Ch 4 powerpoint

Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Glencoe Accounting

Key Terms

chart of accounts

ledger

double-entry accounting

debit

credit

T account

normal balance

Accounts and the Double-Entry Accounting System

Section 4.1


The Chart of Accounts

chart of accountsA list of all accounts used by a business.


Section 4.1



ledgerA group of accounts; also referred to as a

general ledger.


Section 4.1

A system for numbering accounts makes it easy to locate individual accounts in the ledger.




Section 4.1

A typical numbering system

Asset accounts begin with 1.

Liability accounts begin with 2.

Owner’s equity accounts begin with 3.

Revenue accounts begin with 4.

Expense accounts begin with 5.

See page 82


Double-Entry Accounting


Section 4.1

The double-entry accounting system recognizes both the debit and credit side of a business transaction.

double-entry accountingA system used to analyze and record

a transaction.

debitAn entry on the left side of an account.

creditAn entry on the right side of an account.




Section 4.1

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

T-accountA visual representation of a ledger

account. The T account is a tool used to analyze transactions.




Section 4.1

normal balanceThe increase side of an account.

The word normal here means usual.




Section 4.1

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.




Section 4.1

Rules for Liability and Owner’s 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.


Applying the Rules of Debit and Credit

Section 4.2

Assets and Equities Transactions

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



Section 4.2


Use a T account to analyze an owner’s investment in the business:


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

See page 87



Section 4.2


Increase an asset and decrease another asset:


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

See page 88



Section 4.2


Increase an asset and increase a liability:


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

See page 89



Section 4.2




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

See page 89



Section 4.2


Decrease a liability and decrease an asset:


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.

See page 90



Section 4.2




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.

See page 90


Question 1

Identify the normal balance for each of the following accounts by indicating Debit or Credit.

Cash in Bank __________

Accounts Receivable __________

Richard Sims, Capital __________

Computer Equipment __________

Accounts Payable __________

Car Wash Equipment __________

Building __________

Office Supplies __________

DEBIT

DEBIT

CREDIT

DEBIT

CREDIT

DEBIT

DEBIT

DEBIT


Question 2

On October 18 Dick’s 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)


Question 2


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)


Question 2


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.