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Debit and Credit System
Debit and Credit System
INFORMATION SYSTEM
The Account...
An individual accounting record of
increases and decreases to any specific
• Asset
• Liability
• Stockholders’ Equity
• Revenue
• Expense
The Ledger Card
Accounts Payable
Equipment
Office Supplies
Accounts Receivable
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)
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
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
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
CASH OFFICE
SUPPLIES
STEP #2
OFFICE SUPPLIES
DR. CR.
+
$800
PURCHASED OFFICE SUPPLIES
FOR $800 CASH
CASH
DR. CR.
+
$800
RULE #2
IN EVERY TRANSACTION
DEBITS MUST EQUAL
CREDITS
DEBITS = CREDITS
Decrease on Increase on
Debit Side Dr. Cr. Credit Side
+
EXAMPLE:
PURCHASED EQUIPMENT ON
ACCOUNT FOR $3,000.
STEP #1
ACCOUNTS
PAYABLE
EQUIPMENT
STEP #2
Did Equipment
Increase or Decrease
in this transaction?
INCREASED
EQUIPMENT
DR. CR.
+
$3000
PURCHASED EQUIPMENT ON
ACCOUNT FOR $3,000.
Accounts Payable?
Increase or Decrease
in this transaction?
INCREASED
ACCOUNTS PAYBLE
DR. CR.
+
$3000
DEBITS = CREDITS
CAPITAL ACCOUNT
Decrease on Increase on
Debit Side Dr. Cr. Credit Side
+
JUST LIKE
LIABILITY ACCOUNTS
EXAMPLE:
INCREASED INCREASED
JUST LIKE
ASSET ACCOUNTS
EXAMPLE:
INCREASED DECREASED
REVENUE ACCOUNTS
Decrease on Increase on
Debit Side Dr. Cr. Credit Side
+
JUST LIKE
LIABILITY & CAPITAL
ACCOUNTS
EXAMPLE:
MARY PERFORMED SERVICES
AND RECEIVED $4,500 IN CASH
STEPS #1 & #2
Name and classify the accounts affected:
REVENUE ASSET
INCREASED INCREASED
ACCOUNTS
RECEIVABLE
INSTEAD OF
CASH
RULE #7
EXPENSE ACCOUNTS
Increase on the Decrease on the
Debit Side Dr. Cr. Credit Side
+
JUST LIKE
ASSET ACCOUNTS
EXAMPLE
INCREASED DECREASED
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
Liabilities are
shown next
Jessica Jane’s Campus Delivery
Trial Balance
June 30, 20--
Account Title Debit Balance Credit Balance
Cash 370 00
Accounts Receivable 650 00
Supplies 80 00
Prepaid Insurance 200 00
Delivery Equipment 3600 00
Accounts Payable 1800 00
Jessica Jane, Capital 2000 00
Jessica Jane, Drawing 150 00
(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.