Accounting and Finance Foundations

Unit 5

Accounting and Finance Foundations Unit 5: Accounting Terminology 353

Accounting Terminology

Chapter 14

Transaction 5

Paid cash on account, Office Supply, $200

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

a. The two accounts affected are Cash and Accounts Payable, Office Supply.

b. Cash is an asset and Accounts Payable, Office Supply is a liability.

c. Cash decreases.

Accounts Payable, Office Supply decreases.

We see from the accounting equation that we decrease the amount of Cash we have on hand by $200, and

since Cash is an asset and on the left side of the accounting equation, when we are using T accounts, we

place the $200 on the credit side (right side) of the Cash account as seen below. The second part of the

transaction is a decrease Accounts Payable, Office Supply because we have paid them all or part of what

we owe them and owe them less than we did before. Since Accounts Payable, Office Supply is a liability

and on the right side of the accounting equation, we decrease Accounts Payable, Office Supply by putting

$200 on the left or debit side of the T account. Notice, we ALWAYS have equal debits and credits.

Assets = Liabilities + Owner’s Equity

Supplies Accounts Payable/Office Supplies

Debit Credit Debit Credit

+ – – +

200.00 200.00

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 + - -


2. -300
   7200

+ +300 + + - + 7500 + - -

3. -550
   6650

+ 300 + + +550 * + 7500 + - -

4. 6650 + +450
   750

+ + 550 = +450 + 7500 + - -

5. -200
   6450

+ 750 + + 550 = -200

250

+ 7500 + - -

Student Guide