Double-Entry System Basics

Module 1:
Foundations of Accounting

Duration:
45-60 minutes

Level:
Beginner to Diploma-Level

➛ Understand the double-entry system and why it is used.

➛ Differentiate between debits and credits.

➛ Apply debit and credit rules to real transactions.

➛ Record simple entries using T-accounts.

➛ Double-entry
➛ Debit
➛ Credit
➛ T-account
➛ Ledger
➛ Expense
➛ Revenue

Double-entry means every transaction has two sides

One debit
One credit

This helps keep the accounting equation balanced.

Key Memory Trick
DEAD CLIC

D E A D
Debits increase: Expenses, Assets, Drawings

C L I C
Credits increase: Liabilities, Income, Capital

A T-account looks like this


Debits go on the left, credits on the right.

Example 1
Owner invests $5,000

Example 2
Business buys supplies for $300 cash

Example 3
Business takes a loan of $2,000

Example 4
Business earns $400 from sales

Example 5
Business pays rent $200

Say whether each item increases with a debit or a credit

➛ Cash
➛ Accounts Payable
➛ Owner's Capital
➛ Rent Expense
➛ Sales Revenue

For each transaction, write which account is debited and which is credited.

➛ Bought furniture for $1,000 cash
➛ Received $300 from a customer
➛ Paid $150 electricity bill
➛ Took a bank loan of $4,000
➛ Owner withdrew $200 for personal use

Fill in the correct sides

Transaction
You pay $100 for office supplies in cash.

A new bakery started business. Here are three transactions from Day 1

➛ The owner invested $10,000 cash.
➛ The bakery bought an oven for $3,000 cash.
➛ The bakery made its first sale and received $150 cash.

Questions

Q. What is the debit and credit for each transaction?
Q. Which accounts increased?
Q. Which accounts decreased?

➛ What side is debit on?

➛ What side is credit on?

➛ Debits increase which two major account types?

➛ Credits increase which two major account types?

➛ True or False | Every transaction must have at least one debit and one credit.

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Answers ➧ Here

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Debit | Credit Masterclass ➧ Here