The Mechanics of Double-

Entry Accounting

Slide 4.1
 Learning Objectives

• Analyze business transactions in reference to

the accounting equation.
• Determine whether increases and decreases in
specific accounts are recorded as debits or
credits.
• Identify the normal balance, debit balance or
credit balance, of the different types of
accounts.
• Prepare general journal entries.
• Post general journal entries to a general
ledger.
• Prepare a trial balance of the general ledger.

Slide 4.2
 The Accounting
Equation . . . revisited

ASSETS = LIABILITIES + OWNERS’ EQUITY

Accounts Common
Cash
Payable Stock
Supplies
Accrued Additional
Land Liabilities Paid-in
Capital
Equipment Notes Payable
Retained
Earnings

Slide 4.3
 The accounting
equation expresses the
mathematical
relationship that must
exist among an entity’s
assets, liabilities, and
owners’ equity

Slide 4.4
 Every
transaction of
a business
must be
recorded in
such a way
that the
accounting
equation
remains in
balance.

Slide 4.5
Every transaction or event
affecting a business can be
reduced to two equal
monetary effects . . .
. . . by properly recording each
of these monetary effects,
accountants keep an entity’s
accounting equation in
balance.

Slide 4.6
 Business Transactions and the
Accounting Equation

Assets = Liabilities + Owners’ Equity

• Purchase of + $150
supplies for
$150 cash - $150
• Payment of
- $2,000 -$2,000
$2,000 bank
loan
• Investment
of $5,000 + $5,000 + $5,000
cash in a
business by
its owners

Slide 4.7
 Double-entry
bookkeeping rules . . .
. . . the basic recordkeeping
rules used to maintain the
equality of a business’s
accounting equation.

Slide 4.8
 Debit?

• the left-hand side of a

T-account . . .
• an entry made on the
left-hand side of a T-
account (or in the debit
column of a four-
column account) . . .
• to enter an amount on
the left-hand side of a
T-account (or in the
debit column of a four-
column account) . . .

Slide 4.9
 Credit?

• the right-hand side of a

T-account . . .
• an entry made on the
right-hand side of a T-
account (or in the credit
column of a four-
column account) . . .
• to enter an amount on
the right-hand side of a
T-account (or in the
credit column of a four-
column account) . . .

Slide 4.10
 A brief sidebar . . .
permanent vs. temporary
accounts
• Permanent • Temporary
Accounts: Accounts:
accounts whose accounts whose
period-ending period-ending
balances are balances are
carried forward to transferred to the
the following appropriate
accounting period. owners’ equity
(Includes assets, account--
liabilities, and typically, Retained
owners’ equity Earnings.
items.) (Includes
revenues,
expenses, and
Dividends.)
Slide 4.11
 Permanent Accounts
Assets Liabilities Owners’ Equity
To Increase: Debit Credit Credit
To Decrease: Credit Debit Debit
Normal Balance: Debit Credit Credit

Slide 4.12
 Temporary Accounts
Revenues Expenses

To Increase: Credit Debit

To Decrease: Debit Credit
Normal Balance: Credit Debit

Slide 4.13
 Contra Accounts?
• Accounts that are treated as
offsets or reductions to related
accounts for financial statement
purposes, such as, Accumulated
Depreciation.
• The normal account balances
and bookkeeping rules for a
contra account are exactly the
reverse of those for the related
type of account.

Slide 4.14
Journalizing . . .
Recall that journal
entries serve to
establish a
chronological record
of the transactions
and other events
affecting a business’s
financial status.

Slide 4.15
 Journal Entry
Post
Date Description Ref. Debit Credit
Apr 5 Cash 20,000
B&B Equity 20,000

Slide 4.16
Journalizing . . . with the
help of a computer
• Using electronic
templates
• Electronically
“triggered” accounting
entries

Slide 4.17
Entries, Entries, and
More Entries
• Correcting entries
• Adjusting entries
• Closing entries

Slide 4.18
Journalizing . . . a few
helpful hints
✔ Does an entry “make
sense”?
✔ Is an entry “balanced” in
reference to the
accounting equation?
✔ Any transposition errors
or “slipped” decimals?
✔ Whose debits and credits?

Slide 4.19
 Posting . . .

. . . serves the purpose of

summarizing financial
data by individual
financial statement items.

Slide 4.20
 Posting, easy as 1, 2, 3 . . .

Cash Account No. 101

Post Balance
Date Explanation Ref. Debit Credit Debit Credit

Apr 5 B&B investment GJ1 20,000 20,000

Slide 4.21
 Preparing a Trial
Balance
• When? At the end of an
accounting period.
• Why? “Getting ready” to
prepare a set of financial
statements.
• What? Two-column listing of
all account balances.

Slide 4.22
 Delta Travel Agency
Trial Balance

Debit Credit
Cash $ 2,400
Supplies 800
Equipment 42,500
Accumulated
Depreciation, Equip. 21,000
Accounts Payable 7,300
Common Stock 2,000
Retained Earnings 15,400
Total $45,700 $45,700

Slide 4.23