Chapter 2

Accounts and Debits and

Credits

©2016 John Wiley & Sons Australia, Ltd

 Learning objectives

After studying this presentation, you should be able

to:
1. Explain what an account is and how it helps in the
recording process.
2. Define debits and credits and explain how they are
used to record accounting transactions.
 The account

• An account is an individual accounting record of

increases and decreases in a specific asset, liability or
equity item.
 Debits and credits

• Debit:
– Refers to the left side.
– Commonly abbreviated as Dr.
• Credit:
– Refers to the right side.
– Commonly abbreviated as Cr.
 Debit and credit procedures

Double entry system:

– each transaction affects at least two accounts
– total debits must equal total credits.
1. Dr/Cr procedures for assets & liabilities:
 Debit and credit procedures

2. Dr/Cr procedures for Equity:

a. Share
Capital:

b. Retained
Earnings:
 Debit and credit procedures

c.Dividends:

3. Dr/Cr procedures for Revenue & Expenses:

Equity relationships
Expanded accounting equation
 Summary of Normal Ledger Balances

Classification Normal Increase Decrease

Balance
Asset Debit Debit Credit
Liability Credit Credit Debit
Equity Credit Credit Debit
Revenue Credit Credit Debit
Expense Debit Debit Credit

*A couple of exceptions to these rules are:

Accumulated Credit Credit Debit

Depreciation
(-NCA)
Dividends Debit Debit Credit
(Equity)