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ECU - ACCT 2401 - Chapter 2 Handout Notes - Class Notes

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ECU - ACCT 2401 - Chapter 2 Handout Notes - Class Notes

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background image Financial Accounting Chapter 2 – Analyzing and Recording Business Transactions T­account:      Title of account           Debit           Credit
 “DR”            “CR”
Rules of Debits and Credits:
There are three approaches to remembering the normal balance of accounts.
1. “Mirror Image” Approach –  Assets                 =       Liabilities         +    Stockholder’s Equity
Dr = Increase
Dr = Decrease Dr = Decrease Cr = Decrease Cr = Increase Cr = Increase Remember:  Common Stock and Retained Earnings are two components of 
Stockholder’s Equity.  Common Stock increases Stockholder’s Equity.  
Operations (Revenues and Expenses) as well as disbributions of earnings 
(Dividends) are components of Retained Earnings.  Revenues increase retained 
earnings thus increasing Stockholder’s equity while expenses and dividends 
decrease retained earnings in turn reducing stockholder’s equity.
2. “After Eating Dinner” Approach­  After Eating Dinner Let’s Read the Comics Assets Liabilities Expenses Revenue Dividends Capital Stock 3. “ALICE” Approach: A = Assets = Dr L = Liabilities = Cr
I = Income (Revenue) = Cr
C = Capital (Equity) = Cr
E = Expense = Dr
Steps to take in analyzing business transactions:  1. What accounts are involved?  

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School: East Carolina University
Department: Accounting
Course: Financial Accounting
Professor: Jan Workman
Term: Spring 2019
Tags: financial, Accounting, financial accounting, Debits/Credits, and t-accounts
Name: Chapter 2 Handout Notes
Description: This describes the basics of preparing a T-Account and the difference between debits and credits.
Uploaded: 01/20/2019
2 Pages 50 Views 40 Unlocks
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