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Module 2 2 Rules of Debit and Credit

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11 views

Module 2 2 Rules of Debit and Credit

Uploaded by

nikko.emping.20
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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MODULE 3

THE ACCOUNTS
The Account

• An account is the basic storage of


information in accounting. It is a record
of the increases and decreases in a
specific item of asset, liability, equity,
income or expense.
The T-Account
The Five Major Accounts
1. ASSETS – are the resources you control that have resulted
from past events and can provide you with future economic
benefits.
2. LIABILITIES – are your present obligations that have resulted
from past events and can require you to give up resources
when settling them.
3. EQUITY – is assets minus liabilities.
4. INCOME – are increases in economic benefits during the period
in the form of inflows or enhancements of assets or decreases
of liabilities that result in increases in equity, other than those
relating to investments by the business owners.
5. EXPENSES – are decreases in economic benefits during the
period in the form of outflows or depletions of assets or
increases of liabilities that result in decreases in equity, other
than those relating to distributions to the business owners.
Classification of the Five Major
Accounts
Chart of Accounts
A chart of accounts is a list of all the
accounts used by a business.
Common Account Titles
• BALANCE SHEET ACCOUNTS
ASSETS
a. Cash
b. Accounts receivable
c. Allowance for bad debts
d. Notes receivable
e. Prepaid supplies
f. Prepaid rent
g. Prepaid insurance
h. Land
i. Building
j. Accumulated depreciation - Building
k. Equipment
l. Accumulated depreciation - equipment
Common Account Titles - Continuation

• BALANCE SHEET ACCOUNTS


LIABILITIES
a. Accounts payable
b. Notes payable
c. Interest payable
d. Salaries payable
e. Utilities payable
f. Unearned
Common Account Titles - Continuation

• BALANCE SHEET ACCOUNTS


EQUITY
a. Owner’s capital (or Owner’s equity)
b. Owner’s drawings
Common Account Titles - Continuation

• INCOME STATEMENT ACCOUNTS


INCOME
a. Service fees
b. Sales
c. Interest income
d. Gains
Common Account Titles - Continuation
• INCOME STATEMENT ACCOUNTS
EXPENSES
a. Cost of sales (or Cost of goods sold)
b. Freight-out
c. Salaries expense
d. Rent expense
e. Utilities expense
f. Supplies expense
g. Bad debt expense
h. Depreciation expense
i. Advertising expense
j. Insurance expense
k. Taxes and licenses
l. Transportation and travel expense
m. Interest expense
n. Miscellaneous expense
o. Losses
The Books of Accounts
1. Journal (General and Special)
2. Ledger (General and Subsidiary)
Journal
The journal, also called the “book of original
entries,” is the accounting record where
business transactions are first recorded.
1.Special Journal – is used to record transactions
with similar nature (e.g., Sales journal, Purchases
journal, Cash receipts journal, and Cash
disbursements journal)
2.General Journal – All other transactions that
cannot be recorded in the special journals are
recorded in the general journal.
Ledger
• The ledger is used to classify the effects of
business transactions on the accounts. It is
also called the “book of final entries.”
1.General ledger – contains all the accounts
appearing in the trial balance.
2.Subsidiary ledger – provides a breakdown of
the balances of controlling accounts.
Format of the General Journal
Formats of the Ledgers
Double-entry System

• Concept of duality – each transaction is


recorded in two parts – debit and credit
• Concept of equilibrium – each
transaction is recorded in terms of equal
debits and credits.
Normal balances of accounts
Rules of Debits and Credits
Contra and Adjunct accounts
• Contra accounts are presented in the
financial statements as deduction to
their related accounts.
• Adjunct accounts are presented in the
financial statements as addition to their
related accounts.

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