LESSON 6: RULES OF DEBIT AND CREDIT

Analyzing and recording transactions using the accounting equation is useful in explaining a
basic understanding of how transactions affect the business. One way on how to analyze transactions
is by using the T-account following the principles of debit and credit.
The basis of the rules of debits and credits is how the effects of
GATEWAY INTEGRATED SCHOOL the transaction on the accounting elements are treated. Changes in
OF SCIENCE AND TECHNOLOGY GEN. TRIAS CAMPUS assets, liabilities, owner’s equity, revenue, and expenses are shown
Sitio Tinungan Brgy. Manggahan Gen. Trias City Cavite either on the left or on the right side of an account. The left side of an
account is called the debit side and the right side is called the credit side.
To show the effects of debit and credit entries to an account, postings
Senior High School Department are made to T- Accounts. T-Account is a representation to separate debit
from credit in the form of “T”, whereas debit entry is put in the left while T – Account
credit entry is in the right side.
Module 6 When analyzing and solving transactions using the T-accounts, the accounting equation must

FUNDAMENTALS OF ACCOUNTANCY,
always be considered. The equation is as follows:
Assets = Liabilities + Owner’s Equity
BUSINESS, AND MANAGEMENT 1 This equation presents the resources controlled by the enterprise, the present obligations of
the enterprise, and the residual interest in the assets. The logic of debiting and crediting is related to
the accounting equation. Transactions may require additions to both sides (left and right sides),
subtractions from both sides (left and right sides), or an addition and subtraction on the same side (left
or right side), but in all cases the equality must be maintained (Ballada, 2019).
The recorded increase and decrease in the T-Account is
determined by the account type. If there is an increase in assets, you will
record it as debits (on the left side of the T-Account). If there is a decrease
in assets, you will record it as credits (on the right side). Debit is the
normal balance of the asset accounts.
Increases in liabilities are recorded on credits and decreases on debits. The same rule applies
with the owner’s equity accounts—increases are recorded on credits and decreases are on debits.

Prepared by:
MS. SHIRLY S. CAÑETE
Subject Teacher
__________________________________________________________
Name of Student
__________________________________________________________ For income and expense accounts, the rules of debits and credits are based on the relationship
Grade Level and Section of these accounts to owner’s equity. If there is an income, it will increase owner’s equity while if there
is an expense, it is considered as a decrease in owner’s equity. If there is an increase in income, it will
Date: ________________________

1|Fundamentals of Accountancy, Business, and Management 1

be recorded as credits and if there is an adjustment (decrease), it will be recorded as debits. Increases ASSET
in expenses are recorded as debits and decreases are as credits. Building
Debit (+) Credit (-)
₱12 350 000

Transaction 4. Payment of fire insurance premium. Matalino Dormitory took a fire insurance policy with
AntiPirena Insurance Corporation, which requires Matalino Dormitory to pay a premium of ₱6 000 every January 1
and July each premium for 6 months of fire insurance. Matalino Dormitory pays its first premium on January 2,
2015.
Rules of Debit and Credit ASSET = LIABILITY + EQUITY
Adapted from Basic Financial Accounting and Reporting, 21st Edition Cash Note Payable
Debit (+) Credit (-) Debit (-) Credit (+) Debit (-) Credit (+)
The illustration at the right summarizes the rules of
₱6 000
debit and credit. The side from which the account recorded its
increase is the normal account balance of the specific account.
The accounts which have a normal debit balance are asset, ASSET
owner’s withdrawal, and expense. The accounts which have a Prepaid Insurance
normal credit balance are liability, owner’s equity, and income Debit (+) Credit (-)
accounts. ₱6 000

For better understanding, the rules of debit and credit will be applied to Matalino Dormitory’s Transaction 5. Receipt of cash from dormers. It is January 5, 2015 and Matalino Dormitory is finally in business.
Matalino Dormitory received cash from its dormers in the amount of ₱60 000.
Transaction 1. Investment of Capitl. Mr. Telagaku invested ₱9, 000, 000 into the business on January 1, 2014. ASSET = LIABILITY + EQUITY
ASSET = LIABILITY + EQUITY Cash Refundable Deposits
Cash L. Telagaku, Capital Debit (+) Credit (-) Debit (-) Credit (+) Debit (-) Credit (+)
Debit (+) Credit (-) Debit (-) Credit (+) Debit (-) Credit (+) ₱60 000 ₱30 000
₱9,000,000 ₱9,000,000
Transaction 2. Payment of business permit fees. He pays a total of ₱1 200 evidenced by an official receipt from LIABILITY
the city hall. Unearned rent revenue
ASSET = LIABILITY + EQUITY Debit (-) Credit (+)
Cash L. Telegaku, Capital ₱30 000
Debit (+) Credit (-) Debit (-) Credit (+) Debit (-) Credit (+)
₱ 1, 200 ₱1, 200
Transaction 6. Receipt of cash for January rent. Matalino Dormitory received ₱30 000 from dormers in payment of
their January rent.
EXPENSE ASSET = LIABILITY + EQUITY
Organizational Expense Cash Refundable Deposits
Debit (+) Credit (-) Debit (+) Credit (-) Debit (-) Credit (+) Debit (-) Credit (+)
₱1 200 ₱30 000 ₱30 000
Transaction 3. Purchase of building. On June 2, 2014, Mr. Telagaku purchases a building costing ₱12.35 M. He
pays ₱5 M in cash and signs a note with a bank for the balance.
REVENUE
ASSET = LIABILITY + EQUITY
Rent Revenue
Cash Note Payable
Debit (-) Credit (+)
Debit (+) Credit (-) Debit (-) Credit (+) Debit (-) Credit (+)
₱30 000
₱5 000 000 ₱7 350 000

2|Fundamentals of Accountancy, Business, and Management 1

ACTIVITY 6 ASSESSMENT 6
A. Directions: TRUE or FALSE. Write True if the statement is correct and False if it is not. Write your
answers on a separate answer sheet. Directions: Record the transactions directly into the T-accounts. The transactions are independent from
1. The left side of the T-account is called the debit. one another. Write your answers on a separate sheet of paper.
2. Assets are increased by credit. Use the following account titles:
3. Assets is equal to the sum of liabilities and owner’s equity.
4. Increases in liability accounts are credited. Cash Mariano, Capital
5. Decreases in asset accounts are credited. Accounts Receivable Mariano, Withdrawals
6. An increase in rent expense is a debit by the rules of debit and credit. Supplies Laundry Revenues
7. Income is increased by credit. Prepaid Insurance Salaries Expense
8. Expenses are increased by debit Equipment Rent Expense
9. Decreases in liability accounts are debited. Furniture and Fixtures Utilities Expense
10. Assets, and expense accounts have debit account balances. Accounts Payable Miscellaneous Expense

B. Indicate in each independent case whether the account is to be debited (DR) or to be credited (CR) On January 1, 2021, Jose Mariano opened JM Laundry Shop. Throughout the month of January,
1. Increase in Accounts Payable the following transactions were completed:
2. Decrease in Capital account 1. He deposited P500, 000 in a bank account in the name of the business.
3. Increase in Service Revenue 2. He bought chairs and a table and paid them with P6, 300 cash.
4. Increase in Cash 3. He bought supplies on account from Mila Supply Inc. P2, 950.
5. Decrease in Accounts Receivable 4. He paid P6, 500 for the monthly rental of the place.
6. Increase in Salaries Expense 5. He bought washing machines and dryers from JLS Equipment Corp. amounting to P118, 500.
7. Increase in Office Equipment He paid them with P40, 000 in cash and the balance on account.
8. Increase in unpaid Salaries 6. He earned P21, 150 revenues on cash basis for the first half of the month.
9. Increase in Owner’s drawing account 7. He bought insurance for one year for P4, 500.
10. Increase in Interest Income 8. He paid accounts to JLS Equipment Corp. worth P8, 000.
9. He paid P6, 500 for the electric bill.
10. He earned P11, 750 revenues on cash basis for the second half of the month.
11. He paid P6, 500 for the salaries of the part-time assistants.
12. He withdrew P4, 000 cash for personal use.
13. He paid accounts to Mila Supply Inc. worth P2, 950.
14. He paid P3, 200 to the city government for sidewalk repair assessment.
15. He paid miscellaneous expenses for the month worth P1, 250.

3|Fundamentals of Accountancy, Business, and Management 1