ISH3F3 Accounting System and Finance Management

Recording
Process:
Account, Debit, Credit

Muhardi Saputra.
Information System Department
2019
Learning Objective

Describe how accounts, debits, and credits are used to record

1 business transactions..
Steps in the Recording Process

Analyze each transaction Enter transaction in a journal Transfer journal information to

ledger accounts

Business documents, such as a sales slip, a check, or a bill,

provide evidence of the transaction.
Account

⚫ An account is an individual accounting record of increases

and decreases in a specific asset, liability, or owner’s equity
item.
⚫ A company will have separate accounts for such items as
cash, salaries expense, accounts payable, and so on.
Account
◆ Record of increases and decreases in a
The specific asset, liability, owners’ equity,
Account revenue, or expense item.
◆ Debit = “Left”
◆ Credit = “Right”

An account can be
illustrated in a T-
account form.
Debit and Credit

⚫ The terms debit and credit mean left and right, respectively.
⚫ The act of entering an amount on the left side of an account is
called debiting the account and making an entry on the right
side is crediting the account.
⚫ When the debit amounts exceed the credits, an account has a
debit balance; when the reverse is true, the account has a
credit balance.
Debiting An Account

Cash
15,000

Example: The owner makes an initial investment of $15,000 to

start the business. Cash is debited and the owner’s
Capital account is credited.
Crediting An Account

Cash
7,000

Example: Monthly rent of $7,000 is paid. Cash is credited

and Rent Expense is debited.
Debiting and Crediting
an Account

Cash
15,000 7,000
8,000

Example: Cash is debited for $15,000 and credited for

$7,000, leaving a debit balance of $8,000.
Double-entry System

⚫ In a double-entry system, equal debits and credits

are made in the accounts for each transaction.
⚫ Thus, the total debits will always equal the total
credits and the accounting equation will always stay
in balance.

Assets Liabilities Equity

Normal Balance

Every account classification has a normal balance, whether it is a

debit or credit.
Normal Balance

Assets ◆ Assets - Debits should exceed

Debit / Dr. Credit / Cr.
credits.

Normal Balance
◆ Liabilities – Credits should
Chapter
exceed debits.
3-23

◆ Normal balance is on the

Liabilities
Debit / Dr. Credit / Cr.
increase side.

Normal Balance

Chapter
3-24
Debit and Credit Balance

If the sum of Debit entries are greater than the sum of Credit
entries, the account will have a debit balance.

Account Name
Debit / Dr. Credit / Cr.

Transaction #1 $10,000 $3,000 Transaction #2

Transaction #3 8,000

Balance $15,000
Debit and Credit

If the sum of Credit entries are greater than the sum of Debit
entries, the account will have a credit balance.

Account Name
Debit / Dr. Credit / Cr.

Transaction #1 $10,000 $3,000 Transaction #2

8,000 Transaction #3

Balance $1,000
Tabular Summary Compared
to Account Form
Tabular Summary Account Form
Cash Cash
$15,000 Debit Credit
- 7,000 15,000 7,000
1,200 1,200 600
1,500 1,500 900
- 600 600 200
- 900 250
- 200 1,300
- 250
600
- 1,300
Balance 8,050
$8,050
Expanded Basic Equation And
Debit/Credit Rules And Effects

Assets = Liabilities + Owner’s Equity

Owner’s Owner’s
Assets = Liabilities + -
Capital Drawings
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
+ - - + - + + -

+ Revenues - Expenses

Dr. Cr. Dr. Cr.

- + + -
Chart of Accounts

• Most companies have a chart of accounts. This chart lists the

accounts and the account numbers that identify their location
in the ledger.
• The numbering system that identifies the accounts usually
starts with the balance sheet accounts and follows with the
income statement accounts
Chart of Accounts
Chart of Accounts

• Accounts 101–199 indicate asset accounts;

• 200–299 indicate liabilities;
• 301–350 indicate owner’s equity accounts;
• 400–499, revenues;
• 601–799, expenses;
• 800–899, other revenues; and
• 900–999, other expenses.
Accounting