CHAPTER THREE

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
CASH
OFFICE SUPPLIES
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.
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STEP 1
Name the accounts affected
ACCOUNTS PAYABLE
EQUIPMENT
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STEP 2
Determine Classification of Accounts
LIABILITY
ACCOUNTS PAYABLE
ASSET
EQUIPMENT
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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
ACCOUNTS PAYABLE
EQUIPMENT
DR.
CR.
DR.
CR.


3000
3000
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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
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STEPS 1 2
Name and classify the accounts affected
OWNERS 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
INCREASED OR DECREASED?
INCREASED
INCREASED
CASH
M. ADAMS, CAPITAL

DR.
CR.
DR.
CR.

25,000
25,000
34
DEBITS CREDITS
M. ADAMS, CAPITAL
CASH
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
OWNERS 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.
CASH
M. ADAMS, DRAWING

DR.
CR.
DR.
CR.

39
INCREASED OR DECREASED?
INCREASED
DECREASED
CASH
M. ADAMS, DRAWING
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
CASH
CONSULTING FEES
DR.
CR.
DR.
CR.


4,500
4,500
46
DEBITS CREDITS
CONSULTING FEES
CASH
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
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EXAMPLE
MARY ADAMS PAID HER ASSISTANT 750 IN WAGES
51
STEPS 1 2
Name and classify the accounts affected
EXPENSE
ASSET
WAGES EXPENSE
CASH
DR.
CR.
DR.
CR.
52
STEP 3
Now that we know the classification, we can
identify increase and decrease sides.
WAGES EXPENSE
CASH
DR.
CR.
DR.
CR.


53
INCREASED OR DECREASED?
INCREASED
DECREASED
CASH
WAGES EXPENSE
DR.
CR.
DR.
CR.


750
750
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DEBITS CREDITS
CASH
WAGES EXPENSE
DR.
CR.
DR.
CR.


750
750
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BALANCING T ACCOUNTS
STEP 1 FOOT DEBIT CREDIT SIDES
CASH
2,000 500 570 430
1 1,200 300 200 5050 80 200 300 650 150
1
FOOTING
3,500
To Foot means to Total
FOOTING
3,130
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BALANCING A T ACCOUNT

• STEP 2 Find balance by finding the difference
  between the debit and credit totals.

3,500 debit footing
3,130 credit footing
370 balance
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BALANCING T ACCOUNTS
Balance is written on side with larger total
CASH
2,000 500 570 430
1 1,200 300 200 5050 80 200 300 650 150
1
3,500
BALANCE
3,130
370
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TRIAL BALANCE

• LIST OF ALL ACCOUNTS
• INCLUDING THEIR BALANCES
• TOTALING DEBITS AND CREDITS
• PROVING DEBITS EQUAL CREDITS
• USED AS AN AID IN PREPARING FINANCIAL STATEMENTS

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Jessica Janes Campus DeliveryTrial BalanceJune
30, 20--
Account Title
Debit Balance
Credit Balance

• HEADING should include
• Name of the Company
• Title of Document Trial Balance
• Date of the Trial Balance

60
Jessica Janes Campus DeliveryTrial BalanceJune
30, 20--
Account Title
Debit Balance
Credit Balance
Cash
370 00
Accounts Receivable
650 00
Supplies
80 00
Prepaid Insurance
200 00
Delivery Equipment
3600 00
All Asset accounts listed first
61
Jessica Janes Campus DeliveryTrial BalanceJune
30, 20--
Account Title
Debit Balance
Credit Balance
Cash
370 00
Accounts Receivable
650 00
Supplies
80 00
Prepaid Insurance
200 00
Delivery Equipment
3600 00
Accounts Payable
1800 00
Liabilities are shown next
62
Jessica Janes Campus DeliveryTrial BalanceJune
30, 20--
Account Title
Debit Balance
Credit Balance
Cash
370 00
Accounts Receivable
650 00
Supplies
80 00
Prepaid Insurance
200 00
Delivery Equipment
3600 00
Accounts Payable
1800 00
Jessica Jane, Capital
2000 00
Jessica Jane, Drawing
150 00
Now the Owners Equity Accounts
63
Jessica Janes Campus DeliveryTrial BalanceJune
30, 20--
Account Title
Debit Balance
Credit Balance
Cash
370 00
Accounts Receivable
650 00
Supplies
80 00
Prepaid Insurance
200 00
Delivery Equipment
3600 00
Accounts Payable
1800 00
Jessica Jane, Capital
2000 00
Jessica Jane, Drawing
150 00
Delivery Fees
2150 00
Then the Revenue Account
64
Jessica Janes Campus DeliveryTrial BalanceJune
30, 20--
Account Title
Debit Balance
Credit Balance
Cash
370 00
Accounts Receivable
650 00
Supplies
80 00
Prepaid Insurance
200 00
Delivery Equipment
3600 00
Finally, the Expenses
Accounts Payable
1800 00
Jessica Jane, Capital
2000 00
Jessica Jane, Drawing
150 00
Delivery Fees
2150 00
Wages Expense
650 00
Rent Expense
200 00
Telephone Expense
50 00
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Jessica Janes Campus DeliveryTrial BalanceJune
30, 20--
Account Title
Debit Balance
Credit Balance
Cash
370 00
It Balances!!! Debits Credits
Accounts Receivable
650 00
Supplies
80 00
Prepaid Insurance
200 00
Delivery Equipment
3600 00
Accounts Payable
1800 00
Jessica Jane, Capital
2000 00
Jessica Jane, Drawing
150 00
Delivery Fees
2150 00
Wages Expense
650 00
Rent Expense
200 00
Telephone Expense
50 00
5950 00
5950 00