CHAPTER 2
ACCOUNTING FOR BUSINESSTRANSACTIONS
Related Assignment Materials
Student Learning Objectives Questions
Quick
Studies* Exercises* Problems*
Beyond the
Numbers
Conceptual objectives:
explain their role in double-
entry accounting.
2-10
Analytical objectives:
A1. Analyze the impact of
transactions on accounts and
financial statements.
.
2-7 2-5, 2-6,
2-9, 2-11,
2-12, 2-13,
2-15, 2-20,
2-21
2-1, 2-2,
2-3, 2-4,
2-5, 2-6
2-1, 2-2,
2-4, 2-5,
2-6, 2-7,
2-8
A2. Compute the debt ratio and
describe its use in analyzing
financial condition.
2-23 2-5 2-1, 2-2,
2-7, 2-8,
2-10
Procedural objectives:
P1. Record transactions in a journal
and post entries to a ledger.
3, 4,5 2-6 2-7, 2-11,
2-12, 2-14
2-19
2-1, 2-2,
2-3, 2-4
17, 18
2-22
*See additional information on next page that pertains to these quick studies, exercises and problems.
2-1
Additional Information on Related Assignment Material
The Serial Problem for Success Systems continues in this chapter. Problems 2-3A & 2-5A can be
completed using Excel. Problem 2-1A, 2-3A, and the Serial Problem can be completed with Sage 50
Complete Accounting Software or QuickBooks Software.
Connect (Available on the instructor’s course-specific website) repeats all numerical Quick Studies, all
Exercises and Problems Set A. Connect provides new numbers each time the Quick Study, Exercise or
Problem is worked. It allows instructors to monitor, promote, and assess student learning. It can be used
in practice, homework, or exam mode
Synopsis of Chapter Revisions
Akola Project: NEW opener with new entrepreneurial assignment
New layout showing financial statements drawn from trial balance
New preliminary coverage of classified and unclassifed balance sheets
Changed selected numbers for FastForward
Revised Piaggio’s (IFRS) balance sheet
Updated debt ratio section using Skechers
Narrated PowerPoint Correlation Guide
Learning Objective Slides
2-2
VISUAL #2-1
THREE PARTS OF AN ACCOUNT
(1) ACCOUNT TITLE
Left Side Right Side
called called
(2) DEBIT (3) CREDIT
Rules for using accounts
Accounts are assigned balance sides (Debit or Credit).
To increase any account, use the balance side.
To decrease any account, use the side opposite the balance.
Finding account balances
If total debits = total credits, the account balance is zero.
If total debits are greater than total credits, the account has a debit
balance equal to the difference of the two totals.
If total credits are greater than total debits, the account has a
credit balance equal to the difference of the two totals.
2-3
2-4
VISUAL #2-2
REAL ACCOUNTS
ALL ACCOUNTS ARE ASSIGNED BALANCE SIDES
BALANCE SIDES FOR ASSETS, LIABILITIES, AND
EQUITY ACCOUNTS ARE ASSIGNED BASED ON
SIDE OF EQUATION THEY ARE ON.
ASSETS = LIABILITIES + EQUITY
are on the
left side of the equation
therefore they are
are on the
right side of the equation
therefore they are
ASSIGNED LEFT SIDE
BALANCE
ASSIGNED RIGHT SIDE
BALANCE
DEBIT BALANCE CREDIT BALANCE
All Asset Accts All Liability Accts All Equity Accts
Normal Normal Normal
Debit Credit Debit Credit Debit Credit
Balance Balance Balance
+ side – side – side + side – side + side
*In a sole proprietorship, there is only one equity account, which is called
capital. For that reason, the terms equity and capital are often used
interchangeably. (When corporations are discussed in detail, you will learn
many stockholders’ equity accounts.) Equity is an account classification like
assets. Owner’s Name, Capital, is the account title.
2-5
2-6
VISUAL #2-3
TEMPORARY ACCOUNTS
Temporary accounts are established to facilitate efficient accumulation of
data for statements. Temporary accounts are established for withdrawals,
each revenue, and each expense. Temporary accounts are assigned
Temporary Accounts Effect on equity? E or E
Owner, Withdrawals* E = Dr
Revenues E = Cr
Expenses E = Dr
All Withdrawal Accts All Revenue Accts All Expense Accts
Transactions during the period always increase the balances of these
temporary accounts since the transaction represent additional withdrawals,
revenues, and expenses. We will later learn how to move these amounts back
to the real account they affect CAPITAL. At the end of the accounting
period, transferring withdrawals, revenues, and expenses back to capital is
2-7
2-8
VISUAL #2-4
USING ACCOUNTS – SUMMARY
Real Accounts
All Asset Accts All Liability Accts All Equity Accts
Debit + Credit + Credit +
Balance Balance Balance
RULE REVIEW
Temporary Accounts
Transaction analysis rules
Each transaction affects at least 2
accounts.
All Expense Accounts
Debit +
Balance
2-9