Accounting and Finance Foundations

Unit 5

Accounting and Finance Foundations Unit 5: Accounting Terminology 354

Accounting Terminology

Chapter 14

Transaction 6

Received cash from sales, $1,200

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

a. The two accounts affected are Cash and Revenue.

b. Cash is an asset and Revenue is Owner’s Equity.

c. Cash increases.

Revenue increases.

We see from the accounting equation that we increase the amount of cash we have on hand by $1,200,

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

we place the $1,200 on the debit side (left side) of the Cash account as seen below. The second part of

the transaction is an increase to Revenue because we have sold more product than we had before. Notice

on the T account below that Sales, although classified as a Revenue, is under the owner’s equity side of

the accounting equation. This is because revenue increases owner’s equity. Since Revenue is an increase

to owner’s equity, sales are treated the same way as the Owner’s Equity account. Therefore, to increase

Revenue, we place $1,200 on the credit (right side) of the T account. Notice, we ALWAYS have equal debits

and credits.

Assets = Liabilities + Owner’s Equity

Cash Revenue (Sales)

Debit Credit Debit Credit

+ – – +

1,200 1,200

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 + - -

6. +1200
   7650

+ 750 + + 550 250 + 7500 + +1200 - -

Student Guide