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LECTURE2

Instructor: Keo Sopheak

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1-Basic Accounting Equation 2-The Account 3-T-account/Debit and Credit

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1-Basic Accounting Equation

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Transaction Analysis
Transaction (1): Ray Neal decides to open a computer programming service which he names Softbyte. On September 1, 2012, Ray Neal invests $15,000 cash in the business.

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Transaction Analysis
Transaction (2): Purchase of Equipment for Cash. Softbyte purchases computer equipment for $7,000 cash.

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SO 7

Transaction Analysis
Transaction (3): Softbyte purchases for $1,600 from Acme Supply Company computer paper and other supplies expected to last several months. The purchase is made on account.

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SO 7

Transaction Analysis
Transaction (4): Softbyte receives $1,200 cash from customers for programming services it has provided.

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SO 7

Transaction Analysis
Transaction (5): Softbyte receives a bill for $250 from the Daily News for advertising but postpones payment until a later date.

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Transaction Analysis
Transaction (5): Softbyte receives a bill for $250 from the Daily News for advertising but postpones payment until a later date.

$ 9,200

$ -

$ 1,600

$ 7,000

$ 1,850

$ 15,000

$ -

$ 1,200

$ (250)

$17,800

$17,800

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1-Basic Accounting Equation

Current Asset <= 1year

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Fixed Asset > 1year

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1-Basic Accounting Equation

Current Liabilities or <= 1year Short term Liabilities

2xxx9

Long Term Liabilities > 1year

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1-Basic Accounting Equation

3xxx9

3xxx9

4xxx9

5xxx9

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2-The Account
Account: Record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.

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2-The Account

Current Asset

10100 10110 10400 11200 12010 13000 13030 14001 14003 14013 14100 14101 14300 14600 14700

Cash on Hand Petty Cash Saving Account Inventory Asset Note Receivable Prepaid Profit Tax Office Supply Prepaid Insurance Prepaid Advertising Prepaid Rent Vendor Advance Advance Salary VAT Input VAT Credit Carry Forwards Employee Advances

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2-The Account

Fixed Asset

12100 13000 14000 15000 15300 15400 15600 15700 15800 16000 17000 18000 19200

Computer Furniture Fax & Phone Office Equipment Other Depreciable Property Leasehold Improvement Building Improvement Machine Light Vehicle Building Land Vehicle Insurance

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2-The Account
20000 20005 20010 21000 21001 23400 24800 24900 25000 26000 Account Payable Credit Card Note Payable Payroll Liabilities Salary Tax Payable VAT Payable Utilities Payable Phone, Fax & Email Payable Rent & Lease Payable Unearned Fees

Current Liabilities or Short term Liabilities

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2-The Account
Long Term Liabilities 27500 Bond Payable 27600 Debt

40000 Passenger Service Revenue 40000 Sale 40400 Consulting Fees

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2-The Account
60000 60001 60020 60030 60100 60300 61500 66500 69500 69990 70000 Advertising Expense Salary Expense Depreciation Expense License Amortization Expense Transport-Expense Other Expense Bad Debt Expense Insurance Expenses Maintenance Expense Uncategorized Expenses Repair and Maintenance

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2-The Account

70010 74000 75002 76000 76001 78000 78010 78030 78100 78300 78400 78500 79001 85001 90000

Gasoline Expense Penalty Tax Wage Expense Freight Expense Tax Expense Travel Expense Fax and Phone Expense Cleaning Expense Imported Tax Miscellaneous Clearances Utilities Expense Clearance Expense Bank Charge Interest Expense

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3-T-account/Debit and Credit

Debit: An entry in the financial books of a firm that increases an asset or an expense or an entry that decreases a liability, owner's equity (capital) or income.

Credit: An entry in the financial books of a firm that increases a liability, owner's equity (capital) or revenue, or an entry that decreases an asset or an expense.

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3-T-account/Debit and Credit

ASSETS

LIABILITIES

EQUITIES

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3-T-account/Debit and Credit

Equity
Owners Capital

Owner's Withdrawals

Revenues

_ Expenses

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3-T-account/Debit and Credit

If Debits are greater than Credits, the account will have a debit balance.
Account Name
Debit / Dr. Credit / Cr.

Transaction #1
Transaction #3

$10,000
8,000

$3,000

Transaction #2

Balance

$15,000

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Debits and Credits

If Debits are less than Credits, the account will have a credit balance.
Account Name
Debit / Dr. Credit / Cr.

Transaction #1

$10,000

$3,000
8,000

Transaction #2
Transaction #3

Balance

$1,000

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Debits and Credits

Assets
Debit / Dr. Credit / Cr.

Assets - Debits should exceed credits. Liabilities Credits should exceed debits. Normal balance is on the increase side.

Normal Balance

Chapter 3-23

Liabilities
Debit / Dr. Credit / Cr.

Normal Balance

Chapter 3-24

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Debits and Credits

Owners Equity
Debit / Dr. Credit / Cr.

Owners investments and revenues increase owners equity (credit). Owners drawings and expenses decrease owners equity (debit).

Normal Balance

Chapter 3-25

Owners Capital
Debit / Dr. Credit / Cr.

Owners Drawing
Debit / Dr. Credit / Cr.

Normal Balance

Normal Balance

Chapter 3-25

Chapter 3-23

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Debits and Credits

Revenue
Debit / Dr. Credit / Cr.

Purpose of earning revenues is to benefit the owner(s). Effect of debits and credits on revenue accounts is the same as their effect on Owners Capital. Expenses have the opposite effect: expenses decrease owners equity.

Normal Balance

Chapter 3-26

Expense
Debit / Dr. Credit / Cr.

Normal Balance

Chapter 3-27

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Debits/Credits Rules
Liabilities

Normal Balance Debit

Assets
Debit / Dr. Credit / Cr.

Normal Balance Credit

Owners Equity
Debit / Dr.
Chapter 3-24

Debit / Dr.

Credit / Cr.

Normal Balance

Credit / Cr.

Normal Balance

Normal Balance
Chapter 3-23

Expense
Debit / Dr. Credit / Cr.

Chapter 3-25

Revenue
Debit / Dr. Credit / Cr.

Normal Balance

Normal Balance

Chapter 3-27

Chapter 3-26

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SO 2

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