ANALYSIS OF BUSINESS

TRANSACTION & THE RULES OF

DEBIT AND CREDIT
By: Jevie M. Villa Abrille, CPA, MBA
LEARNING OBJECTIVES:
▪ Understand the double-entry system of recording transactions.
▪ Discuss the use of double-entry system of recording transactions
through the accounting equation.
▪ Apply the double-entry system of recording transaction to the
example transactions.
▪ Relate the rules of debit and credit to example transactions.
▪ Apply the rules of debit and credit to the elements of financial
statements.
DOUBLE-ENTRY
ACCOUNTING SYSTEM
▪ The double-entry accounting system is depicted by this equation:
Assets = Liabilities + Equity.
▪ The accounting equation is the representation of the Statement of
Financial Position.
▪ The elements of Income statement (Income & Expense) affects
the Equity.
▪ In a double-entry accounting, each elements of the financial
statements are to be placed on the left side or right side of the
equation to indicate increase or decrease.
▪ If both sides of the equation is affected for each financial
transaction, both sides of the equation should have an equal
balance.
RULES OF DEBIT AND CREDIT
DEBIT (LEFT) CREDIT (RIGHT)
ASSET LIABILITY
EXPENSE INCOME
EQUITY

The elements of the financial statements have normal placements. The

normal placement is said to be the NORMAL BALANCE. Each
transaction must affect both sides of the equation and placement (whether
debit or credit). The NORMAL BALANCE is the position where the
account increases.
ANALYSIS OF BUSINESS
TRANSACTIONS
An advise to ponder:
Business transactions are analyzed from the viewpoint of the business. If the transaction
is “Purchased” or “Bought” it is the business that is buying. If the transaction is “Selling”,
it is the business that sells; if the transaction is “Collecting”, it is the business that
collects and if the transaction is “Rendered Services” it is the business that is rendering
services.
Things to remember…….
1. Each transaction must have effects to both side of the equation
2. For every value received, another value is given away as an exchange
3. Values are measured in terms of pesos which are presumed to be equal
BUSINESS TRANSACTIONS &
THE RULES OF DEBIT AND
CREDIT
Let us start this way:

NOTE:

The “Value Received or “DEBIT” should first be determined before the “VALUE PARTED
WITH” or “CREDIT”
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SELF-CHECK
Accounts Element Increase Decrease
Service Revenue Income Credit Debit
Withdrawals Equity Debit Credit
Utilities Expense Expense Debit Credit
Rent Expense Expense Debit Credit
Cash in Bank Asset Debit Credit
Trade Payables Liability Credit Debit
Salaries Expense Expense Debit Credit
Office Equipment Asset Debit Credit
Furniture Asset Debit Credit
Loans Payable Liability Credit Debit
Capital Equity Credit Debit
SELF-CHECK
▪ State the accounting equation: Asset = Liability + Equity
▪ Increase in Asset is Debit.
▪ Decrease in Asset is Credit.
▪ Increase in Liability is Credit.
▪ Decrease in Liability is Debit.
▪ Increase in Income is Credit.
▪ Increase in Expenses is Debit.
▪ Increase in Equity is Credit.
▪ Decrease in Equity is Debit.