Accounting and Finance Foundations

Unit 5

Accounting and Finance Foundations Unit 5: Accounting Terminology 361

Accounting Terminology

Chapter 14

We see from the accounting equation that we decrease the amount of Cash we have on hand by $900, and

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

place the $900 on the credit side (right side) of the Cash account as seen above. The second part of the

transaction is an increase to Your Name, Drawing because we have paid more money out of the business

to the owner. Notice on the T account above that Your Name, Drawing, although classified as a Drawing

Account, is under the Owner’s Equity side of the accounting equation. This is because Drawing decreases

Owner’s Equity. Since the Drawing Account is a decrease to Owner’s Equity, the Drawing Account is treated

the opposite way as a normal Owner’s Equity account; therefore, to increase Your Name, Drawing, we place

$900 on the debit (left side) of the T account. Notice, we ALWAYS have equal debits and credits.

Assets = Liabilities + Owner’s Equity

Cash Sales

Debit Credit Debit Credit

+ – – +

900 900

Student Guide