Lesson: Rules of Debit and Credit

Most Essential Learning Competencies:

1. Analyze common business transactions using the rules of debit and credit
ABM_FABM11- IIIg-j-27
2. Solve simple problems and exercises in the analyses of business transaction
ABM_FABM11- IIIg-j-28

Review:
State the type of business activity performed by each establishment. Write S for Service,
Mr for Merchandising and Mn for Manufacturing.
1. SM Supermarket 6. JMC Advertising Agency
2. David’s Beauty Salon 7. Pure Foods Corporation
3. Vynce Hardware 8. National Book Store
4. Jared Pharmaceuticals 9. Wellness Spa
5. Bruno Barber Shop 10. Belo Medical Clinic

Lesson:
THE ACCOUNT
The basic summary device of accounting is the account. This is a detailed record of the
increase, decrease and balance of each element that appears in the entity’s financial
statements. The simplest form of the account is known as the “T” account because of its
similarity to letter “T”.
Account Title
Left side or Debit Right side or Credit
Side (Dr) Side (Cr)

DEBIT AND CREDIT-THE DOUBLE ENTRY SYTEM

Accounting is based on a double-entry system which means dual effect of a
business transaction is recorded. A debit side entry must have a corresponding credit
side entry. For every transaction, there must be one or more accounts debited and one
or more accounts credited. Each transaction affects at least. The total debits for a
transaction must always equal to the total credits.

The Rules of Debit and Credit

Accounts Normal Balance and Decrease in Balance
Increase in Balance
1. Asset Dr Cr
2. Liability Cr Dr
3. Owner’s Equity Cr Dr
4. Revenue Cr Dr
5. Expense Dr Cr

1
Let use the rules of DEBIT and CREDIT in simple business transactions and present it
through the use of the T-Account
A. Paid Salaries, P54 000
Step 1. Name the accounts affected
Salaries Expense; Cash

Step 2. Determine the classifications of accounts

Salaries Expense – Expense ; Cash – Asset

Step 3: Determine which account will take the Debit and Credit Side
Salaries Expense – Dr ; Cash – Cr
Step 4: Present the transactions using T-account and start with the account with a
Dr balance
Salaries Expense Cash
P54 000 P54 000

Note: Debit = Credit

B. Acquired equipment on credit, P90 000

Equipment Accounts Payable
P90 000 P90 000

C. Purchased supplies through cash, P3 000

Supplies Cash
P3 000 P3 000

D. Received payment for services rendered, P18 000

Cash Service Revenue
P18 000 P18 000

E. Invested P100 000 in the name of the business

Cash Capital
P100 000 P100 000

Let use the rules of DEBIT and CREDIT in simple business transactions and present it
through journal. (journalizing)
A. Paid Salaries, P54 000
Analysis: Expense increases, Asset decreases
Rules: Debit increase in expense and credit decrease in asset
Entry:
Salaries Expense P54 000
Cash P54 000
To record payment of salaries

2
 B. Acquired equipment on credit, P90 000
Analysis: Asset increases, liability increases
Rules: Debit increase in asset and credit increase in liability
Entry:
Equipment P90 000
Accounts Payable P90 000
To record purchase of
equipment
#

C. Purchased supplies through cash, P3 000

Analysis: Asset increases, another Asset decreases
Rules: Debit increase in asset and credit decrease in asset
Entry:
Supplies P3 000
Cash P3 000
To record purchase of supplies
#

D. Received payment for services rendered, P18 000

Analysis: Asset increases, Revenue increases
Rules: Debit increase in asset and credit increase in revenue
Entry:
Cash P18 000
Service Revenue P18 000
To record revenue
#

E. Invested P100 000 in the name of the business

Analysis: Asset increases, Equity increases
Rules: Debit increase in asset and credit increase in equity
Entry:
Cash P100 000
Owner’s Equity P100 000
To record owner’s investment
#

Assessment:
A. Prepare a T-account for the following transactions.
1. Purchased on account office supplies costing, P3 500
2. Paid office rent, P4 000
3. Withdrew P12 000 for personal use
4. Invested P20 000 cash in the name of the business
5. Received P10 000 cash for services rendered

3
Journalize Red Dragon and Jorge Camposano’s transactions
1. Red Dragon withdrew P250 000 from her personal savings account on June 1,
2017 and deposited he cash in an account for her newly established
company, Dragon’s Carpet Cleaning Service. During the month of June, the
following transactions occurred:
June 1 Paid monthly rent for office space, P25 000
2 Acquired cleaning supplies on accounts, P45 000
5 Acquired a service vehicle for P50 000, by issuing a note payable in that
amount, which will be due on May 31, 2018
6 Received cash in the amount of P120 000 for carpet cleaning services
rendered to PNB Main Building
9 Paid P15 000 for cleaning supplies acquired on June 2
13 Billed client P325 000 for carpet cleaning services rendered
15 Paid utilities bill of P12 000
16 Paid salaries of P64 000
20 Received 215 000 cash from clients billed on June 13
23 Red dragon withdrew P75 000 from the business

2.
Jorge Camposano opened a plumbing service, Camposano Plumbing. Operations began
on April 2018 and the following transactions were completed during the month.

April 1 Withdrew P67 000 from a personal savings account and used it to open a new
account in the name of Camposano Plumbing
Apr 2 Acquired a service vehicle costing P81 000. A payment of P17 500 in cash was
made and a note payable given for the P63 500 remainder
April 3 Paid rent for the month, P7 150
April 6 Acquired plumbing supplies on account P15 700
April 7 Paid three months of advertising and recorded Prepaid Advertising in the
amount of P6 000
April 8 Cash in the amount of P18 350 was received for plumbing services rendered
April 9 Acquired additional plumbing supplies for cash, P8 050
April 11 Paid salaries, P11 600
April 15 Rendered plumbing services and billed the customers, P42 200
April 16 Paid P5 700 of the amount owed from the transactions of Apr. 6
April 19 Paid miscellaneous expense, P4 300
April 20 Collected P21 000 from the customer on the Apr. 15 transaction
April 21 Withdrew P14 500 from the business
April 22 Paid salaries, P14 100
April 24 Paid the first instalment of the note payable, P3 850
April 25 Paid telephone expense, P1 250
April 27 Billed the Bel Company for plumbing services rendered, P14 150