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Mastering Double Entry Framework: Essential Rules & Examples

Understand the basics of double entry framework with 7 key rules explained through practical examples and clear illustrations, helping you grasp the concept easily.

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Mastering Double Entry Framework: Essential Rules & Examples

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  1. CHAPTER THREE THE DOUBLE ENTRY FRAMEWORK

  2. “T” Accounts SHAPED LIKE a “T” Debit Credit

  3. “T” Accounts Debit means Left Credit means Right Debit Credit

  4. “T” Accounts Abbreviation for Debit Abbreviation for Credit Dr. Cr.

  5. “T” Accounts ACCOUNT NAME CASH Dr. Cr.

  6. Every “T” Account has: • An Increase Side, and • A Decrease Side • But, Some Accounts Increase on the Debit Side • And, Some Accounts Increase on the Credit Side

  7. 7 RULES OF DEBITS AND CREDITS

  8. RULE #1 ASSET ACCOUNTS Increase on Debit Side Decrease on Credit Side Dr. Cr. +

  9. EXAMPLE: PURCHASED OFFICE SUPPLIES FOR $800 CASH

  10. STEP #1 Name the accounts affected: OFFICE SUPPLIES CASH

  11. STEP #2 Determine Classification of Accounts ASSET OFFICE SUPPLIES CASH ASSET

  12. STEP #3 Now that we know the classification, we can identify increase and decrease sides. CASH OFFICE SUPPLIES + + DR. CR. DR. CR.

  13. PURCHASED OFFICE SUPPLIES FOR $800 CASH Did Office Supplies Increase or Decrease in this transaction?

  14. INCREASED OFFICE SUPPLIES DR. CR. + $800

  15. PURCHASED OFFICE SUPPLIES FOR $800 CASH What about Cash? Increase or Decrease in this transaction?

  16. DECREASED CASH DR. CR. + $800

  17. RULE #2 IN EVERY TRANSACTION DEBITS MUST EQUAL CREDITS

  18. DEBITS = CREDITS OFFICE SUPPLIES CASH DR. CR. DR. CR. + + $800 $800

  19. RULE #3 LIABILITY ACCOUNTS Decrease on Debit Side Increase on Credit Side Dr. Cr. +

  20. EXAMPLE: PURCHASED EQUIPMENT ON ACCOUNT FOR $3,000.

  21. STEP #1 Name the accounts affected: ACCOUNTS PAYABLE EQUIPMENT

  22. STEP #2 Determine Classification of Accounts: LIABILITY ACCOUNTS PAYABLE ASSET EQUIPMENT

  23. STEP #3 Now that we know the classification, we can identify increase and decrease sides. EQUIPMENT ACCOUNTS PAYABLE DR. + CR. DR. CR. +

  24. PURCHASED EQUIPMENT ON ACCOUNT FOR $3,000. Did Equipment Increase or Decrease in this transaction?

  25. INCREASED EQUIPMENT DR. CR. + $3000

  26. PURCHASED EQUIPMENT ON ACCOUNT FOR $3,000. Accounts Payable? Increase or Decrease in this transaction?

  27. INCREASED ACCOUNTS PAYBLE DR. CR. + $3000

  28. DEBITS = CREDITS EQUIPMENT ACCOUNTS PAYABLE DR. CR. DR. CR. + + $3000 $3000

  29. RULE #4 CAPITAL ACCOUNT Decrease on Debit Side Increase on Credit Side Dr. Cr. + JUST LIKE LIABILITY ACCOUNTS

  30. EXAMPLE: MARY ADAMS, THE OWNER, INVESTED $25,000 IN THE BUSINESS

  31. STEPS #1 & 2 Name and classify the accounts affected: OWNER’S EQUITY ASSET M. ADAMS, CAPITAL CASH DR. CR. DR. CR.

  32. STEP #3 Now that we know the classification, we can identify increase and decrease sides. M. ADAMS, CAPITAL CASH + + DR. CR. DR. CR.

  33. INCREASEDOR DECREASED? INCREASED INCREASED M. ADAMS, CAPITAL CASH + DR. CR. DR. CR. + $25,000 $25,000

  34. DEBITS = CREDITS CASH M. ADAMS, CAPITAL DR. CR. DR. CR. + + $25,000 $25,000

  35. RULE #5 DRAWING ACCOUNT Increase on the Debit Side Decrease on the Credit Side Dr. Cr. + JUST LIKE ASSET ACCOUNTS

  36. EXAMPLE: MARY WITHDREW $1,500 FOR PERSONAL EXPENSES

  37. STEPS #1 & #2 Name and classify the accounts affected: OWNER’S EQUITY ASSET M. ADAMS, DRAWING CASH DR. CR. DR. CR.

  38. STEP #3 Now that we know the classification, we can identify increase and decrease sides. M. ADAMS, DRAWING CASH + DR. CR. DR. CR. +

  39. INCREASED OR DECREASED? INCREASED DECREASED M. ADAMS, DRAWING CASH DR. CR. DR. CR. + + $1,500 $1,500

  40. DEBITS = CREDITS M. ADAMS, DRAWING CASH DR. CR. DR. CR. + + $1,500 $1,500

  41. RULE #6 REVENUE ACCOUNTS Decrease on Debit Side Increase on Credit Side Dr. Cr. + JUST LIKE LIABILITY & CAPITAL ACCOUNTS

  42. EXAMPLE: MARY PERFORMED SERVICES AND RECEIVED $4,500 IN CASH

  43. STEPS #1 & #2 Name and classify the accounts affected: REVENUE ASSET CONSULTING FEES CASH DR. CR. DR. CR.

  44. STEP #3 Now that we know the classification, we can identify increase and decrease sides. CONSULTING FEES CASH DR. CR. DR. CR. + +

  45. INCREASED OR DECREASED? INCREASED INCREASED CONSULTING FEES CASH DR. CR. DR. CR. + + $4,500 $4,500

  46. DEBITS = CREDITS CASH CONSULTING FEES DR. CR. DR. CR. + + $4,500 $4,500

  47. EXAMPLE: MARY PERFORMED $6,000 OF SERVICES ON ACCOUNT

  48. DEBITS = CREDITS ACCOUNTS RECEIVABLE CONSULT. FEES DR. CR. DR. CR. + + $6,000 $6,000 ACCOUNTS RECEIVABLE INSTEAD OF CASH

  49. RULE #7 EXPENSE ACCOUNTS Increase on the Debit Side Decrease on the Credit Side Dr. Cr. + JUST LIKE ASSET ACCOUNTS

  50. EXAMPLE MARY ADAMS PAID HER ASSISTANT $750 IN WAGES

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