Tanauan Institute, Inc.

– Senior High School Department

TANAUAN INSTITUTE, INC.

Senior High School Department

Modified Learning Scheme : Workbook

Fundamentals of Accountancy, Business and Management 1
1st Semester, S.Y. 2020-2021
Subject Teacher: ____________________

Name: ___________________________________ Score: ________________

Section: __________________________________ Date: _________________

Debit and Credit Rule Session 6-7

At the end of the lesson, the student should be able to:

1. Recite the rules of debit and credit, and apply these to simple
cases.
2. Enumerate the ten steps in the accounting cycle.

Perseverance. The attitude that no matter how difficult an issue or a

problem maybe one will still continue until he or she succeeds. The
lesson that will be discussed involves analytical thinking which will
require the perseverance of the students in order to learn it.

Subject: Fundamentals of ABM 1 Topic: Debit and Credit Rule Session: 6-7
Page | 1
 Tanauan Institute, Inc. – Senior High School Department

Business transactions cause increases and decreases in the accounting values.

To record these changes, a business firm makes use of accounts. An account is
an accounting device use to summarize the increases and decreases in the
asset, liability, and proprietorship of the business.

A simple form of account looks like a big letter “ T ”, thus it is called a

“T-account”. It has a left side and right side. It appears as follows:

Account Title

Left side or Right side or

Debit side Credit side

The left side of a T-account is the debit (abbreviated as Dr.) side and the right
side is the credit (abbreviated as Cr.) side. An account is debited when an
amount is entered on the left side of the account and credited when an
amount is entered on the right side. The abbreviations for debit and credit are
Dr. (from the Latin debere) and Cr. (from the Latin credere, respectively.

The Nature of Debit and Credit

Accounting is based on a double-entry system which means that the dual

effects of a business transaction are recorded. A debit side entry must have a
corresponding credit side entry. For every transaction, there must be one or
more accounts debited and one or more accounts credited. Each transaction
affects at least two accounts. The total debits for a transaction must always
equal the total credits.

“To debit” is to enter the amount on the left side of a T-account and “to credit”
is to enter on the right side of a T-account.

“To debit” and “to credit”, however should not be confused with “to increase”
and “to decrease”. To debit and to credit may mean either a decrease or an
increase depending on the accounts affected.

Debit and Credit Effects for Component Accounts

The account type determines how increases or decreases in it are recorded.

Increases in assets are recorded as debits (on the left the side of the account)
Subject: Fundamentals of ABM 1 Topic: Debit and Credit Rule Session: 6-7
Page | 2
 Tanauan Institute, Inc. – Senior High School Department

while decreases is assets are recorded as credits (on the right side). Conversely,
increases in liabilities and owner’s equity are recorded by credits and decreases
are entered as debits.

The rules of debit and credit for income and expense accounts are based on
the relationship of these accounts to owner’s equity. Income increases owner’s
equity and expense decreases owner’s equity. Hence, increases in income are
recorded as credits and decreases as debits. Increases in expenses are
recorded as debits and decreases as credits. These are the rules of debit and
credit.

The following summarizes the rules:

Assets Liabilities Equity

Dr. for Cr. for Dr. for Cr. for Dr. for Cr. for
Increases Decreases Decreases Increases Decreases Increases

Expenses Income/Revenue

Dr. for Cr. for Dr. for Cr. for

Increases Decreases Decreases Increases

Here’s another way of summarizing the rule:

Debit to: Credit to:

1. Increase Assets 1. Decrease Assets

2. Decrease Liabilities 2. Increase Liabilities
3. Decrease Equity due to: 3. Increase Equity due to:
a. withdrawal of assets a. investment of the owner
by the owner
b. increase in expenses b. decrease in expenses
and losses and losses
c. decrease in income c. increase in income
4. Increase Expenses 4. Decrease Expenses
5. Decrease Income 5. Increase Income

Subject: Fundamentals of ABM 1 Topic: Debit and Credit Rule Session: 6-7
Page | 3
 Tanauan Institute, Inc. – Senior High School Department

Debit and Credit Rule Application in Transactions

Transaction 1
Nov.1 – M. Rogers opened a catering service he called “McRogers”. He
invested P32,000 cash and equipment P85,000.
Debit Credit
Cash P32,000 M. Rogers, Capital P117,000
Equipment 85,000

Analysis:
1. The assets and equity are affected.
2. The owner put in the business cash and equipment, thus increasing the
assets and increasing equity.

Transaction 2
Nov.3 – He purchased kitchen utensils, tools, and additional equipment
from Kent Trading on credit, P20,000.
Debit Credit
Tools and equipment P20,000 Accounts Payable P20,000

Analysis:
1. The assets and liabilities are affected.
2. Assets, tools and equipment, are bought by the owner on credit basis,
thus increasing the assets and liabilities of the business.

Transaction 3
Nov. 7 – Paid for advertisement announcing the opening of his business,
P1,500.
Debit Credit
Advertising Expense P1,500 Cash P1,500

Analysis:
1. The asset and equity are affected.
2. The equity is decreased due to the advertising expense incurred and the
asset, cash, is decreased for payment of the said expense.

Subject: Fundamentals of ABM 1 Topic: Debit and Credit Rule Session: 6-7
Page | 4
 Tanauan Institute, Inc. – Senior High School Department

Transaction 4
Nov. 9 – Paid one-half of the account due to Kent Trading.
Debit Credit
Accounts Payable P10,000 Cash P10,000

Analysis:
1. Assets and liabilities are affected.
2. There is a decrease in liability due to the partial payment of the account
to Kent Trading and also a decrease in asset, cash for the amount paid for
this liability.

Transaction 5
Nov. 11 – Rendered a catering service to N. San Juan for his son’s
wedding and received cash of P52,000.
Debit Credit
Cash P52,000 Service Income P52,000

Analysis:
1. The asset and equity are affected.
2. Cash is received from the customer, thus increasing the asset of the
business and the equity is increased due to the revenue derived from
rendering of services.

Transaction 6
Nov. 13 – Paid for food supplies used in San Juan’s wedding party P25,000.
Debit Credit
Food Supplies P25,000 Cash P25,000

Analysis:
1. The asset and the equity are affected.
2. The owner’s equity is decreased due to the cost of food supplies and the
asset – cash – is also decreased for payment of supplies.

Transaction 7

Subject: Fundamentals of ABM 1 Topic: Debit and Credit Rule Session: 6-7
Page | 5
 Tanauan Institute, Inc. – Senior High School Department

Nov. 17 – Billed J. Estrada, P25,000 for catering service rendered in his

birthday party.
Debit Credit
Accounts Receivable P25,000 Service Income P25,000

Analysis:
1. The asset and owner’s equity are affected.
2. Owner’s equity is increased due to the revenue from services rendered
and asset is increased for the claims from the customer for this services.

Transaction 8
Nov. 20 – Paid the salary of the assistant cook P5,000.
Debit Credit
Salary Expense P5,000 Cash P5,000

Analysis:
1. The asset and owner’s equity are affected.
2. The owner’s equity is decreased due to the salary expense incurred by the
business and the asset – cash – is decreased for payment of such
expense.

Transaction 9
Nov. 22 – Received from J. Estrada the amount of P10,000 as partial
payment of the account due from him.
Debit Credit
Cash P10,000 Accounts Receivable P5,000

Analysis:
1. Only assets are affected. Liabilities and owner’s equity are not affected.
2. Cash is received from a customer to apply to his account, thus increasing
the asset, cash, and decreasing the receivable from the said customer.

Transaction 10
Nov. 25 – Withdrew P5,000 for his personal use.

Subject: Fundamentals of ABM 1 Topic: Debit and Credit Rule Session: 6-7
Page | 6
 Tanauan Institute, Inc. – Senior High School Department

Debit Credit
M. Rogers, Withdrawal P5,000 Cash P5,000

Analysis:
1. The asset and owner’s equity are affected.
2. The owner’s equity is decreased due to the withdrawal made by the
owner. The asset – cash – is decreased for such withdrawal made.

Normal Balance of an Account

The normal balance of any account refers to the side of the account – debit or
credit – where increases are recorded. Asset, owner’s withdrawal and expense
account normally have debit balances; liabilities, owner’s equity and income
accounts normally have credit balances. This result occurs because increases in
an account are usually greater than or equal to decreases.

Increases Recorded by Normal balance

Accounts Category Debit Credit Debit Credit
Assets / /
Liabilities / /
Owner’s Equity:
Owner’s Capital / /
Withdrawals / /
Income / /
Expenses / /

The Accounting Cycle

The recurring steps performed each accounting period, starting with analysing
transactions and continuing through the post-closing trial balance and reversing
entries.

The ten steps in the accounting cycle are the following:

1. Analysis of business transactions – business or source documents are

analyzed by the accountant as to impact of a given transaction on the
asset, liability, equity, revenue, and expense accounts.

Subject: Fundamentals of ABM 1 Topic: Debit and Credit Rule Session: 6-7
Page | 7
 Tanauan Institute, Inc. – Senior High School Department

2. Journalize – records transactions in chronological order in the journal.

3. Posting – transfer debits and credits from the journal to the ledger.
4. Prepare unadjusted trial balance – summarize unadjusted ledger
accounts and amounts.
5. Prepare and post the adjusting entries – record adjustments to bring
account balances up to date.
6. Prepare adjusted trial balance – summarize adjusted ledger accounts and
amounts.
7. Prepare financial statements – use the adjusted trial balance to prepare
the basic financial statements.
8. Prepare and post closing entries – journalize and post to close all
temporary or nominal accounts.
9. Prepare post-closing trial balance – test clerical accuracy of the closing
procedures.
10. Prepare the reversing entries (optional) – reverse certain adjustment in the
next accounting period which includes accrual revenue, accrual
expense, deferred, unearned income (revenue method) and prepaid
expense (expense method).

1. What is the debit and credit rule?

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
_____________________________________________________.

2. Debit means increase and credit means decrease. Is this statement

always true? Explain.

Subject: Fundamentals of ABM 1 Topic: Debit and Credit Rule Session: 6-7
Page | 8
 Tanauan Institute, Inc. – Senior High School Department

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
_____________________________________________________.

3. What does the Normal balance of an account refer to?

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
_____________________________________________________.

4. Can an accountant adjust or make shortcuts between the steps in the

accounting cycle? Why yes or why not? Briefly explain.

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
_____________________________________________________.

Directions: Indicate the normal balance of the following accounts

by writing DEBIT or CREDIT on the blanks provided.

Accounts Normal Balance

Example: Unearned Revenue/Income CREDIT
1. Office Equipment DEBIT

2. Land DEBIT

3. Prepaid Rent

Subject: Fundamentals of ABM 1 Topic: Debit and Credit Rule Session: 6-7
Page | 9
 Tanauan Institute, Inc. – Senior High School Department

4. Cash DEBIT

5. Accounts Payable CREDIT

6. Note Payable CREDIT

7. Withdrawal DEBIT

8. Capital CREDIT

9. Salaries Expense DEBIT

10. Advertising Expense DEBIT

11. Interest Receivable DEBIT

12. Office Furniture DEBIT

13. Rent Expense DEBIT

14. Interest Payable CREDIT

15. Service Income CREDIT

16. Prepaid Insurance DEBIT

17. Insurance Expense

18. Accounts Receivable DEBIT

19. Depreciation Expense DEBIT

20. Building DEBIT

Direction: For each transaction, indicate the account to be debited and

credited by placing the letter representing the account in the appropriate
column.

Account Title

A. Cash F. Office Equipment K. Withdrawals

B. Short-term Investment G. Office Furniture & Fixtures L. Service Income
C. Accounts Receivable H. Accounts Payable M. Salaries Expenses
D. Notes Receivable I. Notes Payable N. Rent Expenses
Subject: Fundamentals of ABM 1 Topic: Debit and Credit Rule Session: 6-7
Page | 10
 Tanauan Institute, Inc. – Senior High School Department

E. Office Supplies J. Capital O. Bank Loan Payable

TRANSACTION DEBIT CREDIT

Ex. Funds were raised thru bank borrowings. A H
1. Additional cash investment by the owner.
2. Purchase Equipment on account.
3. Purchase of supplies for cash.
4. Rendered services for cash.
5. Rendered services on account.
6. Collected cash for services rendered on account.
7. Withdrew cash for personal use.
8. Purchased office furniture.
9. Paid the account in full related to no. 2 transaction.
10. Acquired a brand new equipment and signed a
promissory note.
11. Paid salaries to various employees.
12. Paid rental expense for the month.
13. Acquired short-term investment for cash.
14. Rendered services on account and allow the customers to
sign promissory note.
15. Purchased a computer for office used.

Directions: Record the transaction using T-accounts. Use the debit

and credit rule as a guide in recording the amount of the accounts to the
correct side of the T-Account.
With the aid of T-accounts, records the transactions listed below.
Use the following accounts: Cash; Accounts Receivable; Office Furniture;
Office Equipment; Accounts Payable; Resultay, Capital; Resultay,
Withdrawals; Service Income; Salaries Expense; Rent Expense; Utilities
Expense and Miscellaneous Expense.
Write your answer in a separate piece of paper.

Example: Ex.1 Collected P2,000 from clients on account.

Subject: Fundamentals of ABM 1 Topic: Debit and Credit Rule Session: 6-7
Page | 11
 Tanauan Institute, Inc. – Senior High School Department

Debit Credit
Ex.1 Cash 2,000 Accounts Receivable 2,000

Christine Resultay is an experienced events planner. The transactions and

accounts for the business are as follows:
a. Invested P100,000 in cash to start her own business.
b. Paid P5,000 for one month’s rent.
c. Bought office furniture for P15,000 in cash.
d. Received delivery of laptop computer, P54,000. Paid 50% down, balance
due in 30 days.
e. Performed services for P12,000 in cash.
f. Performed services for P10,800 on credit.
g. Acquired a fax machine for P7,500; paid P3,000 in cash, balance due in
10 days.
h. Received P5,400 from clients on account.
i. Paid P10,000 for salaries.
j. Settled in full the P4,500 balance for the fax machine.
k. Received P7,000 in cash for services performed.
l. Performed services for P12,000 on credit.
m. Paid P1,350 for the monthly telephone bill.
n. Paid P2,400 for the electric and water bills.
o. Resultay withdrew P7,000 in cash for personal expenses.

How can you relate the double-sided effect of a transaction to the

T-account with life’s decisions?

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

Subject: Fundamentals of ABM 1 Topic: Debit and Credit Rule Session: 6-7
Page | 12
 Tanauan Institute, Inc. – Senior High School Department

Ballada, Win. 2017. Fundamentals of Accountancy Business &

Management 1 Made Easy. Manila, Philippines. DomDane
Publishers.

Baltazar, Willaim B. 2014. Fundamentals of Accounting. Manila,

Philipines. Mindshapers Co., Inc.

Florendo, Joselito G. et.al. 2016. Fundamentals of Accountancy,

Business, and Management 1. Quezon City, Manila. Commission
on Higher Education.

Subject: Fundamentals of ABM 1 Topic: Debit and Credit Rule Session: 6-7
Page | 13