Accounting and Finance Foundations

Unit 5

Accounting and Finance Foundations Unit 5: Accounting Terminology 352

Accounting Terminology

Chapter 14

Transaction 4

Bought supplies on account, Office Supply, $450

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

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

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

c. Supplies increases.

Accounts Payable, Office Supply increases.

We see from the accounting equation that we increase Supplies by $750, and since Supplies are assets and

on the left side of the accounting equation, when we are using T accounts, we place the $750 on the debit

side of the Supplies account as seen below. The second part of the transaction is an increase to Accounts

Payable, Office Supply because we owe them money that we will pay them later. Since Accounts Payable,

Office Supply is a liability and on the right side of the accounting equation, we increase Accounts Payable,

Office Supply by putting $750 on the right or credit 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

+ – – +

450.00 450.00

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

450

+ 7500 + - -

Student Guide