DOUBLE- ENTRY SYSTEM

RULES OF DEBIT AND CREDIT

ACCOUNTING CYCLE
BUSINESS TRANSACTION ANALYSIS
JENILUZ MAMAYSON

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DOUBLE- ENTRY SYSTEM
and
RULES OF DEBIT AND
CREDIT
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DOUBLE- ENTRY SYSTEM
1. ALL TRANSACTIONS ARE RECORDED IN THE ACCOUNTING RECORDS USING THE DOUBLE-ENTRY
SYSTEM.

2. UNDER THIS SYSTEM, EACH TRANSACTION IS RECORDED IN TWO PARTS – DEBIT AND CREDIT.

NOTE:

▪ No transaction is recorded by a debit alone or a credit alone.

▪ For each amount debited, there must be a corresponding amount that is credited, and vice-versa.

▪ This is in order for the accounting equation to be balanced at all times.

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DEBIT CREDIT
CONCEPTS OF DUALITY AND EQUIILIBRIUM

CONCEPT OF DUALITY CONCEPT OF EQUILIBRIUM

✔ Views that each transaction
as having a two-fold-effects
on the values and each
transaction is recorded
using at least two accounts
“AT LEAST 2 EFFECTS”
✔ Requires that each
transaction is recorded in
terms of equal debits and
credits.
“DEBIT = CREDIT”

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RULES OF DEBIT AND CREDIT

DEBIT (Dr.) CREDIT (Cr.)

✔ A debit is an accounting
entry that either increases
an asset or expense
account, or decrease a
liability or equity account.
✔ It is positioned to the left in
an accounting entry.
✔ A credit is an accounting
entry that either increases a
liability or equity account, or
decreases an asset or
expense account.
✔ It is positioned to the right in
an accounting entry.

▪ Fra Luca Pacioli’s book was written in the vernacular of the age – Latin
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▪ So the terms her used for DEBIT and CREDIT in his book were “DEBERE” and “CREDERE”
RULES OF DEBIT AND CREDIT

Accounting Elements DEBIT CREDIT

ASSETS INCREASE DECREASE

LIABILITIES DECREASE INCREASE

CAPITAL/EQUITY DECREASE INCREASE

• DRAWINGS INCREASE DECREASE

• INCOME DECREASE INCREASE

• EXPENSE INCREASE DECREASE

NOTE: The side where the account increases is called “NORMAL BALANCE” 6
 RULES OF DEBIT AND CREDIT
Accounting DEBIT CREDIT
1. ASSETS DEBIT Elements
ASSETS INCREASE DECREASE
2. EXPENSE DEBIT
LIABILITIES DECREASE INCREASE
3. LIABILITIES CREDIT
CAPITAL/EQUITY DECREASE INCREASE

4. INCOME CREDIT
• DRAWINGS INCREASE DECREASE

5. OWNER’S CAPITAL/EQUITY CREDIT • INCOME DECREASE INCREASE

• EXPENSE INCREASE DECREASE

6. CASH ON HAND DEBIT

7.EXERCISES: IDENTIFY THE

PREPAID EXPENSE FOLLOWING ACCOUNT IF DEBIT OR CREDIT
DEBIT 7

8. CAIRO, DRAWINGS DEBIT

 RULES OF DEBIT AND CREDIT
Accounting DEBIT CREDIT
1. INCREASE IN ASSETS DEBIT Elements
ASSETS INCREASE DECREASE
2. INCREASE IN EXPENSE DEBIT
LIABILITIES DECREASE INCREASE
3. DECREASE IN LIABILITIES DEBIT
CAPITAL/EQUITY DECREASE INCREASE

4. INCREASE IN INCOME CREDIT

• DRAWINGS INCREASE DECREASE

5. DECREASE IN OWNER’S CAPITAL/EQUITY DEBIT • INCOME DECREASE INCREASE

6. DECREASE IN CASH ON HAND CREDIT

• EXPENSE INCREASE DECREASE

7.EXERCISES:
INCREASE IN CAPITAL CREDIT
IDENTIFY THE NORMAL BALANCE OF THE FOLLOWING ACCOUNT 8

8. DECREASE IN INVENTORY CREDIT

ACCOUNTING CYCLE

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ACCOUNTING CYCLE
▫ The accounting cycle represents the steps or procedures
used to record transactions and prepare financial
statements.

▫ Accounting cycle is a step- by- step process of recording,

classifications and summarization of economic
transactions of business.

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 STEP IN ACCOUNTING CYCLE

1. ANALYZING BUSINESS TRANSACTIONS

2. RECORDING JOURNAL ENTRIES
3. POSTING TO THE LEDGER
4. PREPARING THE PRELIMINARY TRIAL BALANCE
5. WORKSHEET
6. RECORDING ADJUSTING ENTRIES
7. PREPARATION OF FINANCIAL STATEMENTS
8. RECORDING CLOSING ENTRIES
9. PREPARATION OF POST-CLOSING TRIAL BALANCE
ANALIZING BUSINESS TRANSACTIONS
▫ ANALYZNG IS THE FIRST STEP IN THE ACCOUNTING CYCLE WHEREIN YOU HAVE TO
DETERMINE IF THAT CERTAIN BUSINESS TRANSACTION SHOULD BE RECORDED ON THE
JOURNAL OR NOT. TO HELP YOU DETERMINE IF THE BUSINESS TRANSACTION SHOULD BE
RECORDED ON THE JOURNAL OR NOT, HERE ARE THE TWO(2) RULES IN ANALYZING A
BUSINESS TRANSACTIONS.

▫ MUST BE A COMPLETED ACTION

▫ SHOULD INVOLVE MONEY
PLEASE NOTE THAT THESE 2 RULES MUST BE BOTH PRESENT IN THE BUSINESS TRANSACTION IN ORDER FOR YOU TO
CONCLUDE THAT THE BUSINESS TRANSACTION MUST BE RECORDED ON THE JOURNAL.

ACCOUNTABLE EVENTS- transactions that has an effect on the account/elements.

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NON ACCOUNTABLE EVENTS- transactions that has no effect on the account/elements.
ANALIZING BUSINESS TRANSACTIONS
▫ Transactions are normally identified from SOURCE DOCUMENTS.

▫ Source Documents are written evidences containing information about transactions.

▫ Examples of Source Documents are (but not limited to):

▫ SALES INVOICE

▫ OFFICIAL RECEIPTS

▫ PURCHASE ORDERS

▫ DELIVERY RECEIPTS
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▫ BANK DEPOSIT SLIPS
SALES INVOICE
▫ Used for the sale of goods.

▫ Is a document that records the

sale of goods from a seller to a
customer.

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OFFICIAL RECEIPTS
▫ Used for the sale of services.

▫ Is a document that records the

sale of services from a service
provided to a customer.

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PURCHASE ORDER
▫ Is a document issues by the
buyer to a seller indicating the
types, quantities and agreed
prices for products or services
that the buyers intends to
purchase.

▫ To prevent unnecessary
purchases, you should require
your personnel to prepare
purchase orders (as part of
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internal control.
DELIVERY RECEIPTS
▫ Is a document signed by the
receiver of shipment
acknowledging the receipts of
goods.

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BANK DEPOSIT SLIP
▫ It evidences a deposit to a
bank account. It shows the
date of deposit, the bank
account name and number
and the amount deposited.
BANK WITHDRAWAL SLIP
▫ It evidences a withdrawal to a
bank account. It shows the
date of withdrawal, the bank
account name and number
and the amount withdrawn. 18
BANK STATEMENTS
▫ Is a report issued by an bank (on
a monthly) which shows the
deposits and withdrawals during
the period and the cumulative
balance of a deposit’s bank
account.

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STATEMENT OF ACCOUNTS
▫ It lists out all the financial
transactions between the two
business within a specific time
period (typically, monthly). The
statement my reflect a zero
balance, if not, it acts as a
reminder to the client that
money is due.

▫ Also, serves as notice of billing.

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TYPES OF EVENTS
▫ EXTERNAL EVENTS ▫ INTERNAL EVENTS
▫ Are transactions ▫ Are transactions
that involve the that do not involve
business and other an external party.
external party. ▫ Examples are:
▫ Examples are: PAYMENT OF
SALES, PURCHASES, SALARIES,
BORROWING OF DEPRECIATION,
MONEY, PAYMENT DESTRUCTION OF
OF LIABILITIES and PROPERTIES and 21
ETC. ETC.
BUSINESS
TRANSACTION
ANALYSIS
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ACCOUNTING ELEMENTS/MAJOR ACCOUNTS

▫ ASSETS
▫ LIABILITIES
▫ CAPITAL/EQUITY
▫ DRAWINGS (-)
▫ INCOME (+)
▫ EXPENSES (-)
▫ INVESTMENTS (+) 23
BUSINESS TRANSACTION ANALYSIS
Marites decided to invest in a Travel Agency and she named her business
“FLY MARITES TRAVEL AGENCY”. Below are the transactions for the month of
April 2021.

▫ April 1, 2021 – Marites invested a cash of P1,200,000 in her business.

ANALYSIS:
INCREASE IN INCREASE IN
ASSETS CAPITAL
“CASH” “MARITES, CAPITAL”
P1,200,000 P1,200,000

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BUSINESS TRANSACTION ANALYSIS
▫ April 4, 2021 – Borrowed P250,000 from Metrobank

ANALYSIS:
INCREASE IN INCREASE IN
ASSETS LIABILITIES
“CASH” “LOANS PAYABLES”
P250,000 P250,000

▫ April 5, 2021 – Bought Tables and Chairs to ABC Company for P30,000 cash

ANALYSIS:
INCREASE IN DECREASE IN
ASSETS ASSETS
“FURNITURES and
FIXTURES”
“CASH”
P30,000 (P30,000)
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BUSINESS TRANSACTION ANALYSIS
▫ April 10, 2021 – Bought Equipment to DEF COMPANY for P50,000 on account/credit

ANALYSIS:
INCREASE IN INCREASE IN
ASSETS LIABILITIES
“EQUIPMENT” “ACCOUNTS PAYABLES”
P50,000 P50,000

▫ April 12, 2021 – Rendered service to customers and received P100,000 cash.

ANALYSIS:
INCREASE IN INCREASE IN
ASSETS CAPITAL/EQUITY
“CASH” “SERVICE REVENUE”
P100,000 P100,000
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BUSINESS TRANSACTION ANALYSIS
▫ April 14, 2021 – Rendered Service to customers for P75,000 on account/credit

ANALYSIS:
INCREASE IN INCREASE IN
ASSETS CAPITAL/EQUITY
“ACCOUNTS RECEIVABLE” “SERVICE REVENUE”
P75,000 P75,000

▫ April 15, 2021 – Marites withdrew P65,000 cash for personal use.

ANALYSIS:
DECREASE IN DECREASE IN
CAPITAL/EQUITY ASSETS
“MARITES, DRAWINGS” “CASH”
(P65,000) (P65,000)
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BUSINESS TRANSACTION ANALYSIS
▫ April 21, 2021 – Paid employees salaries for P55,000

ANALYSIS:
DECREASE IN DECREASE IN
CAPITAL/EQUITY ASSETS
“SALARIES EXPENSE” “CASH”
(P55,000) (P55,000)

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THINGS TO REMEBER
▫ COMMON REASONS WHY CASH DECREASES
1. Acquisition of Assets through cash

2. Withdrawals

3. Payment of Liability

4. Payment of Expenses

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Thanks!
ANY QUESTIONS?

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