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Rule of debit and Credit

The document outlines the accounting equation and the rules of debit and credit, detailing how various transactions affect owner’s equity. It describes the accounting cycle, including steps from analyzing transactions to preparing financial statements, and provides examples of transactions and adjusting entries. Additionally, it explains the normal balance for different account types and illustrates the impact of specific transactions on the accounting records.

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Jocelyn Reyes Gabe
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10 views5 pages

Rule of debit and Credit

The document outlines the accounting equation and the rules of debit and credit, detailing how various transactions affect owner’s equity. It describes the accounting cycle, including steps from analyzing transactions to preparing financial statements, and provides examples of transactions and adjusting entries. Additionally, it explains the normal balance for different account types and illustrates the impact of specific transactions on the accounting records.

Uploaded by

Jocelyn Reyes Gabe
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Accounting Equation = A = L+OE

20,000 = 5,000 + 15,000

Rule of debit and Credit

DECREASE

DECREAS
E

4 elements that affect Owner’s equity.

1. Income/Revenue INCREAS
2. Investment E
3. Withdrawals
4. Expenses DECREAS
E
Debit Credit
Left Right
D - Drawings L - Liabilities
E - Expense E - Equity
A - Assets R – Revenue/ Income

Account type Normal In case of In case of


Balance Increase decrease
Asset Debit Debit Credit
Liability Credit Credit Debit

Capital/Equity Credit Credit Debit

Revenue/Income Credit Credit Debit

Drawings/ withdrawal Debit Debit Credit

Expense Debit Debit Credit

The debit and credit can be associated with simple terms as “value received” for
debit and “value parted with” for the credit.
Illustration 1
1. The owner invested cash in an internet business.
2. The business purchased internet equipment in cash.
3. The business purchased computer printers on account/credit.
D - Office Equipment - Assets - Increase
C- Accounts payable - Liabilities - Increase
4. The business purchased supplies in cash. –
D – Office Supplies -----Assets ----- Increase
C – Cash ---------Assets ------- Decrease
5. the business collected cash from the internet gamers and users.
D – Cash ---------- Assets ------------ Increase
C – Service revenue ---------- Capital ------ Increase
6. The business paid salaries to employees.
D – Salaries & wages Expense ------- Capital -----------Decrease
C – Cash -------------------Assets ------------- Decrease
7. The business paid telephone expenses.
D – Communication Expense -------Capital --------Decrease
C – Cash ----------------------- Assets --------Decrease
8. The business paid electricity bills.
D – Light &water expense ------Capital---------Decrease
C - Cash -----------------Assets----------Decrease
9. The owner withdraws cash.
D – Withdrawal -------Capital ------- Decrease
C- Cash ----------- Asset --------- Decrease
10. The business paid the payable incurred in the purchase of computer printers.
D – Accounts payable -------- Liabilities------Decrease
C – Cash -------------- Assets------ Decrease
Solutions:
Transactio Value received Value parted with
n
1 Money Payable to owner
2 Equipment Money
3 Computer printers Payable to supplier
4 supplies Money
5 Money Service fee from gamers
6 Employees service money
7 Telephone bills Money
8 Electricity bills Money
9 Payment to payable to owner Money
10 Payment of payable to Money
supplier

Transacti Debit Credit


on
1 Cash Capital
2 Office Equipment Cash
3 Office Equipment Accounts payable
4 Supplies Cash
5 Cash Service Revenue
6 Salaries & wages Cash
7 Communication Expense Cash
8 Light and water Cash
9 Drawings Cash
10 Accounts payable Cash

Accounting Cycle or Accounting Process


The accounting process or the accounting cycle is an entire process that an
accountant should accomplish to come up with useful reports for the internal and
external users.

The following is the complete process:


Step 1: Analyzing business transactions or source documents.
Step 2: Make Journal entries.
Step 3: Post to the ledger accounts.
Step 4: Prepare Trial Balance – (Assets, liabilities, capital, drawing, Revenue and
expenses)
Step 5: Make adjusting entries.
Step 6: Prepare adjusted trial balance.
Step 7: Prepare financial statements.
Step 8: Close accounts – (revenues, Expenses, drawings)
Step 9: Prepare post-closing trial balance.
Step 10: Interpret financial information.

Problem 1:
Chimel communication is a public relation firm. During the month of August 2018,
the company completed the following transaction:

Aug. 1 John Chimel, the owner of the company, transferred cash from
personal bank account to the account of the business P1,500,000.
Date Acct, Title P Debit Credit
R
August 1 Cash 1,500,0
Chimel, Capital 00 1,500,0
To record chimel 00
investment

3 Service vehicle
Cash 600,000 200,000
Note payable 400,000
To record purchase
vehicle on account and
cash

3. Purchased service vehicle for P600,000 paying P200,000 cash and giving a
note payable for the balance.
4. Paid electricity bill P1,600.
5. Paid annual insurance policies P12,000.
6. Bought computer equipment for cash P10,000.
10. John Chimel withdrew cash for personal use P5,000.
11. Purchased office supplies on account P2,500.
15. Received cash from a customer service rendered P135,000.
18. Donated cash to Philippine National Red Cross P10,000.
25. Paid August rent for office P15,000.
25. Maid partial payment on notes payable P11,000.
30. Paid salaries P12,000.

Adjusting entries:
On June 1,2019, Josie company purchased one year insurance for the
warehouse amounting P36,000.
Computation:
36,000*7 months / 12 months = 21,000

Adjusting entries:

Insurance Expense 21,000


Prepaid insurance 21,000

1. A physical count reveals only 480 of roofing supplies on hand.


Supplies Expense
Supplies
2. Depreciation for march is 250
Depreciation expense
Accumulated Depreciation
3. Unearned revenue amounted to $260 on March 31.
Unearned service revenue
Service Revenue
4. Accrued salaries are $700.
Salaries & wages Expense
Salaries & wages payable

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