Question

your boss at hillside nurseries needs help understanding the concept of t - accounts and the double - entry accounting system. using the key terms listed below, draft a list of definitions and illustrations that would help in your explanation.
credit
chart of accounts
debit
double - entry accounting
ledger
normal balance
t account

understanding accounting concepts and procedures
instructions answer the following questions on a separate sheet of paper:

1. why is a business transaction entered in at least two accounts?
2. would double - entry accounting be used in an electronic accounting system? explain.
3. why do accountants use t accounts?
4. name the three basic parts of a t account.
5. what is the left side of a t account called? the right side?
6. state briefly the rules of debit and credit for increasing and decreasing (a) asset accounts, (b) liability accounts, (c) the owner’s capital account.
7. what is the normal balance side for asset accounts? liability accounts? the owner’s capital account?
8. classify the following accounts.

aa. office equipment
b. delivery truck
c. accounts receivable
d. store supplies
e. cash in bank
f. lee jones, capital
g. office supplies
h. accounts payable

1. explain briefly what is meant by each of the following phrases.

a. a debit of $100 to cash in bank.
b. a credit balance.
c. a credit of $500 to accounts payable.
d. a debit balance.

1. what are the six steps involved in analyzing a business transaction?

Explanation:

1. A business transaction is entered in at least two accounts to maintain the accounting equation (Assets = Liabilities + Owner's Equity) and ensure accuracy and completeness in the accounting system. Double - entry accounting records both the debit and credit aspects of a transaction, providing a more comprehensive view.
2. Double - entry accounting can be used in an electronic accounting system. Electronic systems are designed to follow the principles of double - entry accounting, automatically recording debits and credits for each transaction.
3. Accountants use T - accounts to visually analyze and record the effects of transactions on individual accounts. T - accounts provide a clear and simple way to see the increases and decreases in an account.
4. The three basic parts of a T - account are the account title, the debit side (left side), and the credit side (right side).
5. The left side of a T - account is called the debit side, and the right side is called the credit side. For asset accounts, increases are recorded on the debit side and decreases on the credit side.
6. (a) For asset accounts, debits increase and credits decrease. (b) For liability accounts, credits increase and debits decrease. (c) For the owner's capital account, credits increase and debits decrease.
7. The normal balance side for asset accounts is the debit side; for liability accounts, it is the credit side; and for the owner's capital account, it is the credit side.
8. a. Office Equipment - Asset; b. Delivery Truck - Asset; c. Accounts Receivable - Asset; d. Store Supplies - Asset; e. Cash in Bank - Asset; f. Lee Jones, Capital - Owner's Equity; g. Office Supplies - Asset; h. Accounts Payable - Liability.
9. a. A debit of $100 to Cash in Bank means an increase of $100 in the cash in bank account (an asset account). b. A credit balance means that the total of the credit amounts in an account exceeds the total of the debit amounts. c. A credit of $500 to Accounts Payable means an increase of $500 in the accounts payable account (a liability account). d. A debit balance means that the total of the debit amounts in an account exceeds the total of the credit amounts.
10. The six steps in analyzing a business transaction are: 1) Identify the transaction. 2) Determine which accounts are affected. 3) Determine if the accounts are increased or decreased. 4) Determine if the increase or decrease is a debit or a credit. 5) Record the transaction in the journal. 6) Post the transaction to the ledger.

Answer:

1. To maintain the accounting equation and ensure accuracy. Double - entry records both debit and credit aspects.
2. Yes, electronic systems follow double - entry principles.
3. To visually analyze and record transaction effects.
4. Account title, debit side, credit side.
5. Left side is debit, right side is credit. Increases on debit, decreases on credit for assets.
6. (a) Debits increase, credits decrease for assets. (b) Credits increase, debits decrease for liabilities. (c) Credits increase, debits decrease for owner's capital.
7. Debit for assets, credit for liabilities and owner's capital.
8. a. Asset; b. Asset; c. Asset; d. Asset; e. Asset; f. Owner's Equity; g. Asset; h. Liability.
9. a. Increase in cash in bank (asset). b. Credit amounts exceed debit amounts. c. Increase in accounts payable (liability). d. Debit amounts exceed credit amounts.
10. Identify, determine affected accounts, determine increase/decrease, determine debit/credit, record in journal, post to ledger.