This document provides an overview of bookkeeping concepts including: - Chart of accounts which lists account names for recording transactions. Common sections include assets, liabilities, equity, income and expenses. - T-accounts which are used to record changes to account balances, with debits on the left and credits on the right. - Rules of debit and credit which specify whether increases and decreases to different types of accounts are recorded as debits or credits. For assets, increases are debits and decreases are credits. Several examples then demonstrate how to analyze transactions and apply debits and credits to the appropriate T-accounts.

1. WEEK 1 DAY 4

2. MODULE IN BOOKKEEPING NC III
WEEK 1/ DAY 4
• SECTOR: HEALTH, SOCIAL AND OTHER COMMUNITY DEVELOPMENT
SERVICES
•
• OBJECTIVE: The trainees demonstrate, and understanding of the
following:
• Chart of accounts
• T-account
• Rules of Debit and Credit

3. INTRODUCTION TO CHART OF ACCOUNTS
• A chart of accounts is a listing of the names of the accounts that a company has
identified and made available for recording transactions in its general ledger. A
company has the flexibility to tailor its chart of accounts to best suit its needs,
including adding accounts as needed.
• Within the chart of accounts, you will find that the accounts are typically listed in
the following order:
•

5. Example of Chart of Accounts

6. The T-Account
The Account
•Daily business transactions always cause
changes in the values of Assets, Liabilities, and
Capital.
•Due to lack of space, these changes are not
recorded in the Balance Sheet. A ledger is used
instead.

7. •The T-Account
•An account is a record showing changes in
similar items. Because the design of an account
basically resembles the letter “T”, it is commonly
referred to as “T-account”.
•

8. T- ACCOUNT HAS TWO SIDES: A LEFT SIDE CALLED THE DEBIT SIDE
AND A RIGHT SIDE CALLED THE CREDIT
SIDE.
ANY AMOUNT WRITTEN ON THE LEFT SIDE OF A T-ACCOUNT IS
CALLED A DEBIT ENTRY; AND ANY AMOUNT WRITTEN ON THE
RIGHT SIDE IS CALLED A CREDIT ENTRY.
INCREASES AND DECREASES OF AN ACCOUNT

9. INCREASES AND DECREASES OF BALANCE SHEET ACCOUNTS
IT IS IMPORTANT TO KNOW WHEN TO CREDIT OR DEBIT THE
DIFFERENT ACCOUNTS. THE FOLLOWING RULES CAN GUIDE YOU IN
ANALYZING BUSINESS TRANSACTIONS.

10. Notice in the above illustrations that increases or decreases may appear
on either the debit or credit side of any given “T-account”. This suggests
that the terms “debit” and “credit” may either refer to an increase or
decrease depending on the nature of the account. The nature of
accounts is discusses in the following pages.

11. • For clarity, the rules of debit and credit for Balance Sheet Accounts
and for Income Statement Accounts are discussed separately. The
nature of a Balance Sheet account can be an Asset, a Liability or
Capital. The nature of an Income Statement account can be Income
or Expense.Let us first discuss the rules of debit and credit for
Balance Sheet accounts, namely:
• 1.) Assets
• 2.) Liabilities
• 3.) Capital
•

13. REMEMBER: DETERMINE THE FOLLOWING WHEN ANALYZING
TRANSACTIONS:
1.) WHAT INCREASED IN YOUR BUSINESS?
2.) WHAT DECREASED IN YOUR BUSINESS?
3.) ACCOUNTS AFFECTED (INCREASES OR DECREASES) IN YOUR BUSINESS
4.) THE NATURE OF ACCOUNTS AFFECTED
Type of Account Increase Decrease Normal Balance
Asset Debit Credit Debit
Liability Credit Debit Credit
Capital
Capital Drawing Credit Debit Debit Credit Credit Debit

15. • Therefore, the answer is:
• Debit: Office Supplies in the amount of ₱20.00 (Asset)
• Credit: Cash in the amount of ₱20.00 (also an Asset)

16. • Therefore, the answer is:
DEBIT CREDIT
Office Supplies 20.00 (Asset)
Cash 20.00 (also an Asset)
To record payment for office supplies

19. • Therefore, the answer is:
• Debit: Prepaid Rent in the amount of ₱400.00
• Credit: Cash in the amount of ₱400.00

25. • Therefore, the answer is:
• Debit: Office Equipment in the amount of ₱2,080
Credit: Cash in the amount of ₱2,080

27. •Therefore, the answer is:
•Debit: Office Equipment in the amount of
₱2,080 Credit: Cash in the amount of ₱2,080

29. THE INCOME STATEMENT ACCOUNTS AND THE T-
ACCOUNT
• Try to master the Income Statement accounts.
Familiarity with the Income Statement Accounts will help you
understand more clearly the applications of the rules of debit
and credit. It will be easier for you to know when to debit or
credit.

30. INCREASES AND DECREASES OF INCOME STATEMENT
ACCOUNTS

32. TO HELP YOU UNDERSTAND THE RULES OF DEBIT AND
CREDIT FOR INCOME STATEMENT ACCOUNTS, THE
FOLLOWING TRANSACTIONS ARE ANALYZED.

34. THEREFORE, THE ANSWER IS:
DEBIT: ACCOUNTS PAYABLE, ₱4,000
CREDIT: SALES, ₱4,000

37. THEREFORE, THE ANSWER IS:
DEBIT: CASH, ₱1,950
CREDIT: SALES, ₱1,950

39. THEREFORE, THE ANSWER IS:
DEBIT: CASH, ₱2,500 CREDIT: SALES, ₱2,500

41. THEREFORE, THE ANSWER IS:
DEBIT: WATER EXPENSE, ₱60
CREDIT: CASH, ₱60
• Now, let us post these accounts to the T-accounts of “Water Expense” and “Cash” (Refer to the
Rules of Debit and Credit.)

43. THEREFORE, THE ANSWER IS:
DEBIT: SALARIES & WAGES, ₱1,500
CREDIT: CASH, ₱1,500

45. TRANSACTION 6:
DELIVERY EXPENSES TOTALED ₱500

46. THEREFORE, THE ANSWER IS:
DEBIT: DELIVERY EXPENSE, ₱500
CREDIT: CASH, ₱500

49. • Therefore, the answer is:
•Debit: Rental Expense, ₱1,000
Credit: Cash,
₱1,000

50. NOW, LET US POST THESE ACCOUNTS TO THE T-
ACCOUNTS OF “RENTAL EXPENSE” AND “CASH” (REFER
TO
THE RULES OF DEBIT AND CREDIT.)

52. HEREFORE, THE ANSWER IS:
DEBIT: MISCELLANEOUS EXPENSE, ₱30
CREDIT: CASH, ₱30

54. AFTER POSTING THESE AMOUNTS TO THEIR PROPER T-
ACCOUNTS, THE T-ACCOUNTS SHOULD LOOK
SOMETHING LIKE THIS:

58. THESE ACCOUNTS SHOULD APPEAR IN THE INCOME
STATEMENT AS FOLLOWS: