# Chapter 2: Transaction Analysis

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Chapter 2: Transaction Analysis

## 1. The Account

### 1.1. Assets

1.1.1. Cash

1.1.2. Accounts Receivable

1.1.3. Notes Receivable

1.1.4. Inventory

1.1.5. Prepaid Expenses

1.1.6. Property, Plant and Equipment (PPE)

1.1.6.1. Land

1.1.6.2. Equipment, Furniture, and Fixtures

1.1.6.3. Buildings

### 1.2. Liabilities

1.2.1. Accounts Payable

1.2.2. Notes Payable

1.2.3. Accrued Liabilities

### 1.3. Shareholders' (Owners') Equity

1.3.1. Share Capital

1.3.2. Retained Earnings

1.3.2.1. Revenues - Expenses

1.3.2.2. Former Retained Earnings

1.3.3. Dividends

1.3.4. Revenues

## 2. The T-Account

2.1.1. Credit

2.2.1. Debit

### 2.3. Credit Balance

2.3.1. Liabilities

2.3.1.1. A credit increases the liability, a debit decreases the liability

2.3.1.1.1. right side positive

2.3.2. Revenues

2.3.2.1. A credit increases the revenue, a debit decreases the revenue

2.3.2.1.1. right side positive

2.3.3. Equity

2.3.3.1. A credit increases the equity, a debit decreases the revenue

2.3.3.1.1. right side positive

### 2.4. Debit Balance

2.4.1. Assets

2.4.1.1. A debit increases an asset, a credit decreases an asset account

2.4.1.1.1. left side positive

2.4.2. Expenses

2.4.2.1. A debit increases an expense, a credit decreases an expense account

2.4.2.1.1. left side positive

2.4.3. Dividends

2.4.3.1. A debit increases a dividend, a credit decreases a dividend account

2.4.3.1.1. left side positive

## 3. Recording Transactions

### 3.1. Journal

3.1.1. 1. Specify each account affected by the transaction and classify each account by type (asset, liability, shareholders' equity, revenue, or expense)

3.1.2. 2. Determine whether each account is increased or decreased by the transaction. Use the rules of debit and credit to increase or decrease each account

3.1.3. 3. Record the transaction in the journal, including a brief explanation. The debit side is entered on the left margin, and the credit side is indented to the right.