Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Record dual effects of each transaction Each transaction has a: Receiving side Giving side Examples: Company purchases supplies (receiving) with cash (giving) Company issues stock (giving) and receives cash (receiving) 1

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 2 Tool for analyzing and determining the balance in a given account Account Name (Left Side) (Right Side) Dr Debit Dr Debit Cr Credit Cr Credit

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Whether an account is increased by debit or a credit is determined by the account type Asset, liability, or equity Debits are not good or bad Neither are credits 3

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 4 The account category governs the increase side or decrease side Increases are recorded on one side Decreases are recorded on the opposite side Rules of debits and credits

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Illustrate Debits and Credits The first transaction involves receiving $30,000 cash and issuing Capital The second transaction is a $20,000 purchase of land for cash 5

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 6

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Oakland Floor Coverings reported the following summarized data at December 31, Accounts appear in no particular order. 8 Revenues$34,000Other liabilities$18,000 Equipment45,000Cash12,000 Accounts payable2,000Expenses19,000 Oakland, capital22,000

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 9 Oakland Floor Coverings Trial Balance December 31, 2012 Cash Equipment Accounts payable Other liabilities Oakland, capital Revenues Expenses $ 12,000 45,000 $ 2,000 18,000 22,000 34,000 19,000 $76,000 $76,000

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Texas Sales Consultants completed the following transactions during the latter part of January: 10 Jan 22Performed service for customers on account, $8, Received cash on account from customers, $7, Received a utility bill, $180, which will be paid during February. 31Paid monthly salary to salesman, $2, Paid advertising expense of $700.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Jan 22: Performed service for customers on account, $8,000 “On account” indicates Accounts receivable Accounts receivable is an asset account Increase an asset with a debit 11 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Service revenue8,000 Jan 22 Accounts receivable 8,000

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Jan. 30: Cash is received Increase cash, an asset Assets are increased by debits The payment is “on account” Decrease Accounts receivable with a credit 12 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Accounts receivable 7,000 Received payment on account. Jan 30 Cash7,000

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Jan. 31: A utility bill is an expense Expenses are increased by debits The bill will be paid later–creating an account payable Liabilities are increased by credits 13 GENERAL JOURNAL DATEDESCRIPTION RE F DEBITCREDIT Received utility bill. Jan 31Utilities expense 180 Accounts payable 180

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Jan. 31: Salaries to employees are an expense Expenses are increased by debits The salary was paid in cash Cash, an asset, decreases, Assets are decreased by credits Rent Expense is an expense account. Increase an expense with a debit 14 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Cash 2,000 Paid salaries. Mar 31 Salaries expense 2,000

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. March 31: Advertising is another expense Cash is paid 15 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Mar31Advertising expense 700 Cash 700 Paid advertising.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Summary of the ledger Lists all accounts with their balances Accuracy check Debits should equal credits NOT a balance sheet 16

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. 17

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Search for missing account Divide the difference between total debits and total credits by two Is there a debit/credit balance for this amount posted in the wrong column? Divide out-of-balance amount by nine Slide–Adding or dropping a zero ($100 instead of $1,000) Transposition–Reversing two digits ($2,100 instead of $1,200) 18