Accounting and Finance Foundations

Unit 5

Accounting and Finance Foundations Unit 5: Accounting Terminology 349

Accounting Terminology

Chapter 14

Transaction 1

Received cash from owner as an investment, $7,500

When we look at the three questions discussed earlier, we see

a. The two accounts affected are Cash and Your Name, Capital.

b. Cash is an asset and Your Name, Capital is an owner’s equity.

c. Cash increases.

Your Name, Capital increases.

We see from the accounting equation that we increase Cash by $7,500, and since cash is an asset and on

the left side of the accounting equation when we are using T accounts, we place the $7,500 on the debit

side of the Cash account as seen below. The second part of the transaction is an increase to the Owner’s

Equity account, and since it is on the right side on the accounting equation, it is increased on the right or

credit side. Therefore, we place $7,500 on the credit side of the Your Name, Capital account.

Assets = Liabilities + Owner’s Equity

Assets Liabilities

Debit Credit Debit Credit

+ – – +

7,500 7,500

Assets = Liabilities + Owner’s Equity

Trans.
No.

Cash + Supplies + Accounts

Receivable,

Lisa Cook

+ Prepaid

Insurance

= Accounts

Payable/

Office

Supply

+ Your

Name,

Capital

+ Revenue - Expenses - Drawing

1. 7500 + + + * + 7500 + - -

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