Unit 5
Accounting and Finance Foundations Unit 5: Accounting Terminology 355
Accounting Terminology
Chapter 14
Transaction 7
Paid cash for rent, $800
When we look at the three questions discussed earlier, we see
a. The two accounts affected are Cash and Rent Expense.
b. Cash is an asset and Rent Expense is an expense that affects owner’s equity.
c. Cash decreases.
Rent Expense increases.
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
- 7500 + + + * + 7500 + - -
- -300
7200
+ +300 + + - + 7500 + - -
- -550
6650
+ 300 + + +550 * + 7500 + - -
- 6650 + +450
750
+ + 550 = +450 + 7500 + - -
- -200
6450
+ 750 + + 550 = -200
250
+ 7500 + - -
- +1200
7650
+ 750 + + 550 250 + 7500 + 1200 - -
- -800
6850
+ 750 + + 550 = 250 + 7500 + 1200 - 800 -
We see from the accounting equation that we decrease the amount of Cash we have on hand by $800, and
since Cash is an asset and on the left side of the accounting equation, when we are using T accounts, we
place the $800 on the credit side (right side) of the Cash account as seen below. The second part of the
transaction is an increase to Rent Expense because we have paid more money in expenses than we had
before. Notice on the T account below that Rent Expense, although classified as an expense, is under the
Owner’s Equity side of the accounting equation. This is because expenses decrease Owner’s Equity. Since
any expense is a decrease to Owner’s Equity, it is treated the opposite way as a normal Owner’s Equity ac-
count; therefore, to increase Rent Expense, we place $800 on the debit (left side) of the T account. Notice,
we ALWAYS have equal debits and credits.
Assets = Liabilities + Owner’s Equity
Cash Rent Expense
Debit Credit Debit Credit
+ – – +
800 800
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