Starting a Proprietorship

1. Starting a Proprietorship Lecture Presentation 2-2 Analyzing How Transactions Affect Accounts

2. Learning Objectives • Define and Identity terms and practices related to analyzing transactions into debit and credit parts • Use T Accounts to analyze transactions showing which accounts are debited or credited for each transaction. • Analyze how transactions to set up a business affect accounts.

3. Some Vocabulary • Chart of Accounts = A list of accounts used by a business • See page 3 in your textbook for a chart of accounts… • There are four questions you ask when analyzing a transaction • Which accounts are affected? • How is each account classified? • How is each classification changed? • How is each amount entered in the account?

4. Assets = Liabilities + Owner’s Equity Cash Kim Park, Capital Debit Credit Normal Balance Debit Credit Normal Balance Received Cash from Owner as an Investment Note that Debit = Credits • Transaction = August 1. Received cash from owner as an investment, $5,000 • What Accounts are affected? • Cash and Kim Park, Capital $5,000 $5,000

5. Assets = Liabilities + Owner’s Equity Supplies Cash Debit Credit Normal Balance Debit Credit Normal Balance Paid Cash for Supplies Note that Debit = Credits • Transaction = August 3. Paid cash for supplies, $275.00 • What Accounts are affected? • Cash and Supplies $ 275.00 $275.00

6. Assets = Liabilities + Owner’s Equity Prepaid Ins. Cash Debit Credit Normal Balance Debit Credit Normal Balance Paid Cash for Insurance Note that Debit = Credits • Transaction = August 4. Paid cash for insurance, $1,200.00 • What Accounts are affected? • Cash and Prepaid Insurance $ 1,200.00 $1,200.00

7. Assets = Liabilities + Owner’s Equity Supplies Acct. Pay – Supply Depot Debit Credit Normal Balance Debit Credit Normal Balance Bought Supplies on Account Note that Debit = Credits • Transaction = August 7. Bought supplies on account from Supply Depot, $500.00 • What Accounts are affected? • Supplies and Accts. Pay – Supply Depot $500.00 $500.00

8. Assets = Liabilities + Owner’s Equity Cash Acct. Pay – Supply Depot Debit Credit Normal Balance Debit Credit Normal Balance Paid Cash on Account Note that Debit = Credits • Transaction = August 11. Paid cash on account to Supply Depot, $300.00 • What Accounts are affected? • Cash and Accts. Pay – Supply Depot $300.00 $300.00

9. Term Review & Audit Understanding • Chart of Accounts • State the four questions used to analyze a transaction. • What two accounts are affected when a business pays cash for supplies?

10. Work Together/On Your Own • Page 37…Work Together 2-2 • Page 37…On Your Own 2-2 • Page 46-47… • Application Problem 2-2 • Page 50… • Cases for Critical Thinking Case 1 – Explain your answer in DETAIL!