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A businesss transactions can be

analyzed by using the double-entry
accounting system, which recognizes
the different sides of business
transactions as debits and credits.

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Describe the chart of accounts.

Explain the purpose of double-entry accounting.

Use T accounts to analyze transactions that affect assets, liabilities,

and the owners capital account.
Prepare a chart of accounts.
Identify the normal balance of accounts.
Use T accounts to illustrate the rules of debit and credit.

Calculate the account balances after recording business transactions.

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Section 4.1

Accounts and the DoubleEntry Accounting System

Key Terms
chart of accounts

ledger
double-entry accounting
debit
credit
T account

normal balance

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The Chart of Accounts

Section 4.1

Accounts and the DoubleEntry Accounting System

chart of accounts
A list of all accounts used by a business.
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The Chart of Accounts

Section 4.1

Accounts and the DoubleEntry Accounting System

A system for numbering accounts makes it easy to

locate individual accounts in the ledger.

ledger
A group of accounts; also referred to as a
general ledger.

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The Chart of Accounts

Section 4.1

Accounts and the DoubleEntry Accounting System

A typical numbering system

Asset accounts begin with 1.

Liability accounts begin with 2.

Owners equity accounts begin with 3.
Revenue accounts begin with 4.
Expense accounts begin with 5.

See page 82
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Double-Entry Accounting
Section 4.1

Accounts and the DoubleEntry Accounting System

The double-entry accounting system recognizes both the debit

and credit side of a business transaction.
double-entry accounting
A system used to analyze and record
a transaction.

debit
An entry on the left side of an account.

credit
An entry on the right side of an account.
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Double-Entry Accounting
Section 4.1

Accounts and the DoubleEntry Accounting System

The T account gets its name from being shaped like a T.

T-account
A visual representation of a ledger
account. The T account is a tool used to
analyze transactions.

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Double-Entry Accounting
Section 4.1

Accounts and the DoubleEntry Accounting System

normal balance
The increase side of an account.
The word normal here means usual.

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Double-Entry Accounting
Section 4.1

Accounts and the DoubleEntry Accounting System

Rules for Asset Accounts

It is increased on the debit side (left side).

It is decreased on the credit side (right side).

The normal balance is the increase or debit side.

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Double-Entry Accounting
Section 4.1

Accounts and the DoubleEntry Accounting System

Rules for Liability and Owners Capital Accounts

It is increased on the credit side (right side).

It is decreased on the debit side (left side).

The normal balance is the increase or credit side.

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Business Transaction
Analysis
Section 4.2

Applying the Rules of

Debit and Credit

Apply the rules of debit

and credit.
When analyzing business
transactions, you should
Complete the entry in
T-account form.

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Assets and Equities

Transactions
Section 4.2

Applying the Rules of

Debit and Credit

Analyzing Business Transactions

Business Transaction 1
On October 1 Crista Vargas took $25,000 from personal savings and
deposited that amount to open a business checking account in the name of
Zip Delivery Service.

See page 87
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Assets and Equities

Transactions
Section 4.2

Applying the Rules of

Debit and Credit

Use a T account to analyze an owners investment in the business:

Business Transaction 2
On October 2 Crista Vargas took two telephones valued at $200 each from her
home and transferred them to the business as office equipment.

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Assets and Equities

Transactions
Section 4.2

Applying the Rules of

Debit and Credit

Increase an asset and decrease another asset:

Business Transaction 3
On October 4 Zip issued Check 101 for $3,000 to buy a computer system.

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Assets and Equities

Transactions
Section 4.2

Applying the Rules of

Debit and Credit

Increase an asset and increase a liability:

Business Transaction 4
On October 9 Zip bought a used truck on account from Coast to Coast Auto
for $12,000.

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Assets and Equities

Transactions
Section 4.2

Applying the Rules of

Debit and Credit

Increase an asset and decrease another asset:

Business Transaction 5
On October 11 Zip sold one phone on account to Green Company for $200.

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Assets and Equities

Transactions
Section 4.2

Applying the Rules of

Debit and Credit

Decrease a liability and decrease an asset:

Business Transaction 6
On October 12 Zip mailed Check 102 for $350 as the first installment on the
truck purchased from Coast to Coast Auto on October 9.

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Assets and Equities

Transactions
Section 4.2

Applying the Rules of

Debit and Credit

Increase an asset and decrease another asset:

Business Transaction 7
On October 14 Zip received and deposited a check for $200 from Green
Company. The check is full payment for the telephone sold on account to Green
Company on October 11.

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Question 1

Identify the normal balance for each of the following accounts by

indicating Debit or Credit.
Cash in Bank

DEBIT
__________

Accounts Receivable

DEBIT
__________

Richard Sims, Capital

CREDIT
__________

Computer Equipment

DEBIT
__________

1st National Bank (mortgage on building)

CREDIT
__________

Car Wash Equipment

DEBIT
__________

Building

DEBIT
__________
DEBIT
__________

Office Supplies
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Question 2

On October 18 Dicks Car Wash bought $10,000 worth of car wash

equipment by issuing Check #111. Using the Business Transaction
Analysis method in your book, list the steps you would use to record this
transaction. Assume that asset accounts for Cash in Bank and Car
Wash Equipment exist.
Step 1: Identify the accounts affected.
The accounts Car Wash Equipment and Cash in
Bank are affected.
Step 2: Classify the accounts affected.
Car Wash Equipment is an asset account. Cash in
Bank is an asset account
(continued)
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Question 2

On October 18 Dicks Car Wash bought $10,000 worth of car wash

equipment by issuing Check #111. Using the Business Transaction
Analysis method in your book, list the steps you would use to record this
transaction. Assume that asset accounts for Cash in Bank and Car
Wash Equipment exist.
Step 3: Determine the amount of increase or decrease for
each account affected.
Car Wash Equipment is increased by $10,000. Cash
in Bank is decreased by $10,000.

(continued)
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Question 2

On October 18 Dicks Car Wash bought $10,000 worth of car wash

equipment by issuing Check #111. Using the Business Transaction
Analysis method in your book, list the steps you would use to record this
transaction. Assume that asset accounts for Cash in Bank and Car
Wash Equipment exist.
Step 4: Which account is debited and for what amount?
Increases in asset accounts are recorded as debits.
Debit Car Wash Equipment for $10,000.
Step 5: Which account is credited and for what amount?
Decreases in asset accounts are recorded as credits.
Credit Cash in Bank for $10,000.

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Question 3

What does double-entry accounting mean?

Every transaction has two sides: a debit (left) side and a credit (right)
side. If a business were to buy supplies for cash, two things would
happen. First, the amount of supplies would go up, and since supplies
are assets, the increase to the Supplies account would be recorded as
a debit. Second, the balance in the Cash in Bank account would go
down, and since cash is an asset, the decrease in Cash in Bank would
be recorded as a credit.

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End of

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