Lecture # 3

Debit and Credit

Business transactions cause increases and decreases in the accounting values. To record
these changes, a business firms make use of accounts. An accounts is an accounting device
use to summarize the increases and decreases in the assets, liabilities, and the owner’s equity
of the business.
A simple form of accounts looks like a big letter “T”, thus it is called a “T” account. It has a left
side and a right side. It appears as follows.

Nov.1 – M. Rogers opened a catering service he called “ McRogers”. He invested

P32,000 cash and equipment, P85,000

Debit Credit

Cash 32,000 M. Capital 117,000

equipment 85,000  
 

Analysis:
1. The assets and the equity are affected.
2. The owner put in the business cash and equipment, thus increasing the equity.
He purchased kitchen utensils, tools and additional equipment from Kent Trading
on credit, P20,000.

Debit Credit

Tools & Equipment 20,000 Accounts Payable- Kent trading 20,000

 
Analysis:
1. The assets and liabilities are affected.
2. Assets, tools, and equipment are bought by the owner on credit basis, thus
increasing the assets and liabilities of the business.
3.
Nov. 7 - Paid for advertisement announcing the opening of his business, P1,500.

Debit Credit

Advertising expense 1,500 Cash 1,500

 
Analysis:
1. The asset and equity are affected.
2. The equity is decrease due to the advertising expense incurred and the asset,
cash, is decreased for the payment of the said expense.

Nov. 9 – Paid one-half of the account due to Kent Trading on credit, P20,000.

Debit Credit

Accounts payable P10,000 Cash 10,000

 
Analysis:
1. The assets and liabilities are affected.
2. There is a decrease in liability due to the partial payment of the account to Kent
Trading and also a decrease in asset, cash, for the amount paid for this liability.
Nov. 11 – Rendered a catering service to N. San Juan for his son’s wedding and
received cash P52,000.

Debit Credit

Cash P52,000 Service income 52,000

 
Analysis:
1. The assets and equity are affected.
2. Cash received from customer, thus increasing the asset of the business and the
proprietorship is increased due to the revenue derived from rendering of service.

Nov. 13 – Paid for the food supplies used in San Juan’s wedding party, P25,000

Debit Credit

Food supplies P25,000 Cash 25,000

 
Analysis:
1. The asset and the equity are affected.
2. The equity is decreased due to the cost of food supplies and the asset, cash is
also decreased for payment of the supplies.

Nov. 17 – billed J. Estrada, P25,000 for catering service rendered in his birthday
party.

Debit Credit

Accounts receivable - Estrada P25,000 Service income 25,000

 
Analysis:
1. The asset and equity are affected.
2. Equity is increased due to the revenue from services rendered and asset is
increased for the claims from the customer for this service.
Nov. 20 – Paid the salary of the assistant cook, P5,000.

Debit Credit

Salary P5,000 Cash 5,000

 
Analysis:
1. The asset and equity are affected.
2. The equity is decreased due to the salary expense incurred by the business and
the assets, cash is decreased for payment of such expense.
Nov. 22 – Received from J. Estrada the amount of P10,000 as partial payment of the
account due from him.

Debit Credit

Cash P10,000 Accounts receivable 10,000

 
Analysis:
1. Only assets are affected. Liabilities and equity are not affected.
2. Cash is received from a customer to apply to his account, thus increasing the
assets, cash, and decreasing the receivable from the said customer.
Nov. 25 – Withdrew P5,000 for his personal use.

Debit Credit

M. Rogers, personal P5,000 Cash 5,000

 
Analysis:
1. The assets and equity are affected.
2. The equity is decreased due to the drawings made by the owner. The asset,
cash, is decreased for such drawing made.
Complete illustration:
The following are the transaction of A. Austria, owner of AA Typing and stenographic
Services”, for the month of Dec, 20___
1. A. Austria invested P1,000 and a typewriter P25,000.
Event
no. Assets Liabilities Owners' Equity
 Decrease/
  increase    
Total      

Account and Acct

Date Description no. Debit Credit
  Supplies   10000  
  Cash     10000
  payment for supplies      

2. Purchase supplies to NBS on account, 10,000

Event
no. Assets Liabilities Owners' Equity
   Increase  increase  
Total      

Date Account and Description Acct no. Debit Credit

  Supplies   10000  
  Accounts Payable-NBS     10000
  Purchase of supplies      
    on account to NBS      
3. Paid the supplies owed to NBS 10,000
Event
no. Assets Liabilities Owners' Equity
   decrease  decrease  
Total      

Date Account and Description Acct no. Debit Credit

  Accounts payable   10000  
  Cash     10000
  Payment to NBS      

4. Paid, 5000 to NBS and issued a promissory note for the balance.
Event
no. Assets Liabilities Owners' Equity
   decrease  increase  
Total      

Date Account and Description Acct no. Debit Credit

  Accounts payable -NBS   10000  
  Cash     5000
  Notes payable       5000
Payment to NBS and
  balance with promissory note      

5. Purchase 10,000 worth of supplies paying 5,000 down payment and promise to
pay the balance within 15 days.
Event
no. Assets Liabilities Owners' Equity
   increase  increase  
Total      

Date Account and Description Acct no. Debit Credit

  Office Supplies   5000  
  notes payable     5000
  to record purchase of    
  Supply w/ promissory note      
6. Paid 3 mos. Rent and recorded it as an asset 15,000.
Event
no. Assets Liabilities Owners' Equity
 Decrease and
  increase    
Total      

Date Account and Description Acct no. Debit Credit

  Prepaid rent   15000  
  Cash     15000
  Payment for 3 mos. rent    

7. Paid 3 months rent and recorded it as an expense.

Event
no. Assets Liabilities Owners' Equity
 decrease
     decrease
Total      

Date Account and Description Acct no. Debit Credit

  Rent expense   15000  
  Cash     15000
  Payment for 3 mos. rent    

8. Rendered service and collected cash 10,000.

Event
no. Assets Liabilities Owners' Equity
 increase
     increase
Total      

Date Account and Description Acct no. Debit Credit

  Cash 10000
  Service Revenue 10000
Collection from service
  rendered
9. Billed customer A. for a service rendered 10,000
Event
no. Assets Liabilities Owners' Equity
 increase
     increase
Total      

Date Account and Description Acct no. Debit Credit

  Accounts Receivable -A 10000
  Service Revenue 10000
Income on account-
  Customer A

10. Received 5,000 from customer A and a promissory note for the balance due to
him.
Event
no. Assets Liabilities Owners' Equity
 Increase/
decrease
   increased  
Total      

Date Account and Description Acct no. Debit Credit

  Notes receivable - A 5000
  Cash 5000
  Accounts Receivable-A 10000
Received payment for
  Customer A