CHAPTER 2 NOTES PAGES 28-30 • Even Though the Effects Of

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CHAPTER 2 NOTES PAGES 28-30 Even though the effects of transactions can be recorded in an accounting equation, the procedure is not practical for a business. o To keep the accounting equation from becoming very cumbersome, a separate record is used for each account. o The accounting equation can be represented as a “T”. Assets = Liabilities + Owner’s Equity Left side Right side A record summarizing all the information pertaining to a single item in the accounting equation is known as an account. o Examples: Transactions change the balances of accounts in the accounting equation. An accounting device used to analyze transactions is called a T account. An amount recorded on the left side is called a debit (dr.) An amount recorded on the right side is called a credit (cr.) T Account Left Side Right Side Debit Side Credit Side The side of the account that is increased is called the normal balance. Assets are on the left side of the accounting equation, and assets have normal debit balances (left side). Liabilities and Owner’s Capital account are on the right side of the accounting equation, and liabilities and owner’s capital accounts have normal credit balances (right side). Any Asset Any Liability Debit Credit Debit Credit NORMAL NORMAL BALANCE BALANCE Owner’s Capital Account Debit Credit NORMAL BALANCE The sides of the T account are used to show increases and decreases in account balances. Two basic accounting rules: 1. Account balances increase on the normal balance side of an account. 2. Account balances decrease on the side opposite the normal balance side of an account. .

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