Chapter 3 - Asset, liability, and owner’s equity accounts. After completing this chapter, students will be able to: Set up T accounts; enter opening balances in T accounts; record debits and credits in asset, liability, and owner’s equity accounts; foot and balance the accounts; prove the fundamental accounting equation. | CHAPTER THREE ASSET, LIABILITY, AND OWNER’S EQUITY ACCOUNTS 1. Set up T accounts. 2. Enter opening balances in T accounts. 3. Record debits and credits in asset, liability, and owner’s equity accounts. 4. Foot and balance the accounts. 5. Prove the fundamental accounting equation. ASSET, LIABILITY, AND OWNER’S EQUITY ACCOUNTS Objectives: 3- The Form of Accounts The simplest form of an account looks like the letter “T” and is therefore called a T account. The left side is the debit side. The right side is the credit side. 3- Opening Accounts for the Balance Sheet Items For assets, the beginning balance is on the left side, or debit side. For liabilities and owner’s equity, the beginning balances are on the right hand side, or credit side. 3- Recording Changes in Accounts For asset accounts, increases are entered on the debit side. Decreases are entered on the credit side. For liabilities and owner’s equity accounts, increases are entered on the credit side. | CHAPTER THREE ASSET, LIABILITY, AND OWNER’S EQUITY ACCOUNTS 1. Set up T accounts. 2. Enter opening balances in T accounts. 3. Record debits and credits in asset, liability, and owner’s equity accounts. 4. Foot and balance the accounts. 5. Prove the fundamental accounting equation. ASSET, LIABILITY, AND OWNER’S EQUITY ACCOUNTS Objectives: 3- The Form of Accounts The simplest form of an account looks like the letter “T” and is therefore called a T account. The left side is the debit side. The right side is the credit side. 3- Opening Accounts for the Balance Sheet Items For assets, the beginning balance is on the left side, or debit side. For liabilities and owner’s equity, the beginning balances are on the right hand side, or credit side. 3- Recording Changes in Accounts For asset accounts, increases are entered on the debit side. Decreases are entered on the credit side. For liabilities and owner’s equity accounts, increases are entered on the credit side. Decreases are entered on the debit side. 3- Finding the Balances of Accounts Each side of the account is added. The smaller balance is subtracted from the larger balance. The difference is the account balance. The account balance is recorded on the balance side in pencil. This is known as a pencil footing. 3- Using Account Balances to Prove the Accounting Equation Once the account balances have been computed they can be used to prove the accounting equation. assets = liabilities + owner’s equity. 3- Accounting Terminology Account Account Balance Debit Credit General Ledger Pencil Footing Source Document 3- Chapter Summary A separate account is kept for every asset, liability, and owner’s equity item in a business. The accounts are used to record the increases and decreases caused by daily transactions. All accounts together are known as the general ledger. 3- Chapter Summary(continued) Two things must be considered when analyzing and recording each part of a .
