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THE ACCOUNT

Debit & Credit


 The basic summary device of accounting is the
“account”.
 A separate account is maintained for each
element that appears in the balance sheet(
Assets, liabilities, and equity and income
statement (income and expenses).
 An account is defined as a detailed record of the
increases, decreases and balance of the elements
that appears in an entity’s financial statements.
 The simplest form of the account is known as “T”
account.
Account Title

Left side or Right side or


Debit side Credit side
THE “EQUATION” AND THE “T- ACCOUNT”

A L E

Transactions may require additions to both sides,


subtractions from both sides, or addition and subtraction on
the same side, but in all cases the equality must be
maintained
DEBITS AND CREDITS – THE DOUBLE
ENTRY SYSTEM

 The account is debited when an amount is


entered on the left side of the account and
credited when an amount is entered on the right
side.
 Assets is found on the left side, therefore the
Normal balance of the asset is debit.
 Liabilities and Equity are found on the right
side, therefore the normal balance of the two is
credit.
 Normal Balance is the determining factor
where to increase such element affected by the
transaction occurred.
HOW ABOUT FOR INCOME AND EXPENSE?
 The rules of Debit and Credit for income and
expense accounts are based on the relationship
of these accounts to owner’s equity.
 Income increases owners equity, therefore the
normal balance of income is credit.
 Expense decrease owner’s equity, the normal
balance of expense is debit.
TO SUMMARIZE THE RULE…

DEBIT CREDIT

Increases in Increases in

Assets Liabilities
Expenses Owner’s Capital
Income

Decreases in Decreases in

Liabilities Assets
Owner’s Capital Expenses
Income
LET’S DO IT..
Oct. 1 Rey Fernan Refozar obtained the funds to start the
business by withdrawing P800,000 from his personal savings. He
deposited the money in new bank account that he opened in the
name of the firm, Refozar Accounting Services.

Refozar Accounting Services


Financial Transaction Worksheet
Month of October

Asset = Liabilities Equity


Cash = Refozar, Capital
P800,000 = P800,000
 Oct. 3 Refozar bought a computer, a copy machine, a fax
machine, calculators and other necessary equipment from M.
Medina, Inc., at a cost of P100,000. M. Medina, Inc., agreed to
allow 60 days for the firm to pay the bill.
Refozar Accounting Services
Financial Transaction Worksheet
Month of October

Asset =Liabilities + Equity


Cash Equipment = Accounts Payable Refozar, Capital
P800,000 = P800,000
P100,000 P100,000

P900,000 = P900,000
EFFECT OF REVENUE AND EXPENSES
 Oct. 13 Refozar Accounting Services earned P70,000 of
revenue from charge account clients. These clients are allowed 30
days to pay.
Refozar Accounting Services
Financial Transaction Worksheet
Month of October

Asset =Liabilities + Equity


Cash Equipment Accounts = Accounts Refozar, Capital
Receivable Payable

P800,000 = P800,000
P100,000 P100,000

P70,000 = P 70,000
P970,000 = P970,000
 Oct. 18 Refozar Accounting Services Hired an accounting
staff on October 1 to help in the business. The firm paid P25,000
in salaries for this employee.
Refozar Accounting Services
Financial Transaction Worksheet
Month of October

Asset =Liabilities + Equity


Cash Equipment Accounts = Accounts Refozar, Capital
Receivable Payable

P800,000 = P800,000
P100,000 P100,000

P70,000 = P 70,000
(P25,000) = (P25,000)
P945,000 = P945,000
END
 Prepare for a quiz next meeting 

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