The T Account

This is the simplest tool used to analyse the effects of the transaction on each account, hence, it has two
sides: one side for recording increases and the other side for recording decreases.

Cash
Left side or debit side Right side or credit side

Debit- is an accounting entry that either increases an asset or expense account, or decreases a liability or
equity account. It is positioned in the left side in an accounting entry.
Credit- is an accounting entry that either increases a liability or equity account, or decreases an asset or
expense account.

Since asset is on the left side or debit side, increases are therefore on the debit side and
decreases are on the credit side. Liabilities and owner’s equity is on the right side or the credit side,
increases therefore are on the credit side and decreases are on the debit side.

The following rules for debit and credit should be observe in processing transactions:

1. Increases in asset are recorded on the debit side of the account, while decreases in assets are
recorded on the credit side of the account.
2. Increases in liabilities are recorded on the credit side of the account while decrease in liabilities are
recorded on the debit side of the account.
3. Increases in owner’s equity are recorded on the credit side of the account, while decreases in owner’s
equity are recorded on the debit side.

Demonstration Problem:
March 1 May Gomez opened a tour and travel business by investing cash of P50,000 and two cars
worth P750,000.
Analysis: Increase in assets cash P50,000 and cars P750,000 and increase in owner’s
equity Gomez, Capital P800,000.
Entry: Debit cash P50,000, debit cars P750,000, and credit Gomez, Capital P800,000.

March 3 Borrowed P100,000 from Citibank for business use.

Analysis: Increase in assets cash and increase in liabilities loan payable by P100,000.
Entry: Debit cash P100,000 and credit loans payable P100,000.

March 7 Bought table and chairs from Blim’s. Paid cash of P45,000.
Analysis: Increase in assets furniture and decreases in assets cash P45,000.
Entry: Debit furniture & fixtures P45,000 and credit cash P45,000

March 10 Purchased from National Winner two aircon units for P50,000 and electric fan P5,000,
All on account.
Analysis: Increase in assets equipment and increase in liabilities accounts payable
P55,000.
Entry: Debit equipment P55,000, and credit accounts payable P55,000.

March 18 Gomez made a cash withdrawal of P5,000 for personal use.

Analysis: Decrease in assets cash and decrease in owner’s equity Gomez, Drawings,
P5,000.
Entry: Debit Gomez, Drawing P5,000 and credit cash P5,000.