Unit # 3 – Recording Transactions in T-Accounts

1. Unit # 3 – Recording Transactions in T-Accounts

2. Unit # 3 – Recording Transactions in T-Accounts • We will now learn that when dealing with balances in All Accounts, you will need to know: • Debit means Left Side of the account. • Credit means Right Side of the account. • Debit = Left, Credit = Right

3. Unit # 3 – Recording Transactions in T-Accounts • Recall our Balance Sheet Equation Assets = Liabilities + Owners Equity • Debit (Dr) Credit (Cr)

4. Unit # 3 – Recording Transactions in T-Accounts A = L + OE Normal Bal. Debit (Dr)Credit (Cr) To Increase Dr Cr To Decrease CrDr Notice a pattern?

5. Unit # 3 – Recording Transactions in T-Accounts • So how do we use Debit & Credits to record transactions? • We need to use T-Account Ledgers Cash T Debit (LHS) Credit (RHS)

6. Unit # 3 – Recording Transactions in T-Accounts • What is a Ledger? • A ledger is a group of accounts and it records the changes in each of these accounts as they occur from the business transaction.

7. Unit # 3 – Recording Transactions in T-Accounts • How do you open the Ledger Accounts? • All you need to do is “copy” the account totals from your balance sheet • See an example on the next slide

8. $ 5000 6000 500 25000 110000 94500 241000 $ 4000 65000 80000 149000 92000 241000

9. Unit # 3 – Recording Transactions in T-Accounts • Step 1: • First make the T-Accounts • Step 2: • Enter the account balances into each ledger account • Step 3: • Identify the which accounts are affected and the type of account (Asset, Liability, or Owner’s Equity) • Step 4: • Enter the amount on either as either a debit (LHS) or credit (RHS)

10. Unit # 3 – Recording Transactions in T-Accounts • Example # 1: Aug. 2 – Received $500 cash as payments on membership dues owing.

11. Unit # 3 – Recording Transactions in T-Accounts • Example # 2: Aug. 5 – Purchased new computer worth $750 from Central Computer Co.

12. Unit # 3 – Recording Transactions in T-Accounts • Example # 3: Aug. 5 – Paid $705 now due to Equipment Unlimited for goods previously purchased, but not paid for.

13. Unit # 3 – Recording Transactions in T-Accounts • Example # 4: Aug. 7 – Purchased three new tennis racquets for $545 each (total $1635). A cash down payment of $535 was made. The remaining amount $1100 is to be paid at a later date.

14. Unit # 3 – Recording Transactions in T-Accounts • Example # 5: Aug. 7 – Owner invested an additional $5000 in the business.

15. Unit # 3 – Recording Transactions in T-Accounts • Practice makes Perfect! • Complete exercises 1-3abc (not d) starting on Page 51.

16. Unit # 3 – Recording Transactions in T-Accounts Where we are: • Journalize (Using the General Journal) • Post (To Ledger Accounts – which are also known as T- Accounts) – PartiallyDone • Trial Balance (Can enter on the Worksheet) - Now • Adjustments (On the worksheet) • Complete the Worksheet • Financial Statements (Income Statement then the Balance Sheet - Done) • Closing Entries (Closing the Temporary Accounts – Drawings, Revenue, Expenses)

17. Unit # 3 – Recording Transactions in T-Accounts • The Trial Balance! • Companies prepare a “Trial Balance” to verify that the total debits = the total credits. • This is done after you are finished recording the business transactions into the T-Account Ledgers.

18. Unit # 3 – Recording Transactions in T-Accounts • Once completed entering all the business transactions companies will put the totals of the T-Account Ledgers in either a Debit column or a Credit Column.

19. Unit # 3 – Recording Transactions in T-Accounts

20. Unit # 3 – Recording Transactions in T-Accounts • Once the Trial Balance is completed (and the Debits = the Credits), you can now create a “New Balance Sheet” using the information from the Trial Balance.