Accountin g I Chapter 4

1. Transactions that
Effect Assets,
Liabilities, and
Owner’s Equity
Chapter 4

2. Exploring the Real World of
Business
 Review the American Airlines Web Site
www.aa.com
****************
Name at least three business transactions that
would affect the assets and liabilities of
American Airlines.

3. Accounts and the
Double-Entry
Accounting System
Section 1

4. You Will Learn
 How to use T accounts
 Why you need a ledger
 The rule of debit and credit

5. Key Terms
 Ledger
 Chart of accounts
 T account
 Double-entry
accounting
 Credit
 Debit
 Normal balance

6. The Account
 Ledger – referred to as keeping the books
 Grouping accounts makes information
easy to find.
 When financial statements are needed
information is taken from the ledger and
organized into reports

7. The Chart of Accounts
 List of all the accounts and their assigned
numbers
Assets accounts begin with 1
Liability accounts begin with 2
Owner’s equity accounts begins with 3
Revenue accounts begins with 4.
Expense accounts begin with 5.

9. Double-Entry Accounting
 A system of recordkeeping in which each
business transaction affects at least two
accounts

10. T Accounts
 T-accounts shows the dollar increase or
decrease in an account that is caused by a
transaction
 The left side of the T accounts is always used for
debit amounts (DR)
 The right side of the T accounts is always used
for credit amounts (CR)
 The words debit and credit are simply the
accountants terms for left and right.

11. T-Accounts
Account Name
Left Side Right Side
Debit Side Credit Side
Debit Credit

12. The Rules of Debit and Credit
 An account’s normal balance is always on the
side used to record the increases to the
account.
 Rules for Asset Accounts
1. An asset account is increased on the debit side (left
side).
2. An asset account is decreased on the credit side
(right side).
3. The normal balance for an asset is the increase
side or debit side. Assets normally have debit
balances.

13. The Rules of Debit and Credit
 Rules for Liability and Owner’s Capital
Accounts
1. Liability an owner’s capital accounts are increased
on the credit side (right side).
2. Liability and owners capital accounts are decreased
on the debit side (left side).
3. The normal balance for liability and owner’s capital
is the increase side, or credit side. Liability and
owner’s capital normally have credit balances.

14. Check Your
Understanding
Please complete
Thinking Critically
Computing in the Business World
Problem 4-1, page 77

15. Applying the Rules
of Debit and Credit
Section 2

16. You Will Learn
 How to analyze a transaction affecting
assets, liabilities and owner’s equity.

17. Business Transaction Analysis

18. Key Points
For every transaction, total debits must
equal total credits

19. Business Transactions
1. On October 1 Maria Sanchez took $25,000
from personal savings and deposited that
amount to open a business checking account
in the name of Roadrunner Delivery service
2. On October 2 Maria Sanchez took two
telephones valued at $200 each from her
home and transferred them to the business as
office equipment.
3. On October 4 Roadrunner issued a check for
$3,000 to buy a computer system.

20. Business Transaction
1. On October 9 Roadrunner bought a used truck
on account from North Shore auto for $12,000.
2. On October 11Roadrunner sold on phone on
account to Green Company for $200.
3. On October 12 Roadrunner mailed Check 102
for $350 as the first installment payment on the
truck from North Shore Auto on October 9

21. Business Transaction
 On October 14, Roadrunner 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.

22. A Matter of Ethics
 Software Piracy
 Imagine you’re a bookkeeper for an attorney who
likes to use state of the art technology. The
business just received the latest update on its Web
site design software. You would like to use the
software at home, so your assistant offers to make
you a copy. Although you know that copyright laws
protect software from unauthorized use, you figure
that one little sale can’t hurt a multimillion dollar
software company; besides, you’re not doing the
actual copying.

23. A Matter of Ethics
 Ethical Decision Making
 What are the ethical issues?
 What are the alternatives?
 Who are the effected parties?
 How do the alternatives effective the parties?
 What would you do?