Lesson: 15

Topic: Recording Owner's Equity Changes in T-Accounts

Objectives:

During this class students will continue their examination of debit/credit theory. Students will learn how to record transactions within the following owner's equity accounts:

• capital,
• drawings,
• revenue, and
• expenses.

The fact is, for some accounts we will record inflows on the debit side, yet for other accounts we will record inflows on the credit side. Below is a summary of when to debit and credit the various accounts of a business. It is best not to memorize this information, but rather to understand the principle which guides us when debiting and crediting.

ASSETS	=	LIABILITIES	+	OWNER'S EQUITY
Cash		Bank Loan		Capital
Accounts Receivable		Accounts Payable		Drawings
Office Supplies		Mortgage Payable		Revenue
Any other Asset		Any other Liability		Expenses

After a Socratic lecture on the above topics, students will complete exercise #1, page 124 within the course text.

Expectations Addressed:

The "Fundamental Accounting Practices" strand of the BAF3M Ministry of Education Curriculum Guidelines outlines all of the following specific expectations. The expectations addressed by this lesson have been highlighted below.

• Introduction to Accounting as a Discipline:

  • explain the purpose of accounting;

  • explain the difference between accounting and bookkeeping;

  • identify the users and uses of accounting;

  • identify the Generally Accepted Accounting Principles (GAAP) and explain their importance.

• Business Structures:

  • describe the characteristics of different forms of business organization, including sole proprietorship, partnership, and corporation;

  • describe the advantages and disadvantages of different forms of business organization, including sole proprietorship, partnership, and corporation;

  • explain the differences among the equity sections of different forms of business organization, including sole proprietorship, partnership, and corporation (e.g., capital account in a sole proprietorship versus common stock in shareholders’ equity in a corporation).

• The Accounting Cycle for a Service Business:

  • assess the effects that transactions have on the accounts and financial statements of a service business;

  • record transactions using the journals and ledgers of a service business;

  • prepare a trial balance and the financial statements for a service business;

  • record adjusting and closing entries for a service business (e.g., prepaid expenses, amortization, accruals);

  • describe the impact of year-end procedures, including adjusting and closing entries, on the financial statements of a service business;

  • apply the Generally Accepted Accounting Principles (GAAP) at each stage of the accounting cycle for a service business.

References:

• text, chapter #3; pages 117-124
• Debit - Credit Handout