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Rules of Debits and Credits With Exercise

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11 views

Rules of Debits and Credits With Exercise

Uploaded by

Sea Shore
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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iE RULES OF DEBIT AND, CREDIT 1@ accounting equation, A=L+OE has developed the rules to be followed in the study of ecounting.,The equation stands for the “normal balances” or “increase sides” in each of accounting elements. In other words, the normal balances refer to the increase side the accounts which may either be a debit or a credit. For Assets, the increase side is ng debit and credit debit side (left) while for Liabilities and Owner's Equity, the increase sides are on the it side (right), best thing to do in order to remember the accounting equation is to recall at once ir elementary song which runs like this “Ihave two hands, the left and the right...” dit total dit balance (CREDIT SIDE NORMAL BALANCE OR ‘Accounts BoD, te oree INCREASE SIDE DECREASE SIDE ence, the account then say, DEBIT to increase an Asset and CREDIT to decrease an Asset. LIABILITIES. CREDIT SIDE NORMAL BALANCE OR DECREASE SIDE, INCREASE SIDE then say, CREDIT to increase a Liability and DEBIT to decrease a Liability. OWNER’S EQUITY ‘CREDIT SIDE al NORMAL BALANCE OR DECREASE SIDE INCREASE SIDE ytal_ of P:16,000, the count. then soy, CREDIT to increase an Owner's Equity and DEBIT to decrease an Owner's os: Chapter 2 “seslyses of Transact The increases and decreases of an Owner’s Equity account are diagramed below: ‘We then say, CREDIT me or Sales Reve INCREASE DECREASE AND EXPENSE Investments by owner |-> «| Withdrawals by owner Owner's Equity 5 Revenue Expenses Factors that will cause the “Owner's Equity” to increase: ORME Increase 1. Investment of owner 2. Revenues We then say, DEBIT ti Expenses. Factors that will cause the “Owner's Equity” to decrease: Jo summarize, Incom ‘Owner's Equity. Inc Expenses decreases ( ‘er Sales Revenue and 1. Withdrawal by owner 2. Expense DRAWING OR PERSONAL ~ the reduction of an’ Owner's Equity account arising froy cash or property withdrawal of an owner is not debitet to Owner's Equity account ‘To recapitulate, the ¢ effect the decrease but instead debited to “Drawing Account”. DRAWING OR PERSONAL pee teh coe DEBIT SIDE CREDIT SIDE Fiennes NORMAL BALANCE NEGATIVE SIDE pee ee Increase Side » Decrease Side ae Rule4 increase in We then say, DEBIT to increase Drawing arid CREDIT to decrease Drawing. TEMPORARY ACCOUNTS : RuleS decrease i Rule6 increase ir INCOME OR SALES REVENUE — all income earned of the same nature are summarized i this account. APPLICATION OF THE INCOME or SALES REVENUE aes ‘CREDIT SIDE The rules of debit an NORMAL BALANCE OR sole, partnership and Decrease Side Increase Side they are engaged We then say, CREDIT to increase Income or Sales Revenue and DEBIT to decrease come or Sales Revenue. |AND EXPENSES - all expenses incurred of the same nature are summarized in (CREDIT SIDE NORMAL BALANCE OR Increase Side Decrease Side fe then say, DEBIT to increase in Costs and Expenses and CREDIT to decrease Costs and ses. summarize, Income or Sales Revenue and Costs and Expenses are factors that affect mers Equity. Income or Sales Revenue increases Owner’s Equity while Costs and ses decreases Owner's Equity. Owner’s Equity is increased by a credit to Income Jes Revenue and is decreased by debit to Costs and Expenses. ccount arising from ’5 Equity account to \gain restated as follows: recapitulate, the developed rules of debit and credit are a ‘We debit t We credit to: ——— Z "CREDIT SIDE increase in Asset decrease in Asset decrease in Liability, increase in Liability decrease in Owner's Equity increase in Owner's Equity increase in Drawing decrease in Drawing ee ‘Temporary Accounts - decrease in income or Sales Revenue _increase in Income or Sales Revenue Rule 6 increase in Costs and Expenses decrease in Cost and Expenses ure are summarized . |CATION OF THE RULES OF DEBIT AND CREDIT ee GREDIT SIDI rules of debit and credit are applicable to all forms of business organization; be ita ANCE OR | partnership and corporation, regardless of what type of business activity in which Side ere engaged in; be ita service, merchandising, manufacturing or hybrid company. DD Sant Os Sets ale SE 25. Freight Outis recorded inthe book of the business-seller- 2. asan expense casalliability b. asanasset d. ascost 26, Freight-n is recorded in the book of business as forming part of = 2. cost expense b. asset d._none of these 27. When merchandise, goods or commodities are purchased, the account purchases will be ‘2. debited to an asset account €. debited to liability account b. debited to cost account d. debited to equity account 28, When sales account increased its balance, it should have been = 2. debited ©. noeffect b. credited d._ VATis not recorded 29. When a company collects in full a merchandise sold on account. a. Salesis credited «. Cash account is credited b, Accounts Receivable is credited -—«

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