1. Introduction to Accounting Preparing for a User’s Perspective
What are debits and credits?
Debits and Credits Trainer
By Kevin C. Kimball, CPA
with support from
Free Jan. 2014
Available on the Google Play Store

2. Typical Ledger Account
Debits in $
Credits in $
This is a T Account. T-Accounts are used to represent a company’s account ledgers.
Accountants use ledgers to keep track of each individual account’s balance in $.
Ledgers simplify math because all increases are on one side and all decreases are on the other side.
Entries on the LEFT are called DEBITs. DEBIT is just another word for LEFT.
Entries on the RIGHT are called CREDITS. CREDIT is just another word for RIGHT.
Some accounts + INCREASE with DEBITS, and others + INCREASE with CREDITS.

3. + - - + - + = + ASSETS LIABILITIES EQUITY
This is the balance sheet equation.
Assets are on the DEBIT (i.e. left) side of the balance sheet equation; therefore,
ASSETS accounts are INCREASED by DEBIT entries.
LIABILITIES and EQUITY are on the CREDIT (i.e. right) side of the balance sheet equation; therefore,
LIABILITY and EQUITY accounts are INCREASED by CREDIT entries.
- DECREASES are always recorded on the opposite side of an account’s INCREASE side.

4. CAPITAL CONTRIBUTIONS
ASSETS =
LIABILITIES + + - -
EQUITY + - +
Here is the basic accounting equation expanded to show the two key equity financing sources:
Capital Contributions and Retained Earnings.
CAPITAL CONTRIBUTIONS +
Whenever ANY Equity account is CREDITED, TOTAL EQUITY will INCREASE. -
RETAINED EARNINGS + - +
Whenever ANY Equity account is DEBITED, TOTAL EQUITY will DECREASE.
Example: When Expenses are DEBITED what happens to Total Equity? Hint: Follow the arrows. -
NET INCOME -
DIVIDENDS + + -
Expenses would INCREASE, but, Net Income, Retained Earnings and Total Equity will all DECREASE. -
Example: What if Revenues were CREDITED?
REVENUES
EXPENSES - + + -
Revenues would INCREASE, and Net Income, Retained Earnings and Total Equity will all INCREASE.

5. INCREASE & DECREASE Rules By Account
Debits
Credits + -
ASSETS - +
LIABILITIES - +
EQUITY: - +
CAPITAL CONTRIBUTIONS - +
RETAINED EARNINGS - +
NET INCOME - +
REVENUES & GAINS + -
EXPENSES & LOSSES + -
DIVIDENDS

6. CAPITAL CONTRIBUTIONS
ASSETS =
LIABILITIES + + - -
EQUITY + - + -
Gross Assets
Contra Assets
CAPITAL CONTRIBUTIONS + + - - + -
RETAINED EARNINGS + - +
This is what I call the “super expanded accounting equation” because it includes the rules for all account categories in my introduction to accounting course. -
NET INCOME
DIVIDENDS - + + -
It includes contra assets such as:
Allowance for bad debts Accumulated depreciation - -
REVENUES
EXPENSES
And contra revenues such as:
Sales discounts Sales returns and allowances
Contra Revenues - + + - + -

7. INCREASE & DECREASE Rules By Account
Debits
Credits
INCREASE & DECREASE Rules By Account + -
ASSETS - +
CONTRA ASSETS - +
LIABILITIES - +
EQUITY: - +
CAPITAL CONTRIBUTIONS - +
RETAINED EARNINGS - +
NET INCOME - +
REVENUES & GAINS + -
EXPENSES & LOSSES + -
CONTRA REVENUES + -
DIVIDENDS

8. Common Asset Accounts
Debits
Credits
Cash + -
Accounts receivable
Inventory
Office supplies
Prepaid insurance
Prepaid rent
Notes receivable (5 year)
Warehouse equipment
Land
Patents
Trademarks
Copyrights
Goodwill

9. Common Contra Asset Accounts
Debits
Credits
Allowance for doubtful accounts - +
Accumulated depreciation

10. Common Liability Accounts
Debits
Credits
Accounts payable - +
Salaries and wages payable
Income taxes payable
Dividends payable
Interest payable
Unearned sales revenue
Utilities payable
Notes payable
Mortgages payable
Bonds payable

11. Common Equity Accounts Debits Credits Kevin Kimball, Capital - +
Teresa Kimball, Capital
Common Stock
Preferred Stock
Retained Earnings
Capital distributions
Withdrawals
Dividends
Revenues
Gains
Expenses
Losses
These permanent equity accounts keep a permanent running total of the company’s total equity and are not closed.
Appear on the Balance Sheet
Appear on the Stmt of Owners’ Equity or Stmt of Shareholders’ Equity
These nominal equity accounts are only temporarily used during a given period and are closed into retained earnings.
Appear
on the Income Statement

12. Common Revenue and Gain Accounts
Debits
Credits
Sales Revenue - +
Rent Revenue
Interest Revenue
Gain on Sale

13. Common Expense and Loss Accounts Debits Credits Cost of Goods Sold + -
Advertising Expense
Delivery Expense
Postage Expense
Salaries & Wages Expense
Rent Expense
Utilities Expense
Office Supplies Expense
Bad Debt Expense
Insurance Expense
Interest Expense
Income Tax Expense
Loss on Sale

14. Introduction to Accounting Preparing for a User’s Perspective
What are debits and credits?
Debits and Credits Trainer
By Kevin C. Kimball, CPA
with support from
Free Jan. 2014
Available on the Google Play Store