Chapter 2 Unit 3
Balance Sheet Accounts
Mrs. Joudrey
Recording Transactions in
T-Accounts
• Transaction analysis sheets (unit2) are
impractical in the business world because
of the amount of transactions an actual
business would have in the run of a day,
week, month, or year. Therefore, we are
going to break each account out and
create T-accounts for them to record what
goes on in each account.
Recording Transactions in
T-Accounts
• Every item on the balance sheet will have
its own account/ T-account. As
transactions occur, the changes as a result
of these transactions will be recorded in
these T-accounts.
Recording Transactions in
T-Accounts
• T-accounts have two sides. The left hand
side of an account is called debit and the
right hand side of the account is called
credit.
_________________
Debit
│
Credit
Example using the cash account:
______Cash________
Debit
│
Credit
Left = Debit
Right = Credit
• The left side will always be a debit and the
right side always a credit. One side of the
T-account will be for recording increases
and the other side decreases – however, it
depends on what account you are dealing
with (asset, liabilities, owner’s equity)
whether the increase will be recorded on
the right or left side of the account.
Opening Balances
• The opening balances for all accounts can
come right off of the balance sheet. The
side of the balance sheet the items are on
will tell you what side the opening balance
should be on.
Left = Debit
Right = Credit
• For example assets are listed on the left
side of the balance sheet, therefore the
opening balances for all of the asset
accounts will be on the ____________
side of a T-account.
• Liabilities will have opening balances on
the ______side of a T-account because
they are recorded on the ________ side of
a balance sheet.
Left = Debit
Right = Credit
• Owner’s Equity will have opening balances
on the ______side of a T-account because
they are recorded on the ________ side of
a balance sheet.
Please record this in your
notebooks
Dr. _____Assets____Cr.
+
│
Dr.____Liabilities____Cr.
│
+
Dr._____OE_____Cr.
│
+
Introducing Ledgers
• A ledger is a group of accounts.
• Think about the balance sheet as a large
T. This will help you remember where the
normal opening balance will go.
To Open Accounting in the Ledger
•
•
Place the account name in the middle of
each account.
Record the date and opening balance
from the balance sheet on the correct
side.
Open the accounts for the following
items:
Ledgers
• Since assets are recorded on the left side
of the balance sheet their amounts have
been recorded on the left side of the
account we have set up.
• Liabilities are on the right side of the
balance sheet therefore their amounts are
recorded on the right side of the accounts.
(same for owner’s equity)
Please Complete the Following:
• Add up all the debit balances (left side of
the T-accounts)
• Add up all the credit balances (right side of
the T-accounts)
• What do you notice?
Double-Entry Accounting
• Double-entry accounting requires a debit
amount equal to the credit amount for
each transaction.
• Therefore if you have a debit amount of
$500, you will need to record a credit
amount of $500.
Recording Transactions in
Accounts
•
Determine which accounts will change (there
will always be two or more accounts)
• Identify the type of account that has changed.
Is the account an A, L, or OE?
• Decide whether the change is an increase or
decrease in the account.
• Decide whether the change is recorded as a
debit or credit in the account.
REMEMBER THE DEBITS MUST EQUAL THE
CREDITS – EVERYTHING MUST STILL
BALANCE!
Record the Following Transaction
Aug. 2
Received $500 cash as
payments on membership dues owing.
• What accounts will change?
• What types of accounts are they (A, L, or
OE)?
• Is the change an increase or decrease in
the account?
• Should the change be recorded as a
debit or credit in the account?
Record the Following Transaction
• Aug. 5 Purchased $25 worth of office
supplies from Central Supply Co. with 30
days to pay.
1. what accounts are affected?
2. what types of accounts (A, L, OE)?
3. Increase or decrease?
4. Debit or credit?
Record the Following Transaction
• Aug. 5 Paid $705 now due to Equipment
Unlimited for goods previously purchased
but not paid for.
1. what accounts are affected?
2. what types of accounts (A, L, OE)?
3. Increase or decrease?
4. Debit or credit?
Record the Following Transaction
• Aug. 7 Purchased three new tennis
trainers for $545 each (total $1635). A
cash down payment of $535 was made.
The remaining is to be paid at a later date.
1. what accounts are affected?
2. what types of accounts (A, L, OE)?
3. Increase or decrease?
4. Debit or credit?
Record the Following Transaction
• Aug. 7 Owner invested an additional
$5000 in the business.
1. what accounts are affected?
2. what types of accounts (A, L, OE)?
3. Increase or decrease?
4. Debit or credit?
Calculating New Balances in the
Accounts
1. Add up the debit side of the account (using a
single line if there is more than one number).
2. Add up the credit side of the account (using a
single line if there is more than one number).
3. Subtract the smaller amount from the larger
amount and place the answer on the larger
side of the account. This is the new balance for
this account.
4. Write the word balance next to the balance.
Account Balances
• The account balances are always places
on the side of the account that has the
larger total. For assets, this is usually the
debit side and for liabilities and owner’s
equity this is usually the credit side.
Preparing a Trial Balance
• A trail balance is prepared to verify that the
total debits are still equal to the total
credits in the ledger.
• The first column of numbers is used to
record the debit balances and the second
column is used to record the credit
balances.
Trail Balance Heading Information
• Who?
• What?
• When?
Goldman’s Gym
Trial Balance
August 7, 2011
Trial Balance
Limitations of the Trial Balance
• The trail balance only indicates if for each
transaction there were debits that equalled
the same amount for credits.
• It does not tell us if the amounts were
recorded in the correct accounts on the
correct side (debit or credit). If you record
an amount on the wrong side the account
will actually be off double that amount.
Limitations of the Trial Balance
• Ex. If the company paid $500 cash for something.
Incorrect
______Cash______
1500
500_____________
2000
Correct
______Cash______
1500
500
1000
How to Check for Errors in Trial
Balance
• Note that the difference between the one
done correctly and the one done
incorrectly is twice the amount ($500 x 2 =
$1 000)
Activity
• Prepare a new balance sheet for
Goldman’s Gym from the information we
have in the accounts (use the new balance
amounts)