CHAPTER 2 –

INTERACTIVE LECTURE
NOTES
truongthihanhdung@uel.edu.vn
 Key questions for today
1. What is “Debit and Credit” rules?
2. T – account form of accounts to describe debit and credit rules
3. Apply Debit & Credit rules + Accounting equation + chart of accounts
to book typical entries
4. Accounting cycle
5. General Journal, General Ledgers, Trial Balance?  what, why
study, how
• Illustration by textbook case
Debit – credit rules
• People name this rule (jargon/professional key term) for
identifying the increases and decreases of accounts.

INSTEAD OF SAYING INCREASES OR DECREASES

FOR ACCOUNTS, IN THIS CHAPTER U SAY: DEBIT OR
CREDIT TO ACCOUNTS
The accounting cycle
1 2 3

You need:
- Chart of accounts
- Accounting equation These reports are the results of
- Debit and credit rules financial accounting, also what
you serve the external users.

4
DEBIT & CREDIT RULES
TYPES INCREASED DECREASED NORMAL BALANCES
BY BY
Assets DEBIT CREDIT DEBIT
Liabilities CREDIT DEBIT CREDIT
Equity CREDIT DEBIT CREDIT
Revenues CREDIT DEBIT CREDIT (before closing)/
NONE (to the next period)
Expenses DEBIT CREDIT DEBIT (before closing)/
NONE (to the next period)
DEBIT & CREDIT RULES
TYPES INCREASED DECREASED NORMAL BALANCES
BY BY
Contra – CREDIT DEBIT CREDIT
Assets
Contra – DEBIT CREDIT DEBIT
Liabilities
Contra – DEBIT CREDIT DEBIT
Equity
Contra – DEBIT CREDIT DEBIT (before closing)/
Revenues NONE (to the next period)
Contra – CREDIT DEBIT CREDIT (before closing)/
Expenses NONE (to the next period)
SAMPLE
TYPES
OF CONTRA-ACCOUNTS
EXAMPLES
Contra – Assets  Accumulated depreciation
 Accumulated amortization
 Accumulated depletion
 Allowance for doubtful accounts
Contra – Liabilities  Discount on notes payable
 Discount on bonds payable
Contra – Equity  Treasury stock/shares
 Drawings/Withdrawals
Contra – Revenues  Sales returns and allowances
 Sales discounts
Contra – Expenses  Purchases returns and allowances
 Purchases discounts
T-ACCOUNTS MOVEMENTS
ASSETS ACCOUNTS LIABILITIES ACCOUNTS EQUITY ACCOUNTS
Opening balances Opening balances Opening balances

Ending balances Ending balances Ending balances

CONTRA ASSETS ACCOUNTS CONTRA LIABILITIES ACCOUNTS CONTRA EQUITY ACCOUNTS

Opening balances Opening balances Opening balances

Opening balances Opening balances Opening balances

T-ACCOUNTS MOVEMENTS
REVENUES ACCOUNTS EXPENSES ACCOUNTS

CONTRA REVENUES ACCOUNTS CONTRA EXPENSES ACCOUNTS

T-ACCOUNTS IN UK SYSTEM

CLOSING BALANCES = 6,500+6,500 = 13,000

T-ACCOUNTS IN UK SYSTEM

CLOSING BALANCE = -1,600  BANK OVERDRAFT

ACCOUNT
T-ACCOUNTS IN UK SYSTEM

CLOSING BALANCE = 700  BANK OVERDRAFT ACCOUNT

T-ACCOUNTS IN UK SYSTEM
The accounting cycle
1 2 3

Case 1: In real practice: Case 2: In university:

You need: You need:
- General journals - General journals/ booking
- General ledgers for each simple entries
accounts - T – accounts for quick and
simple cases 14
General journal, General ledgers, Trial balance
• Definitions
- General journal: is the place/the book where we
book/enter the entries/transactions.
- General ledgers: are the books when we transfer
numbers in journal to. Each account has their own ledger.
We use ledgers to find balances of accounts.
- Note: if we don’t want to use ledgers, we have to use T
accounts (next week’s agenda).
• Trial balance: is the book/report to show all the balances
of all the accounts in the business.
• Feature of TB: Total debits = Total credits.
• Practice:
• Note: The number of ledgers is equal to the number of
accounts in general journal.
• How many accounts appear in problem 2.2A?  9
accounts - we have to open 9 ledgers for each
accounts.
• PR on Ledger GJ1 means: We transfer/carry the entry in
the general journal page 1.
• PR on Journal 101 means: We have already transferred
the amount of Cash to Cash Ledger.
Trial balance
• Simply transfer all the final/ending balances of all
accounts to trial balance.