Debit and Credit System

THE ACCOUNTING
INFORMATION SYSTEM
The Account...
An individual accounting record of
increases and decreases to any specific
• Asset
• Liability
• Stockholders’ Equity
• Revenue
• Expense
The Ledger Card
Account: Cash Account # 101

Post Balance
Date Item Ref Debit Credit Debit Credit
9/1 /09 20,000 20,000
9/2 /09 1,000 19,000
9/3 /09 10,000 9,000
9/4 /09 1,200 7,800
9/20 /09 700 7,100
9/30 /09 5,000 12,100
Using Accounts
 Accounts provide an efficient method to
categorize transactions.
 It is the location where we record activity
and maintain a running balance for any
particular item.
 Each account is maintained on its own
ledger card.
 All of the ledger cards combined become
the General Ledger.
Accounts
Where all activity and the resulting

balances are kept for everything we want to
keep track of.
General Ledger
Put all of the ledger cards together.

Wages Payable
Accounts Payable
Equipment
Office Supplies
Accounts Receivable
Account: Cash Account # 101

Post Balance
9/1 /09 20,000 20,000
9/2 /09 1,000 19,000
9/3 /09 10,000 9,000
9/4 /09 1,200 7,800
9/20 /09 700 7,100
9/30 /09 5,000 12,100
Chart of Accounts...
is a list of a company’s accounts.

Jim’s Lemonade
Chart of Accounts
101 - Cash
105 - Accts Receivable
110 - Office Supplies
150 - Equipment
201 - Accounts Payable
210 - Wages Payable
305 - Common Stock
320 - Retained Earnings
401 - Sales - Lemonade
410 - Sales – Catering
501 - Lemon Expense
505 - Insurance Expense
510 - Office Expense
When a transaction occurs:
Basic Steps in the
Recording Process.
1. Analyze
2. Journalize
3. Post
Recording Process Step 1
Analyze
each
transaction
and effect
on accounts
If you don’t understand what happened
(the transaction)
you cannot account for it!
So. . . This is a
pretty good place
to start
!!!
Accounting Transactions...
 are economic events that
must be recorded in the
financial statements
because they affect
 assets
 liabilities
 and/or stockholders’ equity

Transaction Analysis
 The process of identifying the
specific effects of economic events
on the accounting equation.
 Each transaction has a dual (double-

sided) effect on the accounting
equation.
Enter transaction information in a

journal, a process called journalizing
The Journal...
is an accounting record where the

transactions are recorded in
chronological order.
Copy (post) the journal information to the

appropriate accounts in the ledger
“T” Accounts
SHAPED
LIKE a “T” Debit Credit
“T” Accounts
Debit means Credit means
Left Right
Debit Credit
“T” Accounts
Abbreviation Abbreviation
for Debit for Credit
Dr. Cr.
“T” Accounts
ACCOUNT NAME CASH

Dr. Cr.
The Ledger Card
Account: Cash Cash Account # 101___

Post Balance
9/1 /06 20,000 20,000
9/2 /06 1,000 19,000
9/3 /06 10,000 9,000
9/4 /06 1,200 7,800
9/20 /06 700 7,100
9/30 /06 5,000 12,100
The T Account
Every Account has:
 An Increase Side,
and
 A Decrease Side
 But, Some Accounts
Increase on the
Debit Side
 And, Some
Accounts Increase
on the Credit Side
7 RULES OF
DEBITS AND CREDITS
RULE #1
ASSET ACCOUNTS
Increase on Decrease on
Debit Side Dr. Cr. Credit Side
+
EXAMPLE:
PURCHASED OFFICE
SUPPLIES FOR $800 CASH
STEP #1
Name the accounts affected:
CASH OFFICE
SUPPLIES
STEP #2
Determine Classification of Accounts

AS
S ET
ASSE
T
CASH OFFICE
SUPPLIES
STEP #3
Now that we know the classification,

we can identify increase and decrease
sides.
CASH OFFICE SUPPLIES
DR. CR. DR. CR.
+ +
PURCHASED OFFICE SUPPLIES
FOR $800 CASH
Did Office Supplies

Increase or Decrease
in this transaction?
INCREASED
OFFICE SUPPLIES
DR. CR.
+
$800
PURCHASED OFFICE SUPPLIES
FOR $800 CASH
What about Cash?

DECREASED
CASH
DR. CR.
+
$800
RULE #2
IN EVERY TRANSACTION
DEBITS MUST EQUAL
CREDITS
DEBITS = CREDITS
OFFICE SUPPLIES CASH

DR. CR. DR. CR.
+ +
$800 $800
RULE #3
LIABILITY ACCOUNTS
Decrease on Increase on
+
EXAMPLE:
PURCHASED EQUIPMENT ON
ACCOUNT FOR $3,000.
STEP #1
Name the accounts affected:
ACCOUNTS
PAYABLE
EQUIPMENT
STEP #2
Determine Classification of Accounts:

A LIA
SS B ILIT
ET Y
ACCOUNTS
PAYABLE
EQUIPMENT
STEP #3

sides.
EQUIPMENT ACCOUNTS PAYABLE
DR. CR. DR. CR.
+ +
ACCOUNT FOR $3,000.
Did Equipment
INCREASED
EQUIPMENT
DR. CR.
+
$3000
ACCOUNT FOR $3,000.
Accounts Payable?
INCREASED
ACCOUNTS PAYBLE
DR. CR.
+
$3000
DEBITS = CREDITS
EQUIPMENT ACCOUNTS PAYABLE

DR. CR. DR. CR.
+ +
$3000 $3000
RULE #4
CAPITAL ACCOUNT
+
JUST LIKE
LIABILITY ACCOUNTS
EXAMPLE:
MARY ADAMS, THE OWNER,

INVESTED $25,000 IN THE
BUSINESS
STEPS #1 & 2
Name and classify the accounts affected:
OWNER’S EQUITY ASSET
M. ADAMS, CAPITAL CASH

DR. CR. DR. CR.
STEP #3

sides.
DR. CR. DR. CR.
+ +
INCREASED OR DECREASED?
INCREASED INCREASED

DR. CR. DR. CR.
+ +
$25,000 $25,000
DEBITS = CREDITS
CASH M. ADAMS, CAPITAL

DR. CR. DR. CR.
+ +
$25,000 $25,000
RULE #5
DIVIDEND / DRAWING ACCOUNT

Increase on the Decrease on the
+
JUST LIKE
ASSET ACCOUNTS
EXAMPLE:
MARY WITHDREW $1,500

FOR PERSONAL EXPENSES
STEPS #1 & #2
OWNER’S EQUITY ASSET
M. ADAMS, DRAWING CASH

DR. CR. DR. CR.
INCREASED DECREASED

DR. CR. DR. CR.
+ +
$1,500 $1,500
DEBITS = CREDITS

DR. CR. DR. CR.
+ +
$1,500 $1,500
RULE #6
REVENUE ACCOUNTS
+
JUST LIKE
LIABILITY & CAPITAL
ACCOUNTS
EXAMPLE:
MARY PERFORMED SERVICES
AND RECEIVED $4,500 IN CASH
STEPS #1 & #2
REVENUE ASSET
CONSULTING FEES CASH

DR. CR. DR. CR.
STEP #3

sides.
DR. CR. DR. CR.
+ +
INCREASED INCREASED

DR. CR. DR. CR.
+ +
$4,500 $4,500
DEBITS = CREDITS
CASH CONSULTING FEES

DR. CR. DR. CR.
+ +
$4,500 $4,500
EXAMPLE:
MARY PERFORMED $6,000 OF
SERVICES ON ACCOUNT
DEBITS = CREDITS
ACCOUNTS
RECEIVABLE CONSULT. FEES
DR. CR. DR. CR.
+ +
$6,000 $6,000
ACCOUNTS
RECEIVABLE
INSTEAD OF
CASH
RULE #7
EXPENSE ACCOUNTS
Increase on the Decrease on the
+
JUST LIKE
ASSET ACCOUNTS
EXAMPLE
MARY ADAMS PAID HER

ASSISTANT $750 IN WAGES
STEPS #1 & #2
EXPENSE ASSET
WAGES EXPENSE CASH

DR. CR. DR. CR.
STEP #3

sides.
WAGES EXPENSE CASH
DR. CR. DR. CR.
+ +
INCREASED DECREASED
WAGES EXPENSE CASH

DR. CR. DR. CR.
+ +
$750 $750
DEBITS = CREDITS
WAGES EXPENSE CASH

DR. CR. DR. CR.
+ +
$750 $750
Whichever side you
increase is the
NORMAL balance!
Review
What is the normal balance for the
following accounts?
Cash Debit
Accounts Payable Credit
Accounts Receivable Debit
Service Revenue Credit
Common Stock Credit
Salaries Expense Debit
Review
What is the normal balance for the
following accounts?
Dividends Debit
Building Debit
Taxes Payable Credit
Unearned Revenus Credit
Prepaid Insurance Debit
Rent Expense Debit
GENERAL JOURNAL
Date Account Titles and Explanations Debit Credit
Oct. 1 Cash  10,000
Common Stock
10,000 Issued common stock for cash
Cash  5,000
Notes Payable
5,000 Issued 3-month, 12% note payable for cash
Office Equipment
 5,000
Cash
5,000 Purchased office equipment for cash
Posting Entries
GENERAL JOURNAL
Oct. 1 Cash 10,000
Common Stock
10,000
Issued common stock for cash
Account CASH Acct 1010

Date Balance
ref Debit Credit Debit Credit
Account COMMON STOCK Acct 3010

Date Balance
Posting Entries
GENERAL JOURNAL
Oct. 1 Cash 10,000
Common Stock
10,000
Issued common stock for cash
Account CASH Acct 1010

Date Balance
Oct 1 gj 1 10,000 10,000
Account COMMON STOCK Acct 3010
Date Balance
Oct 1 gj 1 10,000 10,000
TRIAL BALANCE
 List of all accounts with a balance

 Including their balances
 Total all debits and all credits
 Prove debits equal credits
 Used as an aid in preparing financial
statements
Jessica Jane’s Campus Delivery
Trial Balance
June 30, 20--
Account Title Debit Balance Credit Balance
HEADING should include:

 Name of the Company
 Title of Document “Trial Balance”
 Date of the Trial Balance
Trial Balance
June 30, 20--
Cash 370 00
Accounts Receivable 650 00
Supplies 80 00
Prepaid Insurance 200 00
Delivery Equipment 3600 00
All Asset accounts

listed first
Trial Balance
June 30, 20--
Cash 370 00
Supplies 80 00
Accounts Payable 1800 00
Liabilities are
shown next
Trial Balance
June 30, 20--
Cash 370 00
Supplies 80 00
Jessica Jane, Capital 2000 00
Jessica Jane, Drawing 150 00
Now the Owner’s Equity

Accounts
Trial Balance
June 30, 20--
Cash 370 00
Supplies 80 00
Delivery Fees 2150 00
Then
t he Re
v enue
Acco
unt
Trial Balance
June 30, 20--
Cash 370 00
Supplies 80 00
s es
Accounts Payable p en 1800 00
Jessica Jane, Capital Ex
th e 2000 00
Jessica Jane, Drawing l ly, 150 00
a
Delivery Fees Fin 2150 00
Wages Expense 650 00
Rent Expense 200 00
Telephone Expense 50 00
Trial Balance
June 30, 20--
Cash 370 00
Supplies 80 00
Prepaid Insurance It Balances!!! 200 00
Accounts PayableDebits = Credits 1800 00
Delivery Fees 2150 00
Wages Expense 650 00
Rent Expense 200 00
Telephone Expense 50 00
5950 00 5950 00
Chapter 3
Sample Transactions
(a) On July 1, cash of $95,000 was invested in the business in

exchange for $95,000 worth of common stock.
(b) Peoples, Inc. acquired land by paying $60,000 cash to Nashtown,
Inc.
(c) Peoples, Inc. purchased an estimated three-month supply of office
supplies on account. The company will pay $600 for these supplies
later.
(d) Peoples, Inc. received $800 for accounting services performed.
(e) Peoples, Inc. performed consulting services for $2,000. The
company will be paid later in the month.
(f) Peoples, Inc. received confirmation that a major corporation has
selected their corporation to perform major consulting work. The
work will start January 1st of next year.
Chapter 3
Sample Transactions
(g) Peoples, Inc. purchased office equipment for $6000. The company
signed a 2-year note with ACME Office Equipment Company.
(h) Peoples, Inc. paid $1800 for a 1-year license to operate as a
business. The license expires June 30th of next year.
(i) Peoples, Inc. collected $800 of the money owed from (e).
(j) Peoples, Inc. paid $400 of the amount it owed from (c).
(k) An employee has worked and earned $600 which was paid during
the month.
(l) Peoples, Inc. received a $5000 retainer to handle a tax audit that
the company will start to work on next month.
(m) Peoples, Inc. paid $500 for rent during the month.
(n) Dividends of $700 were paid during the month.

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THE ACCOUNTING

Account: Cash Account # 101

Where all activity and the resulting

Put all of the ledger cards together.

Account: Cash Account # 101

is a list of a company’s accounts.

you cannot account for it!

 and/or stockholders’ equity

 Each transaction has a dual (double-

Enter transaction information in a

is an accounting record where the

Copy (post) the journal information to the

ACCOUNT NAME CASH

Account: Cash Cash Account # 101___

Name the accounts affected:

Determine Classification of Accounts

Now that we know the classification,

Did Office Supplies

What about Cash?

OFFICE SUPPLIES CASH

Name the accounts affected:

Determine Classification of Accounts:

Now that we know the classification,

EQUIPMENT ACCOUNTS PAYABLE

MARY ADAMS, THE OWNER,

M. ADAMS, CAPITAL CASH

Now that we know the classification,

M. ADAMS, CAPITAL CASH

CASH M. ADAMS, CAPITAL

DIVIDEND / DRAWING ACCOUNT

MARY WITHDREW $1,500

M. ADAMS, DRAWING CASH

M. ADAMS, DRAWING CASH

M. ADAMS, DRAWING CASH

CONSULTING FEES CASH

Now that we know the classification,

CONSULTING FEES CASH

CASH CONSULTING FEES

MARY ADAMS PAID HER

WAGES EXPENSE CASH

Now that we know the classification,

WAGES EXPENSE CASH

WAGES EXPENSE CASH

Account CASH Acct 1010

Account COMMON STOCK Acct 3010

Account CASH Acct 1010

 List of all accounts with a balance

HEADING should include:

All Asset accounts

Now the Owner’s Equity

(a) On July 1, cash of $95,000 was invested in the business in

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