2. Analyze common business
transactions using the rules of debit
and credit
Solve simple problems and exercises
in the analyses of business transaction
At the end of the
lesson, you are
expected to:
4. The basis of the rules of debits and
credits is how the effects of the
transaction on the accounting
elements are treated.
Changes in assets, liabilities,
owner’s equity, revenue, and
expenses are shown either on the
left or on the right side of an
account.
”
5. The left side of an account is called the debit
side and the right side is called the credit
side. To show the effects of debit and credit
entries to an account, postings are made to
T- Accounts.
T-Account is a representation to separate
debit from credit in the form of “T”, whereas
debit entry is put in the left while credit entry
is in the right side.
When analyzing and solving transactions
using the T-accounts, the accounting
equation must always be considered. The
equation is as follows:
Assets = Liabilities + Owner’s Equity
6. The recorded increase and
decrease in the T-Account is
determined by the account type.
If there is an increase in assets,
you will record it as debits (on
the left side of the T-Account).
If there is a decrease in assets,
you will record it as credits (on
the right side).
Debit is the normal balance of the
asset accounts.
7. Increases in liabilities are recorded on credits
and decreases on debits.
The same rule applies with the owner’s equity
accounts—increases are recorded on credits and
decreases are on debits.
8. If there is an increase in income, it will be recorded
as credits and if there is an adjustment (decrease),
it will be recorded as debits.
Increases in expenses are recorded as debits and
decreases are as credits.
