit balances
• increase on the debit side
• decrease on the credit side
• Liability accounts have normal credit balances
• increase on the credit side
• decrease on the debit side
• Owner’s equity account has a normal credit balance
• increases on the credit side
• decreases on the debit side
Let’s Review
• The normal balance side of an asset, liability, or
capital account is based on what?
• The sides of the T account show what?
• Assets account have normal __________
balances.
• Liability accounts have normal
__________balances.
• Owner’s Equity accounts have normal
__________balances.
Analyze This….
• Before a transaction is recorded in the records of a
business, the information is analyzed to determine
which accounts are changed and how.
• Each transaction changes the balances of at least two
accounts and debits equal credits for each
transaction.
• Four steps are used in analyzing a transaction:
• Determine what accounts will be affected
• Determine whether to increase or decrease the account
• Determine whether the increase/decrease needs to be a
debit or a credit
• Make sure debits equal credits
Let’s Do This Together
• Using the Graphic Organizer, we will analyze the
following transactions:
• 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.
• Maria Sanchez transferred two telephones valued at
$200 each from her home to the business.
• Roadrunner bought a used truck on account from
North Shore Auto for $12,000.
• Roadrunner sold one telephone to Green Company
for $200 on account.
On Your Own….
• Using Microsoft Excel, you will create T accounts
and basic formulas to analyze the transactions on
your John Jones Computing handout.
Ticket Out of the Door
• List the normal balances Assets, Liabilities, and
Owner’s Equity