1. Debit and Credit Theory
& Ledger Accounts

2. Debit and Credit Theory
It is fundamentally important in accounting (and to your success in this course) to understand the concept that every account has two distinct sides:
ANY ACCOUNT
Left Side
DEBIT
(DR)
Right Side
CREDIT
(CR)

3. Debit & Credit Theory
Debit is the word associated with the left side of an account.
Credit is the word associated with the right side of an account.
There is no deeper meaning: debit means 'left', and credit means 'right'. You cannot move on in this course until you have mastered debit and credit theory.

4. Rules of Debits and Credits
Assets – Typically have debit balances
Liabilities and Owner’s Equity – Typically have credit balances

5. Rules of Debits and Credits
To record changes in financial position, follow this rule: For each type of account, record increases on its beginning value side and decreases on the other side
Type of Account
Beginning Value (typical balance)
Increase
Decrease
Asset Accounts
DEBIT
CREDIT
Liabilities and O.E. Accounts

6. The Simple Ledger Ledger Accounts
Businesses have far too many transactions to complete a Transaction Analysis sheet to determine their financial position.
Therefore accountants developed the Account and the Ledger.
Account - A specifically ruled page used to record financial changes. There is one account for each different item affecting financial position.

7. T-Accounts
T-Accounts are simple accounts shaped in a T that are ideal for explaining accounting theory. The formal type of account will be introduced later
BANK
4,000

8. Important Features:
1. Each individual balance sheet item is given it's own account with it's name on the top. We will refer to them as the Cash Account, Supplies Account, etc.

9. Important Features:
2. Dollar value of each item is recorded on the first line of the account. This is the beginning value of the account.

10. Important Features:
3. It is important to record the dollar figure on the correct side of the account. a. Assets - left side. b. Liabilities and Owner's Equity - right side

11. Important Features:
3. It is important to record the dollar figure on the correct side of the account. a. Assets - left side. b. Liabilities and Owner's Equity - right side

12. Together we Go!
We will work through the handout together