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 Accounting Debits = Credits Always ! LO 3

LiabilitiesEquityAssets =+ EquityAssetsLiabilities Double-Entry Accounting LiabilitiesAssets Equity Liabilities 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 Accounting Debit for decreases Credit for increases Debit for increases Credit for decreases 3 © 2013 McGraw-Hill Ryerson Limited. LO 3

LiabilitiesEquityAssets =+ An account’s normal balance is the debit or credit side where increases are recorded. 4 © 2013 McGraw-Hill Ryerson Limited. Normal 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 Credits ALCREW 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 Credits ALCREW LO 3

Account Type Normal Balance AssetsDr Liabilities Capital Revenue ExpensesDr WithdrawalsDr 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 Credits ALCREW LO 3

Account Type Normal Balance AssetsDr LiabilitiesCr CapitalCr RevenueCr ExpensesDr WithdrawalsDr 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 Credits ALCREW LO 3

Account Type Normal Balance To ↑ Balance To ↓ Balance AssetsDr LiabilitiesCr CapitalCr RevenueCr ExpensesDr WithdrawalsDr 9 © 2013 McGraw-Hill Ryerson Limited. Step 3 Remember, increases are the same as the normal balances, decreases are the opposite. Remembering Debits and Credits ALCREW LO 3

Account Type Normal Balance To ↑ Balance To ↓ Balance AssetsDr Cr LiabilitiesCr Dr CapitalCr Dr RevenueCr Dr ExpensesDr WithdrawalsDr 10 © 2013 McGraw-Hill Ryerson Limited. Step 3 Remember, increases are the same as the normal balances, decreases are the opposite. Remembering Debits and Credits ALCREW LO 3

Account Type Normal Balance To ↑ Balance To ↓ Balance AssetsDr Cr LiabilitiesCr Dr CapitalCr Dr RevenueCr Dr ExpensesDr Cr WithdrawalsDr Cr 11 © 2013 McGraw-Hill Ryerson Limited. Remembering Debits and Credits ALCREW LO 3

Mini-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. Debit Credit Debit LO 3