The document discusses key accounting concepts such as debits and credits, T-accounts, the general journal, posting journal entries to ledger accounts, and preparing a trial balance. It provides examples of analyzing business transactions and recording debits and credits to the appropriate accounts. It also explains how a trial balance is used to prove the equality of total debits and credits after journal entries have been posted to ledger accounts.

1. Debits and Credits: Analyzing and Recording Business Transactions Chapter 2

5. T-Account Account Name (Title) Dr. (debit) 4,000 500 Cr. (credit) 300 400 4,500 700 3,800 Entries Footings Balance

7. All individual accounts combined make up the ledger Revenues Notes Payable Accounts Receivable C. Lapp, Capital Accounts Payable Ledger Cash

9. Debit and Credit Rules A = L + OE Debits and credits affect accounts as follows: ASSETS Debit for Increase Credit for Decrease EQUITIES Debit for Decrease Credit for Increase LIABILITIES Debit for Decrease Credit for Increase

10. Rules of Debit and Credit Assets = Liabilities + Owner’s Equity + - + - + - Dr. Cr. Dr. Cr. Dr. Cr.

11. Rules of Debit and Credit Dr. Cr. + - Capital Expenses Dr. Cr. + - Revenues Dr. Cr. + - Withdrawals Dr. Cr. + -

12. Expanding the Rules of Debit and Credit Revenues Expenses Owner’s Capital Owner’s Withdrawals _ + _ Owner’s Equity Debit Credit - + Debit Credit - + Debit Credit + - Debit Credit + -

14. Double Entry Accounting  The Equality of Debits and Credits A = L + OE Debit balances Credit balances = In the double-entry accounting system, every transaction is recorded by equal dollar amounts of debits and credits.

16. The Double-Entry System One debit One credit Each transaction is recorded with at least: Total debits must equal total credits.

17. The Transaction Analysis Step 1: Determine which accounts are affected. Step 2: Determine which category accounts belong to. Step 3: Determine whether accounts increase or decrease. Step 4: What do the rules of debits and credits say? Step 5: Place amounts into T accounts.

18. Let’s record selected transactions for JJ’s Lawn Care Service in the accounts.

19. May 1: Jill Jones and her family invested $8,000 in JJ’s Lawn Care Service . Step 1: Which accounts are affected? Step 2: Which category does the account belong to? Step 3: Is the account increasing/decreasing? Step 4: Debit or credit? Step 5: Place amounts into accounts. Cash Capital Assets Owner’s Equity Increasing Increasing Debit Credit

29. What is Net Income? Net income is not an asset  it’s an increase in owners’ equity from profits of the business. A = L + OE Increase Decrease Increase Either (or both) of these effects occur as net income is earned . . . . . . but this is what “net income” really means.

30. Revenue and Expenses The price for goods sold and services rendered during a given accounting period. Increases owner’s equity. The costs of goods and services used up in the process of earning revenue. Decreases owner’s equity.

31. The Realization Principle: When To Record Revenue Realization Principle Revenue should be recognized at the time goods are sold and services are rendered.

32. The Matching Principle: When To Record Expenses Matching Principle Expenses should be recorded in the period in which they are used up.

33. Debits and Credits for Revenue and Expense Expenses decrease owner’s equity. Revenues increase owner’s equity. EQUITIES Debit for Decrease Credit for Increase REVENUES Debit for Decrease Credit for Increase EXPENSES Credit for Decrease Debit for Increase

34. Let’s analyze the revenue, and expense transactions for JJ’s Lawn Care Service for the month of May.

43. Gay Gillen eTravel Chart of Accounts Assets 101 Cash 111 Accounts Receivable 141 Office Supplies 151 Office Furniture 191 Land

44. Gay Gillen eTravel Chart of Accounts Liabilities 201 Accounts Payable 231 Notes Payable Owner’s Equity 301 Capital 311 Withdrawals Revenues 401 Service Revenue

45. Gay Gillen eTravel Chart of Accounts Expenses 501 Rent Expense 503 Utilities Expense 502 Salary Expense

50. General Journal Accounts Affected Dollar amount of debits and credits Explanation of transaction Transaction Date Investment from owner 45,000 Lange, Capital 45,000 Cash Jul 1 Credit Debit Description Date Journal Page 1

57. Posting Journal Entries to the Ledger Accounts

58. Standard Form of Account

64. All balances are taken from the ledger accounts on May 31 after considering all of JJ’s transactions for the month. Proves equality of debits and credits.

65. The Accounting Cycle Journalize transactions. Post entries to the ledger accounts. Prepare trial balance. Make end-of-year adjustments. Prepare adjusted trial balance. Prepare financial statements. Prepare after closing trial balance. Journalize and post closing entries.

67. End of Chapter 2