Debits and credits

• What are the two sides of every accounting transaction?

  Debit and credit
• What does the dual nature of accounting ensure?

  The accounting equation always balances
• What are the effects of debits and credits on different accounting aspects?

  • Assets: Debit increases, Credit decreases
  • Liabilities: Debit decreases, Credit increases
  • Equity: Debit decreases, Credit increases
  • Revenue: Debit decreases, Credit increases
  • Expenses: Debit increases, Credit decreases
• What is the accounting equation?

  Assets = Liabilities + Equity
• What do assets represent in accounting?

  What the business owns
• What are liabilities in accounting?

  What the business owes to others
• What does equity represent in accounting?

  The owners' stake in the business
• What are the components of the accounting equation?

  • Assets: Resources owned by the business
  • Liabilities: Obligations owed to others
  • Equity: Owners' stake in the business
• If a business has assets of GHS 500,000 and liabilities of GHS 200,000, what is the equity?

  GHS 300,000
• How do debits and credits apply to asset accounts?

  • Assets increase with debits
  • Assets decrease with credits
• What happens when you purchase equipment for GHS 10,000?

  Debit equipment, credit cash
• How does the seesaw analogy explain accounting?

  • Toys represent assets
  • IOUs represent liabilities
  • Savings represent equity
  • Balance must be maintained
• How do debits and credits affect liabilities?

  • Increase in liability: Credit increases liabilities
  • Decrease in liability: Debit decreases liabilities
• What do you do when you take a loan of GHS 50,000?

  Credit the loan account
• How do debits and credits affect equity accounts?

  • Capital: Debit reduces, Credit increases
  • Retained Earnings: Debit decreases, Credit increases
  • Drawings: Debit increases, Credit decreases
• What happens when you draw GHS 10,000 from the business?

  Debit the drawings account
• How do debits and credits apply to revenue accounts?

  • Sales: Debit decreases, Credit increases
  • Service Income: Debit decreases, Credit increases
• If you earn GHS 50,000 from sales, what do you do?

  Credit the sales account
• How do debits and credits apply to expense accounts?

  • Expenses: Debit increases, Credit decreases
• What are the steps to record transactions using debits and credits?

  1. Identify accounts affected
  2. Determine increases (debit) and decreases (credit)
  3. Enter debit amounts on the left
  4. Ensure total debits equal total credits
• If you purchase office supplies for GHS 500 in cash, how do you record it?

  Debit office supplies, credit cash
• What must always be maintained in the accounting equation?

  Total debits must equal total credits
• What do you do when you pay GHS 2,000 for rent?

  Debit the rent expense account