Double-Entry Accounting
•
•
•
Transactions are recorded using debits and
credits.
Every transaction affects at least two
accounts.
Equal debits and credits will keep the
accounting equation in balance.
Debits = Credits
Always !
1
© 2013 McGraw-Hill Ryerson Limited.
LO 3
Double-Entry Accounting
Assets
=
Assets
Debit for
increases
+
2
Credit for
decreases
-
Liabilities
Liabilities
Debit for
decreases
-
Credit for
increases
+
© 2013 McGraw-Hill Ryerson Limited.
+
Equity
Equity
Debit for Credit for
decreases increases
-
+
LO 3
Double-Entry Accounting
Equity Accounts
Capital
Debit for
decreases
3
Credit for
increases
+
Withdrawals
Debit for
increases
+
Revenues
Expenses
Credit for Debit for Credit for Debit for Credit for
decreases decreases increases increases decreases
-
-
© 2013 McGraw-Hill Ryerson Limited.
+
+
LO 3
Normal Balances
An account’s normal balance is the debit or
credit side where increases are recorded.
Assets
Assets
Debit for
increase
Normal
balance
4
Credit for
decrease
=
Liabilities
Liabilities
Debit for
decrease
Credit for
increase
Normal
balance
© 2013 McGraw-Hill Ryerson Limited.
+
Equity
Owner's Capital
Debit for
decrease
Credit for
increase
Normal
Balance
LO 3
Remembering Debits and Credits
ALCREW
Account
Type
Assets
Step 1
Write down the account types
using ALCREW.
Liabilities
Capital
Revenue
Expenses
Withdrawals
5
© 2013 McGraw-Hill Ryerson Limited.
LO 3
Remembering Debits and Credits
ALCREW
Account
Type
Assets
Liabilities
Capital
Normal
Balance
Step 2
Write down the normal
balance (debit) of A,E,W. The
others are credits.
Revenue
Expenses
Withdrawals
6
© 2013 McGraw-Hill Ryerson Limited.
LO 3
Remembering Debits and Credits
ALCREW
Account
Type
Assets
Normal
Balance
Step 2
Dr
Write down the normal
balance, debit, of A,E,W. The
others are credits.
Liabilities
Capital
Revenue
Expenses
Dr
Withdrawals
Dr
7
© 2013 McGraw-Hill Ryerson Limited.
LO 3
Remembering Debits and Credits
ALCREW
Account
Type
Assets
Normal
Balance
Step 2
Dr
Liabilities
Cr
Capital
Cr
Revenue
Cr
Expenses
Dr
Withdrawals
Dr
8
Write down the normal
balance, debit, of A,E,W. The
others are credits.
© 2013 McGraw-Hill Ryerson Limited.
LO 3
Remembering Debits and Credits
ALCREW
Account
Type
Assets
Normal
To ↑
To ↓
Balance Balance Balance
Dr
Dr
Liabilities
Cr
Cr
Capital
Cr
Cr
Revenue
Cr
Cr
Expenses
Withdrawals
9
Dr
Step 3
Remember, increases are the
Dr
same as the normal balances,
decreases are the opposite.
© 2013 McGraw-Hill Ryerson Limited.
LO 3
Remembering Debits and Credits
ALCREW
Account
Type
Assets
Normal
To ↑
To ↓
Balance Balance Balance
Dr
Dr
Cr
Liabilities
Cr
Cr
Dr
Capital
Cr
Cr
Dr
Revenue
Cr
Cr
Dr
Expenses
Withdrawals
10
Dr
Step 3
Remember, increases are the
Dr
same as the normal balances,
decreases are the opposite.
© 2013 McGraw-Hill Ryerson Limited.
LO 3
Remembering Debits and Credits
ALCREW
Account
Type
Assets
11
Normal
To ↑
To ↓
Balance Balance Balance
Dr
Dr
Cr
Liabilities
Cr
Cr
Dr
Capital
Cr
Cr
Dr
Revenue
Cr
Cr
Dr
Expenses
Dr
Dr
Cr
Withdrawals
Dr
Dr
Cr
© 2013 McGraw-Hill Ryerson Limited.
LO 3
Mini-Quiz
Indicate whether a debit or credit is needed to:
• Increase Rent Expense
Debit
Debit
• Decrease Accounts Payable
• Decrease Accounts Receivable Credit
• Decrease Cash
Credit
• Increase Withdrawals
Debit
20
© 2013 McGraw-Hill Ryerson Limited.
LO 3