2-1 Balance Sheet = + - AssetLiabilityInvestmentRevenueExpense Debit Credit Debits/Credits Rules LO 2 Define debits and credits and explain their use in.

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Presentation transcript:

2-1 Balance Sheet = + - AssetLiabilityInvestmentRevenueExpense Debit Credit Debits/Credits Rules LO 2 Define debits and credits and explain their use in recording business transactions. Income Statement Owner’s Equity + - Drawing Capital/Equity

2-2 Balance Sheet Income Statement = + - AssetLiabilityEquityRevenueExpense Debit Credit Debits/Credits Rules LO 2 Define debits and credits and explain their use in recording business transactions.

2-3 Debits/Credits Rules LO 2 Define debits and credits and explain their use in recording business transactions. DebitsCredits Increase assetsDecrease assets Increase expenseDecrease expense Increase owner’s drawingsDecrease owner’s drawings Decrease liabilitiesIncrease liabilities Decrease revenueIncrease revenue Decrease owner’s investment(capital) Increase owner’s investment(capital)

2-4 In recording process, we write the amount in the Debit side in the Journal & Ledger when there is a/an: a.increase both assets or liabilities. b.decrease both assets or liabilities. c.increase assets or decrease liabilities. d.decrease assets or increase liabilities. Debits/Credits Rules Question LO 2 Define debits and credits and explain their use in recording business transactions.

2-5 In recording process, we write the amount in the Credit side in the Journal & Ledger when there is a/an: a.increase both assets or liabilities. b.decrease both assets or liabilities. c.increase assets or decrease liabilities. d.decrease assets or increase liabilities. Debits/Credits Rules Question LO 2 Define debits and credits and explain their use in recording business transactions.

2-6 Accounts that normally have debit balances are: a.assets, expenses, and revenues. b.assets, expenses, and equity. c.assets, liabilities, and owner’s drawing. d.assets, owner’s drawing, and expenses. Debits/Credits Rules Question LO 2 Define debits and credits and explain their use in recording business transactions.

2-7 Accounts that normally have credit balances are: a.assets, expenses, and revenues. b.assets, expenses, and equity. c.assets, liabilities, and owner’s drawing. d.liabilities, revenues, and owner’s investment (capital). Debits/Credits Rules Question LO 2 Define debits and credits and explain their use in recording business transactions.

2-8 Illustration 2-11 AssetsLiabilities = Basic Equation Expanded Basic Equation + Summary of Debits/Credits Rules Relationship among the assets, liabilities and owner’s equity of a business: The equation must be in balance after every transaction. For every Debit there must be a Credit. LO 2 Define debits and credits and explain their use in recording business transactions. Owner’s Equity