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Topic 7 Double Entry System - Rules of Debit and Credit

Accounting notes

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17 views

Topic 7 Double Entry System - Rules of Debit and Credit

Accounting notes

Uploaded by

sammerlao
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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LICEO DE LA SALLE SENIOR HIGH SCHOOL

FIRST SEMESTER | QUARTER 1


AY 2021-2022 | FUNDAMENTALS OF ACCOUNTANCY,
BUSINESS, AND MANAGEMENT 1

NAME AND SECTION:

TEACHER:

Rules of Debit and Credit: The Double-Entry System

Accounting is based on a double entry system which means that the dual effects 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 two accounts. The total debits for a transaction must always equal the
total credits.

The account type determines how increases or decreases are recorded. Increases in assets are
recorded as debits (left side of the account) while decreases are recorded as credits (right side of
the account). On the other hand, increases in liabilities and owner’s equity are recorded by credits
(right side of the account) and decreases as entered as debits (left side of the account). To illustrate:

Assets Liabilities
Debit Credit Debit Credit
(+) Increase (-) Decrease (-) Decrease (+) Increase

Owner’s Equity
Debit Credit
(-) Decrease (+) Increase

The rules of debit and credit for income and expense accounts are based on the relationship of the
accounts to Owner’s Equity. Income increases owner’s equity and expense decreases owner’s
equity. With this said, increases in income are recorded as credits and decreases as debits. Increase
in expenses are recorded as debits and decreases as credits. To illustrate:

Expenses Income / Revenue


Debit Credit Debit Credit
(+) Increase (-) Decrease (-) Decrease (+) Increase

Note: Debit represents a deduction in owner’s equity; hence, expenses are being debited.
Credit represents an increase in owner’s equity; thus, income is being credited.

The normal balance of an account is the side where that certain account increases always when
recorded. Assets, expenses, and owner’s drawing or withdrawal normally have debit balances.
Liabilities, owner’s capital, and income normally have credit balances. To summarize, the normal
balances of the accounts are as follows:

Account
Normal balance: debit side Normal balance: credit side
Increases in Increases in
Assets Liabilities
Expenses Capital
Drawing Revenue

Decreases in Decreases in
Liabilities Assets
Capital Expenses
Revenue Drawing

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