Acct 201 RULES OF DEBIT CREDIT JUDITH PAQUETTE

Acct 201 RULES OF DEBIT & CREDIT JUDITH PAQUETTE

Let’s Discuss Rules of Debit and Credit The Journal Entry The T Account The Trial Balance The Statements….

The Worksheet…

The T Account – one per Account • • Shows Debits and Credits Debit = LEFT Credit = RIGHT Tracks each account’s activity (increases and decreases) Each transaction must affect two or more accounts to keep the basic accounting equation in balance. Recording done by debiting at least one account and crediting at least one other. DEBITS must equal CREDITS.

Rules of Debit and Credit CREDIT DEBIT To increase Assets = Liab CASH + Stk Equity ACCTS PAYABLE COMMON STOCK CREDIT DEBIT To increase +Revenue - Expense - Dividends SERVICE REVENUE RENT EXPENSE DIVIDENDS ACCTS RECEIV NOTES PAYABLE SUPPLIES UNEARNED REVENUE RETAINED EARNINGS SALARY EXPENSE ADVERTISING EXPENSE LAND UTILITIES EXPENSE EQUIPMENT INSURANCE EXPENSE

Assume a company has a beginning balance of $100, 000 cash. It then buys a car for $20, 000 and pays in cash. Did CASH increase or decrease?

Assume a company has a beginning balance of $100, 000 cash. It then buys a car for $20, 000 and pays in cash. Did cash increase or decrease? DECREASED!

Assume a company has a beginning balance of $100, 000 cash. It then buys a car for $20, 000 and pays in cash. Did cash increase or decrease? DECREASED! Now… apply the rules of debit & credit. To DECREASE an Asset, you must CREDIT it.

Jan 1, 2014: Assume a company has a beginning balance of $100, 000 cash. It then buys a car for $20, 000 and pays in cash. Did EQUIPMENT increase or decrease?

Assume a company has a beginning balance of $100, 000 cash. It then a buys car for $20, 000 and pays in cash. Did EQUIPMENT increase or decrease? INCREASE!

Assume a company has a beginning balance of $100, 000 cash. It then buys a car for $20, 000 and pays in cash. Did EQUIPMENT increase or decrease? INCREASE! Now… apply the rules of debit & credit. To INCREASE an Asset, you must DEBIT it.

The Journal Entry… #1 # DATE Account Titles AND Description Debit 1 1/1/14 Equipment Cash To record purchase of car. 20, 000 Credit 20, 000

Now POST to the T Accounts BB* $100, 000 $20, 000 $80, 000 *BB = Beginning Balance $20, 000

Let’s do another journal entry…the SAME company buys $2, 000 of Supplies on credit (they will pay in 30 days). Did cash increase or decrease?

Let’s do another journal entry…the SAME company buys $2, 000 of Supplies on credit (they will pay in 30 days). Did cash increase or decrease? CASH is NOT involved until the BILL is paid.

Let’s do another journal entry…the SAME company buys $2, 000 of Supplies on credit (they will pay in 30 days. If cash is not affected (at this point), what accounts are involved?

Let’s do another journal entry…the SAME company buys $2, 000 of Supplies on credit (they will pay in 30 days. What accounts are involved? Supplies (an Asset Account) Accounts Payable (a Liability Account)

Let’s do another journal entry…the SAME company buys $2, 000 of Supplies on credit (they will pay in 30 days. What accounts are involved? Supplies (an Asset Account) INCREASE!

Let’s do another journal entry…the SAME company buys $2, 000 of Supplies on credit (they will pay in 30 days. What accounts are involved? Accounts Payable (a Liability Account) INCREASE!

The Journal Entry… #2 # DATE Account Titles AND Description Debit 1 1/1/14 Supplies Accounts Payable To record purchase of supplies on credit. 2, 000 Credit 2, 000

Now POST to the T Accounts $2, 000