Understanding Debits and Credits in Accounting

1. Understanding Debits and Credits in Accounting

2. Presentation Outline • An Account • Normal Balances • Recording and Posting Transactions

3. I.An Account • Three Parts of an Account • Determining the Balance of an Account • Balance Examples

4. A. Three Parts of an Account (1) Account Title (2) Left Side is a Debit (3) Right Side is a Credit

5. B. Determining the Balance of an Account Obtain a total for both debits if credits. If: Total Debits > Total Credits = Debit Balance Total Debits < Total Credits = Credit Balance Total Debits = Total Credits = Zero Balance

6. C. Balance Examples What is the balance of the following accounts: Cash Accounts Payable 12,000 2,000 2,000 1,000 3,000 2,000 6,000 9,000 11,000 Debit Balance 10,000 Credit Balance

7. II. Normal Balances • Increasing and Decreasing Accounts • Account Normal Balances • Components of Owner’s Equity What is normal for you?

8. A. Increasing and Decreasing Accounts • Accounts have a normal balance of either a debit or a credit (but not both). • An entry on the side of an account’s normal balance will increase the account. • An entry on the opposite side of an account’s normal balance will decrease the account.

9. B. Account Normal Balances = Assets Liabilities + Capital Debits Increase Credits Decrease Debits Decrease Credits Increase Debits Decrease Credits Increase Normal Balance Normal Balance Normal Balance

10. C. Components of Owner’s Equity Negative Components of Owner’s Equity Positive Component Of Owner’s Equity Withdrawals Expenses Revenues Debits Increase Credits Decrease Debits Increase Credits Decrease Debits Decrease Credits Increase Normal Balance Normal Balance Normal Balance Remember that the normal balance of owner’s equity is a credit.