Chapter: 3
Topic: Understanding Debit and Credit Theory / Recording Asset and Liability Changes
in T-Accounts
Objectives:
During this class students will continue their examination of debit/credit theory. Students
will learn how to record transactions within asset and liability accounts.
Definitions
Debit: The left side of an
account
Credit: The right side of an
account
Account: A tool used to
record inflows to, and
outflows from, a similar
group of items.
Element: One of the three
categories within the
accounting equation,
namely assets, liabilities,
and owner's equity. These
elements are used to
organize all of a business'
accounts.
Debit-Credit Principle:
If an entry to an account is causing an increase to an
element, then record it within the same side as the element
which it is increasing.
If an entry to an account is causing a decrease to an
element, then record it within the opposite side of the
element which it is decreasing.
Thus, for some accounts we will record entries on the debit side when we are recording
inflows, yet for other accounts we will record entries on the debit side when we are
recording outflows. Below is a summary of when to debit and credit the various
accounts of a business. It is best not to memorize this information, but rather to
understand the principle which guides us when debiting and crediting.
ASSETS
Cash
=
LIABILITIES
+ OWNER'S EQUITY
Bank Loan
Capital
Accounts Receivable
Accounts Payable
Drawings
Office Supplies
Mortgage Payable
Revenue
Any other Asset
Any other Liability
Expenses
Debit -NB
Inflow
Increase
Credit
Outflow
Decrease