1. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin

2. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin Double-Entry Accounting “ Double-entry accounting is based on a simple concept: each party in a business transaction will receive something and give something in return. In bookkeeping terms, what is received is a debit and what is given is a credit. The T account is a representation of a scale or balance.” Luca Pacioli Developer of Double-Entry Accounting Scale or Balance Receive DEBIT Give CREDIT T account Left Side Receive DEBIT Right Side Give CREDIT

3. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin Credit for increases (+) Credit for decreases (-) Debit for increases (+) Debit for decreases (-) Expense AccountsRevenue Accounts Rules of Debit / Credit Income Statement Accounts

4. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin Debits Credits Revenue accounts……Decrease (-)Increase (+) Expense accounts……Increase (+)Decrease (-) Income Statement Accounts

5. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin Payment of dividends

6. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin Post. Ref. JOURNAL DateDescriptionDebitCredi t Page 2 12341234 Nov.30 2005 Dividends2 000 00 Cash2 000 00 Paid dividends to stockholders. (H)On November 30, Net Solutions paid dividends of $2,000.

7. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin 30950 302,000 Cash Nov. 125,000Nov. 525,000 187,500 303,650 Effects of this entry in the Ledger Dividends Nov. 302,000 (H)On November 30, Chris Clark withdrew $2,000 in cash from NetSolutions for personal use.

8. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin Increase (Normal Balances) Decreases Balance sheet accounts: AssetDebitCredit LiabilityCreditDebit Owners’ (Stockholders’) Equity: Capital StockCreditDebit Retained EarningsCreditDebit Income statement accounts: RevenueCreditDebit ExpenseDebitCredit Dividend accounts: DividendsDebitCredit Normal Balances of Accounts

9. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin Flow of Business Transactions 1 Transaction authorized 2 Transaction takes place 4 Entry recorded in journal 5 Entry posted to ledger

10. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin System to Analyze Transactions 1.Determine whether an asset, a liability, owner’s equity, revenue, or expense account is affected by the transaction. 2.For each account affected by the transaction, determine whether the account increases or decreases. 3.Determine whether each increase or decrease should be recorded as a debit or a credit.

11. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin Let’s see the example of JJ’s Lawn Care Service.

12. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin Receipts are on the debit side. Payments are on the credit side. The balance is the difference between the debit and credit entries in the account. Debit and Credit Entries

13. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin ALOE A = L + OEASSETS Debit for Increase Credit for DecreaseEQUITIES Debit for Decrease Credit for IncreaseLIABILITIES Debit for Decrease Credit for Increase Debits and credits affect accounts as follows: Debit and Credit Rules

14. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin ALOE A = L + OE Debit balances Credit balances = In the double-entry accounting system, every transaction is recorded by equal dollar amounts of debits and credits. Double Entry Accounting  The Equality of Debits and Credits

15. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin Let’s record selected transactions for JJ’s Lawn Care Service in the accounts.

16. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin ¶ May 1: Jill Jones and her family invested $8,000 in JJ’s Lawn Care Service and received 800 shares of stock. Will Cash increase or decrease? Will Capital Stock increase or decrease?

17. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin ¶ May 1: Jill Jones and her family invested $8,000 in JJ’s Lawn Care Service and received 800 shares of stock. Cash increases $8,000 with a debit. Capital Stock increases $8,000 with a credit.

18. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin · May 2: JJ’s purchased a riding lawn mower for $2,500 cash. Will Cash increase or decrease? Will Tools & Equipment increase or decrease?

19. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin · May 2: JJ’s purchased a riding lawn mower for $2,500 cash. Cash decreases $2,500 with a credit. Tools & Equipment increases $2,500 with a debit.

20. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin ¸ May 8: JJ’s purchased a $15,000 truck. JJ’s paid $2,000 down in cash and issued a note payable for the remaining $13,000. Will Truck increase or decrease? Will Cash and Notes Payable increase or decrease?

21. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin ¸ May 8: JJ’s purchased a $15,000 truck. JJ’s paid $2,000 down in cash and issued a note payable for the remaining $13,000. Truck increases $15,000 with a debit. Cash decreases $2,000 with a credit. Notes Payable increases $13,000 with a credit.

22. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin ¹ May 11: JJ’s purchased some repair parts for $300 on account. Will Tools & Equipment increase or decrease? Will Accounts Payable increase or decrease?

23. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin ¹ May 11: JJ’s purchased some repair parts for $300 on account. Tools & Equipment increases $300 with a debit. Accounts Payable increases $300 with a credit.

24. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin º May 18: JJ’s sold half of the repair parts to ABC Lawns for $150, a price equal to JJ’s cost. ABC Lawns agrees to pay JJ’s within 30 days. Will Tools & Equipment increase or decrease? Will Accounts Receivable increase or decrease?

25. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin º May 18: JJ’s sold half of the repair parts to ABC Lawns for $150, a price equal to JJ’s cost. ABC Lawns agrees to pay JJ’s within 30 days. Tools & Equipment decreases $150 with a credit. Accounts Receivable increases $150 with a debit.

26. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin In an actual accounting system, transactions are initially recorded in the journal. The Journal

27. © The McGraw-Hill Companies, Inc., 2002 McGraw-Hill/Irwin End of Todays Session