Post on 04-Jan-2016
Debits Credits
Asset accounts……. Increase (+) Decrease (-)
Liability accounts.… Decrease (-) Increase (+)
Owner’s equity (capital) accounts… Decrease (-) Increase (+)
Balance Sheet Accounts
Credit for increases
(+)
Debit for decreases
(–)
Owner’s Equity Accounts
Credit for decreases
(–)
Debit for increases
(+)
Asset AccountsCredit for increases
(+)
Debit for decreases
(–)
Liability Accounts
Balance Sheet Accounts
Debits Credits
Revenue accounts… Decrease (-) Increase (+)
Expense accounts… Increase (+) Decrease (-)
Income Statement Accounts
Credit for increases
(+)
Debit for decreases
(–)
Revenue Accounts
Income Statement Accounts
Credit for decreases
(–)
Debit for increases
(+)
Expense AccountsLess
Equals
Net Income (credit > debits) increases owners’ equity (capital)
Net Loss (debits > credits) decreases owners’ equity (capital)
Increase(Normal Bal.) Decreases
Balance sheet accounts:AssetDebit CreditLiability Credit DebitOwner’s Equity:
Capital Credit DebitDrawing Debit
CreditIncome statement accounts:
Revenue Credit DebitExpense DebitCredit
Prepare a journal entry for the purchase of a truck on June 3 for $42,500, paying $8,500 cash and the remainder on account.
June 3 Truck 42,500Cash 8,500Accounts Payable 34,000
Sample Exercise 1
Prepare a journal entry on August 7 for the fees earned on account, $115,000.
Aug. 7 Accounts Receivable 115,000Fees Earned
115,000
Sample Exercise 2
The owner of a proprietorship may withdraw cash from the business for
personal use. Such withdrawals have the effect of decreasing owner’s equity.
Drawing Account
Prepare a journal entry on December 29 for the payment of $12,000 to the owner of Smartstaff Consulting Services, Dominique Walsh, for personal use.
Dec. 29 Dominique Walsh, Drawing 12,000Cash 12,000
Sample Exercise 3
State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries. Also, indicate its normal balance.
1. Amber Saunders, Drawing2. Accounts Payable3. Cash4. Fees Earned5. Supplies6. Utilities Expense
Sample Exercise 4
1. Debit entries only; normal debit balance2. Debit and credit entries; normal credit balance3. Debit and credit entries; normal debit balance4. Credit entries only; normal credit balance5. Debit and credit entries; normal debit balance6. Debit entries only; normal debit balance
Solution for Sample Exercise 4
On March 1, the cash account balance was $22,350. During March, cash receipts totaled $241,880 and the March 31 balance was $19,125. Determine the cash payments made during March.
Sample Exercise 5
Using the following T-account solve for the amount of cash payment (indicated by ? below).
Cash
Mar. 1 Bal 22,350 ? Cash paymentsCash receipts 241,880Mar. 31 Bal. 19,125
$19,125 = $22,350 + $241,880 – Cash paymentsCash payments = $22,350 + $241,880 –$19,125 = $245,105
Solution for Sample Exercise 5
NetSolutions received an offer from a local retailer to rent the land purchased on November 5. The retailer plans to use the land as a parking lot for its employees and customers. NetSolutions agreed to rent the land to the retailer for three months, with the rent payable in advance.
Dec. 1 NetSolutions receives $360 for three month’s rent for use of its land beginning December 1.
1 Cash 11 360 00
Unearned Rent 23 360 00
Received advance
payment for three
months’ rent on land.
Dec. 4 NetSolutions purchased office equipment on account from Executive Supply Co. for $1,800.
4 Office Equipment 18 1 800 00
Accounts Payable 21 1 800 00
Purchased office
equipment on account.
The equality of debits and credits for each transaction is built into the
accounting equation: Assets = Liabilities + Owner’s Equity.
Because of this double equality, this system is called the double-
entry accounting system.
ReferenceWarren, C., Reeve, J., & Duchac, J., (2007). Accounting (22nd ed.). Mason, Ohio: Thomson South-Western
Note: all the content information on these slides has been extracted from the above text.