Debit | Credit Masterclass



Module 1:
Foundations of Accounting

Duration:
45-60 minutes

Level:
Beginner to Diploma-Level


Lesson Objectives

➛ Apply debit and credit rules to more complex transactions.

➛ Record multi-step journal entries.

➛ Identify account types quickly and accurately.

➛ Analyze how each transaction affects the accounting equation.

➛ Use T-accounts to track multiple related entries.


Key Vocabulary

➛ Compound Entry
➛ Contra Account
➛ Unearned Revenue
➛ Prepaid Expense
➛ Accrued Expense
➛ Accrued Revenue
➛ Normal Balance


Normal Balances Refresher

Account Type
Assets
Expenses
Drawings
Liabilities
Equity | Capital
Revenue

Normal Balance
Debit
Debit
Debit
Credit
Credit
Credit




Master Debit | Credit Rules

Debit increase
Assets
Expenses
Drawings

Credit increase
Liability
Capital
Revenue


Every transaction must balance.


Compound Entries | Advanced

Example
Business buys supplies worth $500
Pays $300 cash
Owes $200 on account

Entry

Debit
Supplies $500
Credit
Cash $300
Accounts Payable $200

Still balanced
500 = 300 + 200


Special Situations

1. Prepaid Expenses | Asset ➧ Expense later

Pay rent for 6 months in advance

Debit
Prepaid Rent

Credit
Cash



Special Situations

2. Unearned Revenue | Liability ➧ Revenue later

Customer pays in advance

Debit
Cash

Credit
Unearned Revenue



Special Situations

3. Accrued Expenses | Expense now, pay later

Salaries owed

Debit
Salaries Expense

Credit
Salaries Payable



Special Situations

4. Accrued Revenue | Earn now, receive later

Service done, customer hasn’t paid

Debit
Accounts Receivable

Credit
Service Revenue



T-Accounts for Multi-Step Transactions

Example
Paid salary of $400 cash.

Salaries Expense
Debit | 400



Cash
Credit | 400





Classify + Normal Balance

Identify the account type and its normal balance.

➛ Utilities Expense
➛ Unearned Revenue
➛ Equipment
➛ Accumulated Depreciation
➛ Accounts Receivable


Debit or Credit?

Does the transaction require a debit or credit?

➛ Paying a debt
➛ Recording earned revenue
➛ Receiving cash from a customer
➛ Paying an accrued expense
➛ Owner invests capital


Prepare the Journal Entry

Write the debit and credit for

➛ Paid $800 for 4 months’ rent in advance

➛ Performed services worth $300 on credit

➛ Received $500 cash from a customer as advance payment

➛ Borrowed $4,000 from the bank

➛ Purchased equipment for $2,000 on credit


Compound Entry

The business pays $1,000 for supplies

$600 cash
$400 on credit

Record the compound entry.


Mini Case Study

A small digital marketing agency recorded these transactions today

➛ The owner invested $20,000 cash.

➛ The agency completed a project and billed the client $2,500.

➛ Paid office rent of $1,200 cash.

➛ Received $1,000 from a customer as advance payment for future work.

Questions

➛ Write the journal entry for each transaction.
➛ Which accounts increased?
➛ Which accounts decreased?
➛ Identify any liabilities created.


Quick Quiz

➛ What is a compound journal entry?

➛ What is the normal balance of Unearned Revenue?

➛ What account is debited when revenue is earned?

➛ True or False | Prepaid expenses are expenses.

➛ When a business pays cash, which account is credited?

Answers ➧ Here

Chart of Accounts ➧ Here