CHAPTER 4
DEBITS, CREDITS, AND TACCOUNTS
LISTEN TO THIS:
LEFT V. RIGHT
Raise your left
hand.
Raise your right
hand.
T- ACCOUNTS
• A device used to analyze transactions.
T ACCOUNTS (CON’D)
Left Side
DEBIT SIDE
Right Side
CREDIT SIDE
SPECIAL NAMES FOR
AMOUNTS IN TACCOUNTS
• Amounts recorded on the left
side of the T-account are
called debits
• Amounts recorded on the
right side of the T-account
are called credits
DEAD CLOR
DEBIT
Expenses
Assets
Dividends / Draws
These items should always have a debit
balance. To increase these items, you debit
the account. To decrease these items, you
credit the account.
DEAD CLOR (CONTINUED)
CREDIT
Liabilities
Owner’s Equity
Revenue (Sales / Fees)
These items should always have a credit
balance. To increase these items, you
credit the account. To decrease these
items, you debit the account.
DEBITS AND CREDITS
- INCREASES
• If an account normally has a
debit balance (D – E –A –D),
then any INCREASE will be a
debit. (left.)
• If an account normally has a
credit balance (C-L-O-R),
then any INCREASE will be a
credit (right)
DEBITS AND CREDITS
- DECREASES
• If an account normally has a
debit balance (D-E-A-D), then
any DECREASE will be a
credit (right)
• If an account normally has a
credit balance (C-L-O-R),
then any DECREASE will be
a debit (left)
DEAD AND CLOR
DEBIT ACCOUNTS
CREDIT ACCOUNTS
E–A–D
L–O-R
Debit
Credit
Debit
LEFT
RIGHT
LEFT
Increase
Decrease
Decrease
+
-
-
Credit
RIGHT
Increase
+
QUIZ – TELL WHETHER IT
IS A DEBIT OR CREDIT
AND RIGHT OR LEFT
Problem #1
Ben earns $50 cash in the course of
the business (lemonade stand) – will
he DEBIT or CREDIT cash for $50?
Will he enter that on the right or the
left of the T-account?
HINT: Use D-E-A-D to analyze. Is he
increasing or decreasing cash?
ANSWER
Cash is an asset. (DEAD). He would DEBIT
cash $50 on the left side of the T-account
because it is increasing:
Cash
LEFT
RIGHT
$50
Debits on the LEFT, credits on the RIGHT.
PROBLEM 2
Ben pays $20 in cash for supplies for his
lemonade stand. Would he DEBIT or
CREDIT cash? Would he enter that on the
right or the left?
HINT: Use D-E-A-D to analyze. Is he
increasing or decreasing cash when he
buys supplies?
ANSWER
Cash is an asset. (DEAD). He would CREDIT
cash $20 on the right side of the T-account
because it is decreasing:
Cash
LEFT
RIGHT
$20
+
-
Debits on the LEFT, credits on the RIGHT.
FOR EVERY
TRANSACTION:
1. For every debit, there must
be an equal amount of credits
2. Always do debits first.
3. Debits must equal credits.
PROBLEM #3
Ben pays his little brother Luke $5.00 in insurance
to insure that Luke will not interfere with his
lemonade stand. How would Ben account for this
transaction (paying $5.00 cash for prepaid
insurance)? Would he DEBIT or CREDIT prepaid
insurance? How about cash? Would the entries
go on the left or on the right?
HINT: What type of account are cash and prepaid
insurance? DEAD or CLOR?
ANSWER
Ben would DEBIT prepaid insurance because the balance in
his prepaid insurance account is increasing, and he would
CREDIT cash because he paid cash out, so the balance in the
cash account is decreasing.
The entry for prepaid insurance would be on the left and for
cash on the right. (Debits – left; Credits – right).
Prepaid Insurance
Left
Right
Cash
Left
$5.00
+
Right
$5.00
-
+
-
PROBLEM #4
Ben pays $6.00 cash to repair the handle on
his parents’ pitcher.
Which accounts are affected?
Are they debit or credit accounts? (DEAD
CLOR)
Are the accounts being increased (adding
to) or decreasing (taking away)?
How will you enter the transaction, on the
right, or on the left?
ANSWER
Ben would CREDIT cash because he is paying cash
out (decreasing), and he would DEBIT rent expense
because he is adding to the balance in that account
(Increasing).
The entry for repair expense would be on the left and
for cash on the right. (Debits – left; Credits – right).
Repair Expense
Left
Right
Cash
Left
$6.00
+
Right
$6.00
-
+
-
PROBLEM #5
Ben buys $3.00 in supplies from his neighbor
on account.
Which accounts are affected?
Are they debit or credit accounts? (DEAD
CLOR)
Are the accounts being increased (adding to)
or decreasing (taking away)?
How will you enter the transaction, on the
right, or on the left?
ANSWER
Ben would DEBIT supplies because he is increasing the
amount in the account. He would CREDIT accounts payable
because he is adding to the balance in that account.
The entry for supplies would be on the left and for accounts
payable on the right. (Debits – left; Credits – right).
Supplies
Left
Right
Accounts Payable
Left
Right
$3.00
+
$3.00
-
-
+
ANALYZING AND
RECORDING
TRANSACTIONS
To record a transaction, you analyze it by taking the
following steps:
1. Decide which accounts are affected.
2. Check whether each account is a debit or credit
account (DEAD CLOR).
3. Determine whether each account is increasing or
decreasing (adding to or taking away.)
4. That will tell you how each amount is entered in the
accounts.
5. Remember that for every transaction, debits must
equal credits. Always.