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The Debits and Credits of Accounting

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					The Debits and Credits of
      Accounting
     This activity addresses the
        following questions:

What are debits and credits?
What are T accounts?
What is double-entry accounting?
    What are debits and credits?
   Debits and credits are the terms given to
    the left and right sides of a T account
   They are used whenever a business
    transaction occurs in a company, and they
    keep the business books in balance.
      The accounting equation can be
    expanded to a debit and credit entry

    Each account has:

   A specific account title and number.
   A left side (debit) and a right side (credit).
   An increase side and a decrease side
    (depending on the account).
   A “normal-balance” side.
           What are T accounts?
Assets, drawings and expenses have a “normal”
  debit balance. Liabilities, owner’s equity, and
  revenues have a “normal” credit balance.
Each business transaction must be recorded with a
  debit and a credit.
T accounts are visual illustrations of a greater
  ledger account.

  Assets     =      Liabilities   +     Owner’s Equity
What is the balance for asset
          accounts?
                      Assets
                  Debit      Credit

                 Increase   Decrease
                   side       side

                 Balance
                  side


Assets include such accounts as cash, accounts
receivable inventory, supplies, buildings, autos,
and land
What is the balance for liability
          accounts?
                      Liabilities
                  Debit      Credit

                Decrease   Increase
                  side       side

                            Balance
                             side


Liabilities include the company’s payables and
unearned accounts.
What is the balance for owner’s
       equity accounts?
                 Owner’s Equity
                 Debit      Credit

                Decrease   Increase
                  side       side

                           Balance
                            side


 The owner’s name and the word ”capital” would
 be the owner’s equity account entry.
 Example: Sue Miller, Capital
What is the balance for the drawing
             accounts?
                               Drawing
                          Debit       Credit

                         Increase    Decrease
                           side        side

                         Balance
                          side

The owner’s name and the word “drawing” would be the drawing account
entry. It is a “contra-capital” account and subtracts from the owner’s
capital.
Example: Sue Miller, Drawing
What is the balance for expense
           accounts?
                      Expenses
                  Debit      Credit

                 Increase   Decrease
                   side       side

                 Balance
                  side


 These accounts include all expenses such as
 salary, utilities, and rent.
   What is the balance for
 revenue/income accounts?
                   Revenues
                 Debit      Credit

                Decrease   Increase
                  side       side

                           Balance
                            side


Revenue accounts are “mini” capital accounts.
Some examples are sales, rent income, fees
earned, and interest revenue.
    What is double-entry accounting?
   Each accounting transaction has a “double” or
    “dual” effect on the accounting elements.
   When a transaction is recorded, there must be a
    debit and a credit in the same amount.
   Double-entry accounting keeps the accounts and
    books in balance.

				
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