Accounting Applications: Unit 2
2.01 Double-Entry Accounting
● Double-entry accounting: An accounting system where every transaction is recorded
using opposing entries in at least two different accounts.
● Debits: Left side
● Credits: Right side
● Normal balance: The side of the T-account that is increased.
Account Rules & Normal Balances
Debit Credit
Increases Increases
Assets Liabilities
Expenses Revenues
Withdrawals Capital
●
Normal Debit Balance: Increase on the debit side.
● Normal Credit Balance: Increase on the credit side.
T-Accounts & Accounting Equations
● T-accounts: The visual representation of a journal entry's effect on the general ledger
account.
Basic Accounting Equation
Assets=Liabilities+Owner’s Equity {Assets} = {Liabilities} + {Owner's
Equity}Assets=Liabilities+Owner’s Equity
, All Assets All Liabilities Owner's Capital
Debit: Increase (Normal Debit: Decrease Debit: Decrease
Balance)
Credit: Decrease Credit: Increase (Normal Credit: Increase (Normal
Balance) Balance)
Analyzing Transactions
5 Analyzing Transactions Questions
1. Which accounts are affected?
2. What is the amount?
3. Is the account an asset, liability, or owner's equity?
4. Is the account increased or decreased?
5. Is the account debited or credited?
Account Behavior Overview
● Expenses: Has a normal debit balance. Expenses decrease owner's equity; expenses
increase.
● Credit: Increases owner's equity; debits decrease the owner's equity account.
● Owner's Drawing: Has a normal debit balance. Decreases owner's equity; drawing is
recorded as a debit; drawing increases.
● Revenue: Has a normal credit balance. Revenue increases owner's equity; recorded as
a credit; revenue increases.
The Expanded Accounting Equation
1. Assets=Liabilities+Owner’s Equity{Assets} = {Liabilities} + {Owner's
Equity}Assets=Liabilities+Owner’s Equity
2. Replace owner's equity in the basic accounting equation with Revenues+Owner’s
Capital−Expenses−Owner’s Drawing{Revenues} + {Owner's Capital} - \text{Expenses} -
{Owner's Drawing}Revenues+Owner’s Capital−Expenses−Owner’s Drawing:
Assets=Liabilities+Revenues+Owner’s Capital−Expenses−Owner’s Drawing{Assets} =
{Liabilities} + {Revenues} + {Owner's Capital} - {Expenses} - {Owner's
Drawing}Assets=Liabilities+Revenues+Owner’s Capital−Expenses−Owner’s Drawing
2.01 Double-Entry Accounting
● Double-entry accounting: An accounting system where every transaction is recorded
using opposing entries in at least two different accounts.
● Debits: Left side
● Credits: Right side
● Normal balance: The side of the T-account that is increased.
Account Rules & Normal Balances
Debit Credit
Increases Increases
Assets Liabilities
Expenses Revenues
Withdrawals Capital
●
Normal Debit Balance: Increase on the debit side.
● Normal Credit Balance: Increase on the credit side.
T-Accounts & Accounting Equations
● T-accounts: The visual representation of a journal entry's effect on the general ledger
account.
Basic Accounting Equation
Assets=Liabilities+Owner’s Equity {Assets} = {Liabilities} + {Owner's
Equity}Assets=Liabilities+Owner’s Equity
, All Assets All Liabilities Owner's Capital
Debit: Increase (Normal Debit: Decrease Debit: Decrease
Balance)
Credit: Decrease Credit: Increase (Normal Credit: Increase (Normal
Balance) Balance)
Analyzing Transactions
5 Analyzing Transactions Questions
1. Which accounts are affected?
2. What is the amount?
3. Is the account an asset, liability, or owner's equity?
4. Is the account increased or decreased?
5. Is the account debited or credited?
Account Behavior Overview
● Expenses: Has a normal debit balance. Expenses decrease owner's equity; expenses
increase.
● Credit: Increases owner's equity; debits decrease the owner's equity account.
● Owner's Drawing: Has a normal debit balance. Decreases owner's equity; drawing is
recorded as a debit; drawing increases.
● Revenue: Has a normal credit balance. Revenue increases owner's equity; recorded as
a credit; revenue increases.
The Expanded Accounting Equation
1. Assets=Liabilities+Owner’s Equity{Assets} = {Liabilities} + {Owner's
Equity}Assets=Liabilities+Owner’s Equity
2. Replace owner's equity in the basic accounting equation with Revenues+Owner’s
Capital−Expenses−Owner’s Drawing{Revenues} + {Owner's Capital} - \text{Expenses} -
{Owner's Drawing}Revenues+Owner’s Capital−Expenses−Owner’s Drawing:
Assets=Liabilities+Revenues+Owner’s Capital−Expenses−Owner’s Drawing{Assets} =
{Liabilities} + {Revenues} + {Owner's Capital} - {Expenses} - {Owner's
Drawing}Assets=Liabilities+Revenues+Owner’s Capital−Expenses−Owner’s Drawing
