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Understanding T Accounts in Accounting Equations

Learn how T accounts are used to analyze and record transactions in accounting, including terms like debits, credits, and normal balances. Understand the importance of maintaining balance in the accounting equation.

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Understanding T Accounts in Accounting Equations

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  1. LESSON 2-1 Using T Accounts Original created by M.C. McLaughlin, Thomson/South-Western Modified by Deborah L. Burns, Johnston County Schools, West Johnston High School

  2. ANALYZING THE ACCOUNTING EQUATION page 28 • Using the accounting equation in a business to record transactions would be very cumbersome because of the number of business transactions. • A record summarizing all the information pertaining to a single item in the accounting equation is known as an account. • Accounting transactions must be analyzed to determine how account balances are changed. • T Account – an accounting device used to analyze transactions LESSON 2-1

  3. ANALYZING THE ACCOUNTING EQUATION page 28 • The accounting equation can be represented as T, as shown below: LESSON 2-1

  4. ANALYZING THE ACCOUNTING EQUATION page 29 • The values of all things owned (assets) are on the left side of the accounting equation. • The value of all equities or claims against the assets (liabilities & owner’s equity) are on the right side of the equation. • The left sideof the equation must always equal the right. LESSON 2-1

  5. ACCOUNTS page 29 • There are special names for amounts recorded on the left and right sides of a T account. • Debit – an amount recorded on the left side of a T account • Credit – an amount recorded on the right side of a T account LESSON 2-1

  6. ACCOUNT BALANCES page 29 • All accounts have a debit and credit T accounts. LESSON 2-1

  7. ACCOUNT BALANCES page 29 • The side of the account that is increased is called the normal balance • Assets are on the left side and have a normal debit balance. Liabilities and owner’s equity are on the right side & have a normal credit balance. LESSON 2-1

  8. INCREASES AND DECREASES IN ACCOUNTS page 30 • The sides of a T account are used to show increases and decreases in account balances • Two basic accounting rules: • Account balances increase on the normal balance side of an account • Account balances decrease on the side opposite the normal balance side of an account LESSON 2-1

  9. INCREASES AND DECREASES IN ACCOUNTS page 30 LESSON 2-1

  10. TERMS REVIEW page 31 • T account • debit • credit • normal balance LESSON 2-1

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