C2 - 1 Understanding Debits and Credits in Accounting

C2 - 2 Presentation Outline I.An Account II.Normal Balances III.Recording and Posting Transactions

C2 - 3 I. An Account A.Three Parts of an Account B.Determining the Balance of an Account C.Balance Examples

C2 - 4 A. Three Parts of an Account (1) Account Title (2) Left Side is a Debit (3) Right Side is a Credit

C2 - 5 B. Determining the Balance of an Account Obtain a total for both debits if credits. If: Total Debits > Total Credits = Debit Balance Total Debits < Total Credits = Credit Balance Total Debits = Total Credits = Zero Balance

C2 - 6 C. Balance Examples What is the balance of the following accounts: CashAccounts Payable 12,000 2,000 1,000 3,000 2,000 6,000 9,000 11,000 Debit Balance 10,000 Credit Balance

C2 - 7 II. Normal Balances A.Increasing and Decreasing Accounts B.Account Normal Balances C.Components of Owner’s Equity What is normal for you?

C2 - 8 A. Increasing and Decreasing Accounts  Accounts have a normal balance of either a debit or a credit (but not both).  An entry on the side of an account’s normal balance will increase the account.  An entry on the opposite side of an account’s normal balance will decrease the account.

C2 - 9 B. Account Normal Balances Assets = Liabilities+Capital Debits Increase Credits Decrease Normal Balance Debits Decrease Credits Increase Normal Balance Debits Decrease Credits Increase Normal Balance

C C. Components of Owner’s Equity WithdrawalsExpensesRevenues Debits Increase Credits Decrease Normal Balance Debits Increase Credits Decrease Normal Balance Debits Decrease Credits Increase Normal Balance Negative Components of Owner’s Equity Positive Component Of Owner’s Equity Remember that the normal balance of owner’s equity is a credit.