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Published byAlexandria Revill Modified over 10 years ago
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Debits versus Credits By Michael Reimer
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Left Side is the debit side Right side is the credit side
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This is where all the daily transactions of a business are recorded.
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The general journal entries are posted here. The account balances are updated each day.
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Assets = Liabilities + Owner’s Equity
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Left side of the balance sheet equation Normal asset balance is a debit
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Assets go up with a debit Assets go down with a credit Assets Debit Credit
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Properties or economic resources Provision of future company benefits
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Cash Receivables Supplies Machinery Land Inventory held for sale
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Right side of the balance sheet equation Normal liability balance is a credit
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Liabilities go up with a credit Liabilities go down with a debit Liabilities Debit Credit
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Debts or payables owed by the business A reduction of future assets of the business
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Accounts Payable Notes Payable Bank Loan Payable Mortgage Payable
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Two Accounts: Capital: records the owner’s investment in the business Withdrawals: records the owner’s personal drawings from the business
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Capital goes up with a credit Capital goes down with a debit M. Reimer, Capital Debit Credit
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Withdrawals goes up with a debit Withdrawals goes down with a credit M. Reimer, Withdrawals Debit Credit
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Is linked with another account Has an opposite balance to its counterpart Reduces the value of its counterpart
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Revenues – Expenses = Profit or Loss
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Revenues go up with a credit Revenues go down with a debit Revenue Debit Credit
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Two different types: Service based: Work provided to customers (Chapters 3 to 5) Retail based: Sales of inventory to customers (Chapter 6)
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Sales Commissions Earned Professional Fees Earned Rent Revenue Interest Earned
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Expenses go up with a debit Expenses go down with a credit Expenses Debits Credits
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Incur costs while doing daily business Show a consumption of assets to generate revenues
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Advertising Expense Supplies Expense Telephone Expense Utilities Expense Wages Expense Rent Expense Insurance Expense
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Left side is the debit side Right side is the credit side
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Assets Withdrawals Expenses
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Liabilities Capital Revenues
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