lecture 3

lecture 3 - OBJECTIVE B 4 Discuss the role of accounts and...

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OBJECTIVE B 4 Discuss the role of accounts and how debits and credits are used in the double- entry accounting system.
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Double-Entry Accounting Record the effects of transactions on the accounting equation Each transaction affects at least two accounts Each financial statement element is composed of a variety of accounts List of accounts used by the company is termed a chart of accounts 22
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T-Account Transactions frequently analyzed using a T-account Left side is debit side Right side is credit side Debits and credits do not represent increases or decreases 33 Debit Credit
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Cornerstone 2-2 HOW TO Determine Increases or Decreases to a Balance Sheet Account 44
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Example 55 Information: There are three balance sheet accounts – assets, liabilities, and stockholders’ equity. Required: Determine how each of the three balance sheet accounts increases or decreases.
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Example 66 Step 1: Draw a T-account and label each side of the t-account as either debit or credit. Assets = Liabilities + Stockholders’ Equity Debit Credit Debit Debit Credit Credit Debit is always written on the left side of each account, and credit is always written on the right side.
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Example 77 Step 2: Determine the normal balance of an account. Assets = Liabilities + Stockholders’ Equity Debit Credit Debit Debit Credit Credit All accounts have a normal balance. Because assets are located on the left side of the accounting equation, their normal balance is debit. Normal Balance
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Example 88 Step 2: Determine the normal balance of an account. Assets = Liabilities + Stockholders’ Equity Debit Credit Debit Debit Credit Credit Because liabilities and stockholders’ equity are on the right side of the accounting equation, their normal balance is credit. Normal Balance Normal Balance Normal Balance
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Example 99 Step 3: Increases or decreases to an account are based on the normal balance of the account Assets = Liabilities + Stockholders’ Equity Debit Credit Debit Debit Credit Credit Because assets have a normal debit balance, debits increase assets. Credits decrease assets. Normal Balance Normal Balance Normal Balance
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1010 Step 3: Increases or decreases to an account are based on the normal balance of the account Assets = Liabilities + Stockholders’ Equity Debit Credit Debit Debit Credit Credit Normal Balance Normal Balance Normal Balance Liabilities and stockholders’ equity have a normal credit balance. Therefore, credits increase and debits decrease these accounts.
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lecture 3 - OBJECTIVE B 4 Discuss the role of accounts and...

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