2-1

CHAPTER 2

Recording Business
Transactions

Alternative Approach #3
A L O R E Acronym
Debit Credit

A (ssets)

L (iabilities)

O (wners' equity) -

R (evenues)

E (xpenses)

2-2

Debits and Credits

Question 1
Which of the following accounts would
normally be expected to have a debit
(or left-side) balance?
a.
b.
c.
d.

Accounts Payable
Buildings
Interest Revenue
Capital Stock

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Debits and Credits

2-4

Solution 1
Which of the following accounts would
normally be expected to have a debit
(or left-side) balance?
a.
b.
c.
d.

Accounts Payable
Buildings
Interest Revenue
Capital Stock

BUILDINGS
BUILDINGSis
is an
anasset
asset
account
accountand
andnormally
normally
has
hasaaDEBIT
DEBITbalance.
balance.
The
Theother
other three
three
accounts
accounts normally
normally
have
haveCREDIT
CREDITbalances.
balances.

Debits and Credits

Question 2
Which of the following accounts would
normally be expected to have a credit
(or right-side) balance?
a.
b.
c.
d.

Accounts Receivable
Salary Expense
Salary Payable
Land

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Debits and Credits

Solution 2
Which of the following accounts would
normally be expected to have a credit
(or right-side) balance?
a.
b.
c.
d.

Accounts Receivable
Salary Expense
Salary Payable
Land

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Debits and Credits

Solution 2
Which of the following accounts would
normally be expected to have a credit
(or right-side) balance?
SALARY
SALARYPAYABLE
PAYABLEis
isaa
liability
account
and
liability
account
and
Accounts Receivable
normally
normallyhas
hasaaCREDIT
CREDIT
Salary Expense balance.
balance.

a.
b.
c. Salary Payable
d. Land

The
Theother
otherthree
threeaccounts
accounts
normally
normallyhave
haveDEBIT
DEBIT
balances.
balances.

2-7

Debits and Credits

Example
If the balance in Accounts Receivable
(an asset) is $750 (debit side balance),
Accounts Receivable

750

2-8

Debits and Credits

Example
If the balance in Accounts Receivable
(an asset) is $750 (debit side balance),
Accounts Receivable

750
What would we do to increase the account by
$200?

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Debits and Credits

Example
If the balance in Accounts Receivable
(an asset) is $750 (debit side balance),
Accounts Receivable

750
200
What would we do to increase the account by
$200?

2-10

Debits and Credits

Example
If the balance in Accounts Receivable
(an asset) is $750 (debit side balance),
Accounts Receivable

750
200
What would we do to increase the account by
$200?
What would we do to decrease the account by
$350?

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Debits and Credits

Example
If the balance in Accounts Receivable
(an asset) is $750 (debit side balance),
Accounts Receivable

750
200

350

What would we do to increase the account by

$200?
What would we do to decrease the account by
$350?

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Debits and Credits

Example

Accounts Receivable

750
200

350

Note the lack of $. It is understood that

the yardstick is dollars.
It is not money!

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2-14

Balancing The T-Account

To get the balance of the T-Account . . .
Accounts Receivable

750
200

350

. . . net the totals on the two sides against

each other. Place the residual amount on
the appropriate side.

2-15

Balancing The T-Account

To get the balance of the T-Account . . .
Accounts Receivable

750
200
600

350

. . . net the totals on the two sides against

each other. Place the residual amount on
the appropriate side.

2-16

Balancing The T-Account

To get the balance of the T-Account . . .
Accounts Receivable

750
350
200
600
(Can use the either the approach above to
show the balance, the texts approach or
Rices approach)

Three Alternative Approaches to

Balancing The T-Account

2-17

Using the example at the bottom of p. 57

Approach on
Previous slide

Text Approach

Rices Approach

Cash

Cash

Cash

(1) 10,000 (4) 600 (1) 10,000 (4) 600 (1) 10,000 (4) 600
(2) 5,000 (5) 2,000 (2) 5,000 (5) 2,000 (2) 5,000 (5) 2,000
(3) 1,000
(3) 1,000
(3) 1,000
16,000
2,600
13,400

bal

13,400

13,400

ALL 3 are O.K.!

Debits and Credits

Question 3
The Cash account has three entries: a
debit for $1,200, a credit for $300, and
another credit for $400. What is the
balance in the Cash account?
a.
b.
c.
d.

$ 1,900 Debit.
$ 500 Credit.
$ 700 Credit.
$ 500 Debit.

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Debits and Credits

Question 3
The Cash account has three entries: a
debit for $1,200, a credit for $300, and
another credit for $400. What is the
balance in the Cash account?
a.
b.
c.
d.

$ 1,900 Debit.
$ 500 Credit.
$ 700 Credit.
$ 500 Debit.

Cash

$1,200
$ 500

$ 300
$ 400

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