Chapter 2 Accounting

State the four questions used to analyze a transaction.

1. Which accounts are effected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts?

Chart of accounts

A list of accounts used by a business.

T Account

Accounting device used to analyze transactions.

What two accounts are affected when services are sold on account?

Accounts Receivable and Sales are affected.

Debit

An amount recorded on the left side of a t account.

Credit

An amount recorded on the right side of a t account.

Draw the accounting equation on a T account.

Assets=Liabilities+Owner's Equity

What two accounts are affected when a business receives cash from sales?

Cash and accounts receivable.

Are revenue accounts increased on the debit side or credit side? Explain why.

Credit because sales (revenue) ultimately increases owners equity so sales increase on the credit side.

Are expense accounts increased on the debit side or credit side? Explain why.

Debit because there are decreases in the owner's capital accounts. The debit balance increases while the credit balance is decreased. Because of expenses decrease owner's equity, increases in expenses are recorded as debits.

What two accounts are affected when a business pays cash to the owner for personal use?

Drawing and Cash are affected.

What two accounts are affected when a business pays cash for supplies?

Supplies and accounts payable.

Normal balance

The side of the account that is increased.

What are the two accounting rules that regulate increases and decreases of account balances?

The two basic accounting rules are 1) Account balances increase on the normal balance side of the account. 2)Account balances decrease on the opposite side of the normal balance side of the account.