debit credit drill
TRANSCRIPT
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PowerPoint Presentation by
Matt HartungTeacherTulelake High School
Copyright 2007 Thomson South-Western, a partof The Thomson Corporation. Thomson, the Star
Logo, and South-Western are trademarks used
herein under license.
ACCOUNTING
Rules of debits and
credits
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LEARNING GOALS
1Identify and apply therules of debit and
credit.
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THE T ACCOUNT
LG 3
Left side
Debit
Dr.
Right side
Credit
Cr,
Title
The T account is used as a simple model
to demonstrate recording of transaction information.
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RULES OF DEBIT & CREDIT
All accounts have an
increase side and a
Decrease side.
LG 3
Assets Liabilities Stk-holders Ety.
Dr. Dr. Dr.Cr. Cr. Cr.
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RULES OF DEBIT & CREDIT
All accounts have a NORMAL BALANCE
The Normal Balance is on the increase side.
LG 3
Assets Liabilities Stk-holders Ety.
Dr.
+
Dr.
-
Dr.
-
Cr.
-
Cr.
+
Cr.
+
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RULES OF DEBIT & CREDIT
LG 3
Assets Liabilities Stk-holders Ety.
Dr.
+
Cr.
+
Cr.
+
Dr. = Cr. + Cr
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RULES OF DEBIT & CREDIT
Increase to an asset?
LG 3
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RULES OF DEBIT & CREDIT
DEBIT
LG 3
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RULES OF DEBIT & CREDIT
Increase to a
liability?
LG 3
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RULES OF DEBIT & CREDIT
CREDIT
LG 3
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RULES OF DEBIT & CREDIT
Increase to
Owners Equity
LG 3
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RULES OF DEBIT & CREDIT
CREDIT
LG 3
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RULES OF DEBIT & CREDIT
Increase to cash?
LG 3
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RULES OF DEBIT & CREDIT
DEBIT
LG 3
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RULES OF DEBIT & CREDIT
Increase to accounts
payable?
LG 3
G 3
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RULES OF DEBIT & CREDIT
CREDIT
LG 3
LG 3
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RULES OF DEBIT & CREDIT
Increase to capital?
LG 3
LG 3
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RULES OF DEBIT & CREDIT
CREDIT
LG 3
LG 3
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RULE OF DEBIT & CREDIT
For each transaction
Total debits will equal total credits
TRANSACTION
TOTALCREDITS
TOTALDEBITS
LG 3
LG 3
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ENTRY 11/5: Bought Land for cash
Land an asset increases
__.
Cash an asset decreases:
__
LG 3
11/5SCF BS IS
A = L + E ( Rev. Exp Divid.)Dr. Cr. Cr. Cr. Dr. Dr.
LG 3
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ENTRY 11/10: Bought Supplies on account
Supplies an asset increases
AP a Liab. increases:
LG 3
11/5 1,350
1,350SCF BS IS
A = L + E ( Rev. Exp Divid.)Dr. Cr. Cr. Cr. Dr. Dr.
LG 3
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ENTRY 11/18: Fees earned, recd cash $7,500
Fees earned a revenue increases
.
Cash a Asset increases:
.
LG 3
11/18 7,500
7,500SCF BS IS
A = L + E ( Rev. Exp Divid.)Dr. Cr. Cr. Cr. Dr. Dr.
LG 3
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ENTRY 11/30: Paid expenses
Expenses an expense increases
Cash an asset decreases:
LG 3
SCF BS IS
E
A = L + E ( Rev. Exp Divid.)Dr. Cr. Cr. Cr. Dr. Dr.
30 Wages
Rent
Utilities
Misc.
Cash
2125
800
450
275
3,650
LG 3
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ENTRY 11/30: Paid AP $950
AP a Liab decreases
.
Cash a Asset decreases:
.
LG 3
11/30 950
950SCF BS IS
A = L + E ( Rev. Exp Divid.)Dr. Cr. Cr. Cr. Dr. Dr.
LG 3
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ENTRY 11/30: Paid Dividend $2,000
Dividend a Neg. E increases
.
Cash a Asset decreases:
.
LG 3
11/30 Dividend
Cash
2,000
2,000SCF BS IS
A = L + E ( Rev. Exp Divid.)Dr. Cr. Cr. Cr. Dr. Dr.
LG 3
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EXERCISE 4-2a (modified)
Identify accounts of Continental Airlines
with normal debit balance.
1. Accounts payable
2. Fuel expense3. Traffic liability
4. Cargo revenue
5. Commissionsexpense
6. Flight equipment
7. Passenger revenue8. Spare parts &
supplies
LG 3
LG 3
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EXERCISE 4-2b (modified)
Identify accounts of Continental Airlines
with normal credit balance.
1. Accounts payable
2. Fuel expense
3. Traffic liability
4. Cargo revenue
5. Commissionsexpense
6. Flight equipment
7. Passenger revenue
8. Spare parts &
supplies
LG 3
LG 3
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LG 3
Trial balance lists accounts, balances in debit,
credit columns to check recording process.
EXHIBIT 7
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LEARNING GOALS
4Describe, illustratebasic elements of
financial reporting
system.
LG 4
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END OF YEAR: 12/31/2007
Transactions for December recorded Journals, ledgers
Trial balance for December transactions
Adjustments recorded Supplies, insurance used
Revenue earned
Wages owed
Depreciation
Continued
LG 4
LG 4
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END OF YEAR: 12/31/2007
Adjusted trial balance
Final check before financial statements
Prepare financial statements
Income statement
Statement retained earnings
Balance sheet
Statement cash flows
LG 4
See
Exhibit 12
p. 166-167
LG 4
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AFTER FINANCIAL
STATEMENTS Closing entries
Transfer balances of temporary (revenue,expense, dividends) accounts to retained
earnings
Zero balances of temporary accounts to carryforward
Post-closing trial balance Final check for asset, liability, equity account
balances
LG 4
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LEARNING GOALS
5Describe accountingcycle for double-entry
accounting system.
LG 5
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ACCOUNTING CYCLE
During the period: Transactions analyzed, recorded in journals
Transactions posted to ledgers
End of period:3. Unadjusted trial balance prepared
4. Adjustment data assembled, analyzed
5. Adjusting entries prepared, recorded in journal
Continued
LG 5
LG 5
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ACCOUNTING CYCLE
6. Adjusting entries posted to ledger
7. Adjusted trial balance prepared
8. Financial statements prepared
9. Closing entries recorded in journal
10. Closing entries posted to ledgers
11. Post-closing trial balance prepared
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LEARNING GOALS
6Describe, illustrate use ofearning before interest, taxes,
depreciation, amortization
(EBITDA).
LG 6
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EBITDA COMPUTATION
Operating income (loss) before interest, taxes
+Depreciation & amortization
LG 6
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EBITDA
A measure of cash flows fromoperations to pay the fixednon-operating charges:
Interest
Taxes
LG 6
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Southwest Continental
Op. income (loss) before
interest & taxes $554 $
+ Depreciation &
amortization +431 +414
EBITDA $985 $185
SOUTHWEST VS.
CONTINENTAL
LG 6
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SOUTHWEST VS.
CONTINENTAL: Analysis
Southwest Airlines earns only __the revenue of
Continental Airlines
Southwest airlines has more than _ times the cashflow from its operations to pay fixed charges such as
interest
EBITDA is a rough estimate of cash flow generatedfrom operations to pay fixed charges