TLE – 10 FUNDAMENTALS OF ACCOUNTING

NAME: _____________________________________________ YEAR LEVEL: __________________

DEBIT comes from the CREDIT comes from the

Latin word debere Latin word credere which
which means “to owe”, means “to entrust” or,
“to receive” or, ” value ” value given”
received”

EFFECTS IN EFFECTS IN
ELEMENTS ACCOUNT TITLES DEBIT CREDIT

ASSETS Cash, Supplies, Account Receivable, Note Receivable, Withdrawing, increase decrease
Building, Land, Equipment, Furniture & Fixture
LIABILITIES Account Payable, Note Payable, Mortgage Loan Payable, Rent decrease increase
payable, Water payable, Bank Loan, etc.
CAPITAL Owner’s Equity decrease increase
INCOME/ Bank Interest Income, Service Revenue, Professional Income, Sales, decrease increase
REVENUE
EXPENSES Transportation Expense, Communication Expense, Supplies Expense, increase decrease
Electricity Expense, Salaries Expense

EXPLAINATIONS:
1. The normal balance of an ASSETS and EXPENSES, including the WITHDRAWING is DEBIT.
2. The normal balance of LIABILITIES, CAPITAL, INCOME or REVENUE is CREDIT.
3. The effect of the value of an ASSETS and EXPENSES, including the WITHDRAWING, if it is recorded on the
DEBIT side increase, otherwise it will decrease on the CREDIT side.
 4. The effect of the value of a LIABILITIES, CAPITAL, INCOME or REVENUE, if is it recorded on the CREDIT
side increase, otherwise it will decrease on the DEBIT side.
5. All value received must be recorded on the DEBIT side of an account.
6. All value being parted with must be recorded on the CREDIT side of an account.
7. All business transactions must be recorded EQUAL, it means that if there is value received, there is
always a value being parted with, or if there is an entry in debit side, there must be a value on the credit
side.

ANALYZING PROCESS:

1. Mr. M made an initial investment of P 500,000 to open up his new photo studio business.

DEBIT CREDIT
Value Received – cash of 500,000 Value Parted – investment security of the owner of 500,00
Account Title is CASH Account Title is CAPITAL
Cash is a current ASSET Capital is an OWNER’S EQUITY
There is an increase in value of cash There is an increase in value of capital

2. Purchase tables and chairs for the business on account.

DEBIT
Value Received are tables & chairs
Account Title is FURNITURE & FIXTURE
Furniture & Fixture is a Non-current ASSET
There is an increase in value of Furniture & Fix
CREDIT
Value being Parted with is promise to pay. (on account)
Account Title is ACCOUNT PAYABLE
Account Payable is a current LIABILITY
There is an increase in value of account payable

3. Rendered photo-shot service to a customer.

DEBIT
Value Received is an order promise by a customer
Account Title is ACCOUNT RECEIVABLE
Account Receivable is a current ASSET
There is an increase in value of Account Receivable
CREDIT
Value being Parted is the photo-shot service to the customer
Account title is SERVICE REVENUE
Service Revenue is REVENUE
There is an increase in value of the service revenue

4. Paid water bill.

DEBIT CREDIT
Value Received upon payment is the Official Receipt Value being Parted is the monetary value of water bill
Account Title is WATER EXPENSE Account Title is CASH
 Water Expense is an EXPENSE CASH is a current ASSET
There is an increase in value of the water expense There is a decrease in value of cash

5. Paid transaction made in number 2.

DEBIT CREDIT
Value Received is the promise to pay Value being parted is the monetary value of tables & chairs
Account title is ACCOUNT PAYABLE Account title is CASH
Account Payable is a current LIABILITY CASH is a current ASSET
The value of AP decreases The value of cash decreases

6. Collect a sum of money from customer as to transaction number 3.

DEBIT CREDIT
Value Received is the monetary value of the service Value Parted is the promise to pay of the customer
Account Title is CASH Account title is Account Receivable
CASH is a current ASSET Account Receivable is a current ASSET
There is an increase in the value of Cash There is a decrease in value of Account Receivable

7. Withdraw cash of 5,000 for personal used.

DEBIT CREDIT
Value Received is the monetary value from withdrawing Value Parted is monetary value which is cash
Account Title is WITHDRAWING Account Title is CASH
Withdrawing is a contra CAPITAL CASH is a current ASSET
The value of Withdrawing is increase The value of value cash decrease

EXERCISES: Supply the table below.

1. Purchase supplies.

RULES
VALUE DESCRIPTION
 ACCOUNT TITLE
ELEMENT
EFFECTS

2. Made an additional investment.

RULES
VALUE DESCRIPTION
ACCOUNT TITLE
ELEMENT
EFFECTS

3. Paid salaries to employees.

RULES
VALUE DESCRIPTION
ACCOUNT TITLE
ELEMENT
EFFECTS

4. Collect cash from the customer for the service being rendered.

RULES
VALUE DESCRIPTION
ACCOUNT TITLE
ELEMENT
EFFECTS

5. Purchase computer equipment on account.

RULES
VALUE DESCRIPTION
ACCOUNT TITLE
ELEMENT
EFFECTS