Transactions are recorded using debits and credits. Every transaction affects at least two accounts....

• Transactions are recorded using debits and credits.

• Every transaction affects at least two accounts.• Equal debits and credits will keep the

accounting equation in balance.

1 © 2013 McGraw-Hill Ryerson Limited.

Double-Entry AccountingDouble-Entry Accounting

Debits = CreditsDebits = CreditsAlways !Always !

LO 3

Liabilities EquityAssets = +EquityAssets Liabilities

+ - - + - +

Double-Entry AccountingDouble-Entry Accounting

LiabilitiesAssets EquityLiabilities

Debit for increases

Credit for decreases

Debit for decreases

Credit for increases

Debit for decreases

Credit for increases

2 © 2013 McGraw-Hill Ryerson Limited. LO 3

Capital

- +

Equity Accounts

Withdrawals

+ -

Expenses

+ -

Revenues

- +

Double-Entry AccountingDouble-Entry Accounting

Debit for decreases

Debit for decreases

Credit for increases

Credit for increases

Debit for increases

Debit for increases

Credit for decreases

Credit for decreases

3 © 2013 McGraw-Hill Ryerson Limited. LO 3

Liabilities EquityAssets = +

An account’s normal balance is the debit or credit side where increases are recorded.

4 © 2013 McGraw-Hill Ryerson Limited.

Normal BalancesNormal Balances

LO 3

Account Type

Assets

Liabilities

Capital

Revenue

Expenses

Withdrawals

5 © 2013 McGraw-Hill Ryerson Limited.

Step 1

Write down the account types using ALCREW.

Remembering Debits and CreditsRemembering Debits and CreditsALCREWALCREW

LO 3

Account Type

Normal Balance

Assets

Liabilities

Capital

Revenue

Expenses

Withdrawals

6 © 2013 McGraw-Hill Ryerson Limited.

Step 2

Write down the normal balance (debit) of A,E,W. The others are credits.

Remembering Debits and CreditsRemembering Debits and CreditsALCREWALCREW

LO 3

Account Type

Normal Balance

Assets Dr

Liabilities

Capital

Revenue

Expenses Dr

Withdrawals Dr

7 © 2013 McGraw-Hill Ryerson Limited.

Step 2

Write down the normal balance, debit, of A,E,W. The others are credits.

Remembering Debits and CreditsRemembering Debits and CreditsALCREWALCREW

LO 3

Account Type

Normal Balance

Assets Dr

Liabilities Cr

Capital Cr

Revenue Cr

Expenses Dr

Withdrawals Dr

8 © 2013 McGraw-Hill Ryerson Limited.

Step 2

Write down the normal balance, debit, of A,E,W. The others are credits.

Remembering Debits and CreditsRemembering Debits and CreditsALCREWALCREW

LO 3

Account Type

Normal Balance

To ↑Balance

To ↓Balance

Assets Dr Dr

Liabilities Cr Cr

Capital Cr Cr

Revenue Cr Cr

Expenses Dr

Withdrawals Dr

9 © 2013 McGraw-Hill Ryerson Limited.

Step 3

Remember, increases are the same as the normal balances, decreases are the opposite.

Remembering Debits and CreditsRemembering Debits and CreditsALCREWALCREW

LO 3

Account Type

Normal Balance

To ↑Balance

To ↓Balance

Assets Dr Dr Cr

Liabilities Cr Cr Dr

Capital Cr Cr Dr

Revenue Cr Cr Dr

Expenses Dr

Withdrawals Dr

10 © 2013 McGraw-Hill Ryerson Limited.

Step 3

Remember, increases are the same as the normal balances, decreases are the opposite.

Remembering Debits and CreditsRemembering Debits and CreditsALCREWALCREW

LO 3

Account Type

Normal Balance

To ↑Balance

To ↓Balance

Assets Dr Dr Cr

Liabilities Cr Cr Dr

Capital Cr Cr Dr

Revenue Cr Cr Dr

Expenses Dr Dr Cr

Withdrawals Dr Dr Cr

11 © 2013 McGraw-Hill Ryerson Limited.

Remembering Debits and CreditsRemembering Debits and CreditsALCREWALCREW

LO 3

Mini-QuizMini-Quiz

Indicate whether a debit or credit is needed to:• Increase Rent Expense

• Decrease Accounts Payable

• Decrease Accounts Receivable

• Decrease Cash

• Increase Withdrawals

20 © 2013 McGraw-Hill Ryerson Limited.

DebitDebit

Credit

Credit

Debit

LO 3