Accounting 1: Program #6 – “Intro to Debits and Credits”

Alright here we are we’re going to jump right
into in because today is a very important lecture. So let’s go right into it I know
one the problems that I gave you was to finish up the valentine hand out correct? Ok so let’s
go ahead and take a look at that the answer to the income statement I believe we went
over that in class, but let’s take another look at that. The answer to the income statement
I believe we went over that in class but let’s take another look at it the answer to the
valentine income statement is shown up there we have our revenue our less our expenses
and we have dated it properly or prepared it in good form or prepared it in proper form.
We have the name of the company, the name of the statement and its dated correctly it
says for the month ended eight thirty one thirteen on the income statement correct?
And that gives us in this case a net income of seven thousand and forty and that flows
down to the statement of equity right? Statement of equity there’s the net income right there.
We have our beginning balance of capital which is twenty eight thousand we add our net income
though there were not any investments by the owner in this period that’s fine that’s not
always going to be the case. And then we deduct the withdrawals that valentine made correct?
Which is thirty five hundred that gives us an ending balance of capital thirty one five
forty once again it’s prepared in proper form the name of the company, the name of the statement
and its dated properly for the month ended eight thirty one thirteen the way this is
dated will always be the same as the income statement. Ok any question on the income statement
or the statement of equity. Ok the ending balance of capital is thirty one five forty
and that flows over to our final statement that were going to prepare which is the balance
sheet correct? The balance sheet is dated a little differently we don’t say for the
month ended we say just either at or as of or just the date eight thirty twenty thirteen,
because this is a snapshot right? We have our assets our liabilities our equity total
assets are thirty four oh twenty make sure you label that we have our total liabilities
and equity that also equal thirty four oh twenty we want those number to be equal and
we want to label that as well, and there’s that thirty one five forty that came over
from the statement of equity. Kara? So accounts receivable is an asset and accounts payable
is always a liability. That’s correct accounts receivable is always an asset we’re going
to receive cash in the future and accounts payable is a liability were going to have
to pay in the future it debt ok. And where did notice going back to the statement where’s
unearned revenue unearned revenues a liability and it shows up with the other liabilities
on the balance sheet right? Common mistake on the test is people put unearned revenue
where? Where do they put it mistakenly? On the income statements actually they see revenues
and they put it with the other revenues ok. So unearned revenue is not a revenue it’s
a liability unearned revenue is a liability alright? Alright that was a test question
on past test so I guarantee you see something like that one thing I hope you did is at the
very beginning as I said before I hope when you got this you went through these and put
what financial statement it was going to go on like that ok and then did you check them
off as you used them as you put them on a statement you can check them off that way
at the very end you can make sure all of the numbers have been put somewhere ok. So if
you don’t do it that way a lot of times people forget to put in account ok. One last while
I guarantee that will be on the test, but some students will just absolutely get OCD
in regards to I can’t get it to balance they know their balance sheet is supposed to be
balanced I can’t get it to balance and I have student be very unwise and spend literally
thirty minutes on the financial statements on the test trying to get it to balance and
then the rest of the test just sits there and there are not going over it you see what
I’m saying? Don’t obsess over it if it doesn’t balance come back to it do the rest of the
test and there is partial credit but don’t get so obsessed I have seen students leave
three pages blank on their test, cause they’re like I couldn’t get my balance sheet to balance
no you can move on and you should’ve moved on. You see what I’m saying? I believe I assigned
quick study one six right quick study one six ok so let’s do that. Identify which accounting
principle or assumption best describes each of the following practices. Ok if fifty one
thousand cash is paid to buy land the land is reported on the sheet to be at fifty one
thousand what would that be? The cost principle we record things at cost. Not what we think
it’s worth or if somebody appraised no it’s what we paid for it cost. B Alyssa keys owns
both sailing passions and dockside supplies when preparing transactions for dockside Keys
make sure that the expense transactions of sailing passions are kept separately from
dockside transactions and financial statements what’s that? Business entity the business
entity principle states that we keep things separate from each other we keep two businesses
separate from each other we keep the business separate from our personal records ok good.
C in December two thousand ten ace landscaping received a customer’s order and cash prepayment
to install sod at a new house that will not be ready until march of oh eleven ace should
record the revenue in march two thousand and eleven not December two thousand ten what’s
that? Revenue recognition principle we record revenue when it is earned when is it earned?
When we have provided the product or the service. Is that correct cool. I think the last one
I assigned was exercise one eighteen is that correct? Let’s talk real quick about this
I wanted you to read about this each chapter will have a statistic each chapter has a statistic
or a ratio at the end that they want you to become familiar with it. Anybody here play
baseball anybody ever played baseball well baseball has a lot of statistics and ratios
that they figure out right? Batting average ERA all those sort of things slugging percentage
correct? Those are different ways of measuring baseball players or team’s right? And you
can measure one player against another player or you can measure one player this year as
compared to last year, and these are just different ways of analyzing well there’s different
ways of measuring companies and analyzing on companies as well. One of those ways is
the return on assets now the return on assets is calculated by taking the net income divided
by the average of total assets and in this case they tell us in exercise one eighteen
that Geneva group reports net income of twenty thousand for oh eleven at the beginning of
two thousand and a eleven they had a hundred thousand in assets by the end of two thousand
and eleven assets had grown to one fifty what is Geneva group’s two thousand elevens return
on assets how would you assess its performance if competitors average a ten percent return
on assets? Well we take that net income of twenty thousand divided by the average total
assets which in this case one hundred and twenty five thousand twenty divided by one
twenty five is sixteen percent right? Now these ratios don’t mean anything in themselves
we have to compare it to something it’s like if you ever go to the doctor, and they give
you a score like a cholesterol score your cholesterol score is seventy four ok is that
good or is that bad? We don’t know the number in itself we don’t know ok. So in this case
what do we compare this to well they tell us that competitors average a ten percent
return on assets so I would say looking at this ratio alone its above it and thus as
far as that ratio by itself it’s pretty good thing isn’t it? Now we have to look at other
ratios right just like when you go to the doctor you can’t just go get one thing one
part of yourself analyzed and ignore everything else right? But and you also have to make
sure like in this case we prepared this ROA to its competitor that’s a good comparison
right? But you wouldn’t compare the return on assets of a steel manufacturing firm with
the return on assets with the law consulting firm that’s apples to oranges so you want
to make sure it’s an industry comparison, or a competitor comparison or you’re comparing
it to that same firm at a different period in time. You with me? I don’t hammer on the
ratios I usually have one multiple choice question on the test about it. It’s not that
it’s not important it’s extremely important and as a matter of fact I just helped lead
this seminar where were trying to train people in the banking industry how to best use ratio
analysis assessing if they should companies loans. Financial statement analysis and ratio
analysis is an extremely useful skill and so but were just going in this class just
kind of introduce these things you’ll see these terms in other classes that you take.
I think that’s it for the homework alright this is an important lecture and I’m glad
you’re here we are going to go to chapter two which analyzing and recording transactions.
I hope you all have your PowerPoint’s and for you at home you should print those off
the angel website it’s under the lessons tab you should have the PowerPoint’s for each
chapter you should have those when you watch the lecture it makes everything a lot easier.
Alright chapter two analyzing and recording transactions now let’s just do a little review
here we have lots of transaction that occur in a business some are external transaction
they occur between us and an outside party and some are internal they occur within the
organization. We know that an asset has to equals liabilities plus owner’s equity correct?
I’ve hammered that in set in a different way if we figure out the ending balances of all
the assets accounts they have to equal the sum of the ending balances of the liability
and the equity accounts don’t they? That always, always, always has to stay equal assets have
to equal liabilities plus the equity. We talked about our assets and I believe the assets
on your screen here I think we’ve talked about all of them whoops that should be up there
but you can figure that out. I believe we’ve talked about all these except maybe prepaid
accounts, prepaid accounts are like prepaid rent let’s say for my business I didn’t just
pay September’s rent but I went ahead and paid September, October, November, December.
Well that’s like I paid the rent early didn’t I? well that’s an asset that’s prepaid rent
something else in your own life that is a prepaid asset is your insurance your car insurance
you have to pay for your insurance before you actually use it as an asset as a matter
of fact if you cancel your policy they send you some money so that would be prepaid insurance.
So any sort of prepaid item in business is an asset ok. Our liabilities we talked about
accounts payable notes payable we talked about unearned revenue is a liability not a revenue
but unearned revenue is a liability now what’s this thing called a accrued liabilities well
that’s kind of a title for a lot of different types of accounts and well talk a little bit
more about this in chapter three but this is like your salaries payable, your wages
payable, your interest payable, taxes payable those sort of things so those are liabilities
as well. And of course we talked about our equity account we talked about what makes
it increase what makes it decrease we talked about how revenues and owners investments
of assets into the company makes it increase expenses and withdrawals by the owner out
of the business makes it decrease. Once again assets always have to equal liabilities plus
owner’s equity and then we expanded that accounting equation didn’t we? Recognizing that these
things owner’s withdrawals and expenses since those actually make equity go down as owner’s
withdrawal and as expenses increase equity actually decreases. You with me? Now let’s
go through his and this make not make a lot of sense but were going to go through it again
at the end of the chapter and it will make more sense. What were going to do is were
going to analyze transactions and events from something called source documents what are
source documents? Source documents are those pieces of paper or like electronic emails,
pdfs or whatever that are generated when you do transactions, source documents are those
things that are generated when you do transactions. For example let’s say that you go buy a computer
at best buy ok well if you go buy a computer at best buy they’re going to give you an invoice
right? That invoice is a source document let’s say you get paid well what are they going
to give you? There are going to give you a check and they’re going to usually give you
a pay check stub right? Ok let’s say you go pay a parking ticket well when you pay that
parking ticket they’re probably going to give you a receipt right? To say you paid for that
parking ticket correct, right? Let’s say that you get a bank statement you have a checking
account and so you get a bank statement each month that’s a source document right? And
that will show different things that you have done throughout month. So all these pieces
of paper that are generated and they’re not always paper anymore but a lot of them are
electronic these are evidence that transaction occurred and we can go back to them if needed.
But source documents what we do is we analyze the transactions events from these source
documents then we’re going to record these transaction in what we call a journal alright.
Then we are going to post the journal to the ledger accounts and then we are going to learn
about preparing and analyzing something called a trial balance. Now again this doesn’t all
make sense right now there’s a lot of terms we didn’t discussed but this is where were
going with this chapter alright. Let’s talk about what an account is? An account is a
record of increases and decreases in a specific asset, liability, equity, revenue, or an expense
item. For example going to the Elmo we kept track of for instance cash and we would say
cash increased by three thousand dollars right? and then cash increased by five hundred dollars
right then cash let’s say it decreased by three hundred and then it went up by let’s
say it went up by two fifty and then let’s say it went down by two hundred right? But
that is an account and we’re recording the increases and decrease in that account correct?
We did that in chapter one and of course we could figure out the balance of that account
what is the balance of that account? Three two five oh I think you’re right thirty two
five oh yes. Ok that is an account going back to this it’s a record of increases and decreases
in this case cash, but we could do that and do that in every account now what it will
and we’ll come back to that in second, but what is a general ledger? A general ledger
is record containing all the accounts used by a company if you look at exercise one eleven
this is kind of an example at this point in our learning of a general journal at least
recording transactions in this way. But it shows a lot of different accounts the increases
and decreases and then it shows the ending balance correct? Ok so that is kind of like
a general ledger per say alright, now we’re going to learn a new way of recording business
transaction were going to do a transformation from the chapter one way to the new chapter
two and beyond way. in a way chapter one is kind of like the training wheels on a bicycle
ok did anyone learn how to ride a bicycle using training wheels? Well the training wheels
kind of help you get the feeling on how a bike should feel kind of lets you learn your
balance how to turn but eventually what? Mom or dad comes with a crescent wrench and they
take the training wheels off right? now once you learn how to ride a bike without the training
wheels do you put the training wheels back on no you never say I’m going to bike ride
today just for old times’ sake I think I’m going to put those old training wheels back
on no once you learned once you’ve taken them off they’re gone for good and that’s the way
you ride a bike from here on out so this is what we’re going to do the chapter one way
was the training wheel method as far as recording transaction. Chapter two I’m dad I got my
crescent wrench we’re taking the training wheels off. Now I hope you understand the
chapter one way if you don’t what’s going to happen? you’re going to fall down and scrape
your knee aren’t you? So you folks at home if you don’t understand chapter one and how
to record transactions in those manner watch those lectures again, but we’re going to learn
the chapter two way now. And this is the way we’ll do things. alright let’s take a look
back at that account that I wrote remember that cash account that I wrote this is the
chapter one way let me tweak this thing a little bit lets ay you all understand this
right? let’s say I wrote it another way what if I wrote it this way instead what if I decided
to put the increase on the left side
and decreases on the right side ok. What would the balance the balance would still be thirty
two fifty right? You understand how that moved to this ok? So what if I would you allow me
to do that instead of writing it like this let me just put the increases for cash on
the left side and the decreases on the right side let me go ahead and draw a line down
the middle of that ok. So I put the increases of cash on
the left side and the decreases on the right
side why don’t we just go ahead and make one little bit more change here and let me get
rid of the pluses and the minuses ok. Let’s just say I know the increases are going to
go over here and the decreases are going to go over here this is cash and the balance
is still thirty two fifty right? Do you understand the transition from here to here? Ok for those
of you have had accounting in high school or college or whatever do you know that we
have now prepared what do you know what this is? It’s a T account and the reason we call
it a T account is because it looks like a T and this going to be a vital part of the
chapter two way that you’ll learn and use from here on out. Now this is a t account
because again this looks like a t the left side of a T account is called the debit side
and the right side of a T account is called the credit side, are you with me? The left
side of a t account is called the debit side and the right side is called the credit side.
And we abbreviate debit with DR and don’t ask me why I know it doesn’t have and R but
the way we abbreviate debit is DR and the way we abbreviate credit is with CR ok. You
with me? Let’s take a look at this one more time. This is the chapter one way and then
we kind of did this transition right here right? And then I did this transition correct?
And I introduce these new concepts called the left side of the t account is the debit
side and the right side is the credit side. Now going back to our PowerPoint I have just
introduced these new terms debit and credits and I want to make some big cautions to you
and please take head here the way your brain works is whenever it learns a new term or
you’re trying to learn something you go out in your brain you try to understand something
that finds something that you already understand and you kind of link it up this what your
brain biologically works so if I introduce a term to you and may be you understand the
root term you’ll try to figure it out or may be even in sports right? When you’re teaching
somebody to swing the golf club easily you might say just think of it like swinging a
baseball bat just swing the bat just swing the golf club it’s going out in your brain
finding something you do understand trying to help you with this new concept that’s understandably
the way we work. But it could cause problems in this specific area do not think of the
way when we talk about these new terms debits and credits do not think of the way that others
use these terms such as your bank. And I know your brains some of you when I said this is
the debit side this is the credit side you already started thinking about ok I know the
bank says they’re going to debit my account and does that have something to do with this?
no please don’t go down that road no. For our purposes I want you to think of the debit
is the left side of the t account the credit is the right side of the t account. You with
me? Another mistake do not think of your plastic debit cards and credit cards some of you did
that. Now fifteen twenty years ago people weren’t even that familiar with the term debit
but now we are all have debit cards don’t we? So now ok I think let me see if I can
figure out this debit credit thing out the Krug is talking about I have a debit card
no don’t do even go down that route don’t do it
debit means the left side credit means the
right side. You with me? It would have made my life easier if thousands of years ago when
these terms originated if they wouldn’t use the terms debit and credit I wish they would
have used the terms lefty and righty, or something like that. Ok but do not think of these things
in anyway except that debit means the left side and credit means the right side. Do not
mistakenly think as debit as debt and credit as credit like we’re going to give you a line
of credit or something. Don’t do that ok for accounting debit means left credit means right.
Do not mistakenly think debit as good things and credits as bad things this is another
problem some students have had. Once again debit means left credit means right, you with
me? Can I pan that any harder than I am, one more time debit means left credit means right.
Let’s just say that as a class debit means left credit means right. That’s what I want
you to concentrate on, are you with me? Now let’s go back to this account that I showed
you if you look at this cash account you might understandably think ok debit means increase
and credit means decrease no debit does not mean increase and credit does not mean decrease.
Debit means the left side credit means the right side, you with me? Yes for cash specifically
for cash yes the increases are on the debit side and the decreases are on the credit side
but that is not always the case. Let me give you an example let’s take a look at a different
account let’s take a look at an account of notes payable which is a liability right?
Now this is a t account for notes payable. What’s the left side called? On a t account
for notes payable the left side regardless of account the left side is the debit side
the right side is the credit side always, always, always regardless of the account the
left side is the debit the right side is the credit. Now I told you that for cash increases
are kept track of on the debit side and that is true, however for notes payable increases
are kept track of on the right side or the credit side. So let’s say we were going to
increases notes payable let’s say we are going to increase notes payable I would show that
on the credit side. Are you with me? For notes payable increases are on the credit side that’s
why we can’t say debit means increases and credit means decreases no, no, no. Debit means
left credit mean right some accounts the increases are kept track of on the debit side other
accounts increases are kept track on the credit side. Are you with me? One thing and then
I’ll answer your question when I wrote that five hundred here that is called crediting
the account. Crediting the notes payable account when I wrote that five hundred on that credit
side for notes payable that is called I credited the notes payable account cause I wrote something
on the credit side, you with me? When I wrote this two fifty for cash that’s called for
accounting purposes I debited cash for two fifty, because I wrote two fifty on the debit
side for cash. Kara did you have a question? Yeah when you write it you on this new way
you don’t want us to put like a plus or minus” boy that is a great question that is a great
question that is exactly, exactly true Kara. Never ever do I want to see dollar signs or
plusses or minuses in a t account. Ok good question no plusses or minuses no dollars
signs in a t account. Alright now let me switch over here actually keep it off there keep
it on me for a second and let me go over the next thing I wanted to show you. Ok we’ve
been talking about two accounts here let’s think of the way we recorded things in the
chapter one method and lets go to the Elmo now let’s say we got a loan for five thousand
dollars from the bank let’s say we got a loan of five thousand dollars from the bank. Well
the chapter one we would say cash plus five thousand and we would say notes payable plus
five thousand isn’t that the way we would’ve done it? Now let’s learn the new way of recording
this well let’s do t accounts I’m going to do a t account for cash and I’m going to do
a t account for notes payable., and we know that the left side of the t accounts is the
debit side and the right side of the t accounts is the credit side. I also told you that increases
for cash are accounted for on the debit side so I’m going to debit cash for five thousand
dollars which means I increased cash for five thousand, because increases are on the debit
or the left side. Now I’m going to credit notes payable for five thousand and I’m increasing
notes payable because I told you that increase for notes payable are kept track of on the
credit side. This is the chapter one way this is the chapter two way , and that’s how well
be doing things and as Kara said there’s no dollar signs there’s no plusses or minuses
are you with me? Question? For the notes payable is the five thousand go on the credit side
because its actually decreasing equity? No go back to it and I know where your brain
is going and I’ll point that out in a second I told you that increase for cash are kept
track of on the debit side cash increased so I had to write it on the debit side. I’ve
told you that for notes payable increases are kept track of on the credit side and notes
payable did increase so I had to put that one the credit side where your brain is probably
going is saying ok you told us that cash increases are on the debit side and for notes payable
increases are on the credit side how do we know an account is which side do we do it?
But notes payable is increasing. Now that’s goes to the PowerPoint an account that is called a debit balanced
account increases when you debit it and thus decreases when you credit it. Cash is a normal
debit balance accounts thus its increases on the debit side and decreases on the credit
side, you with me? But there are also accounts called credit balance accounts such as notes
payable for a credit balance accounts the increases are on the credit side and decreases
are on the debit side notes payable is a credit balance account, you with me? Now all accounts
are debited and credited at times sometimes people think ok so a debit balance account
could only be debited no all accounts are both debited and credited we just have to
know for that specific account if when its debited if that means if its be increased
or decreased, are you with me ok. Another thing regardless of the account opposite side’s
line opposite affects so if this is an increases this side is an decrease if this side is an
increase then this is a decrease opposite sides of the line opposite effects. But in
this case they both increased the increase for cash is on the debit side the increase
for notes payable is on the credit side right? Let’s say this is a zero interest loan and
we use three hundred dollars cash to pay off some of this principle balance let’s say there’s
no interest. Well we pay off three hundred cash goes down by three hundred right? So
we show a decrease on the credit side correct for cash. Notes payable where do we keep track
of decreases on the debit side you with me? So all accounts are debited and credited we
just have to know that cash is a debit balance account thus debit increase it and credit
decreases it. And notes payable is a credit balance account thus credit increases it and
debit decreases it. I know I’m throwing a lot of information at you folks ok. Now the
best question that could be coming into your brain right about now is alright can I borrow
this Jake? Which accounts are debit balance accounts and which are credit balance accounts
ok? It’s not do you have chapter two let me grab this where’s chapter two? Ok may be I
didn’t bring that ok I think I gave that to you in a separate one ok. The most logical
question at this point is which account is a debit balance account which account is a
credit balance account ok. Now let me turn in your book and I’ll show you what I’m talking
about. Alright turn to page sixty three
ok and you’re going to see at the bottom at the bottom right on page sixty three a little
chart like this and this tells us that assets are normal credit balance accounts thus they
increase with the credit and they thus debits decrease them right? And you’re going to see
liabilities like notes payable are debit balance accounts thus they increase with the debit
and they decrease with the credit. Ok now this is all good and fine but that’s not the
way to learn this that is not the way to learn which accounts are debit balance accounts
and which accounts are credit balance accounts. Here’s what I want you to do I want you to
prepare even in this age of technology and ipads and stuff what’s the best way to learn
these flash cards. Flash cards I want you to learn this by flash cards now for example
here’s one that I made for cash, and I’m not just going to do flash cards for assets I’m
going to do this for all sorts of assets I’m going to do it for cash I’m going to do it
for buildings I’m going to do it for notes receivable I’m going to do it for supplies
are those not all assets ok. Here’s what I’m going to on one side of the flash card I have
the name of the account on the other side of the flash card I have cash is a debit balance
account thus a debit increases and a credit decreases, cash is a debit balance account
thus a debit increases and a credit decreases, you with me? Now I even went a little further
on this flash card as you can see on it and I said in the lower left corner I said that
is an asset and in the right side I said it is and it is on the balance sheet right? That
is a great flash card now mine looks all pretty but you can do yours on index cards or whatever
ok. On one side you put the name of the account on the other side you put that information.
Now you want to do this for all of your accounts for example let’s just say that this is a
where’s my pen? Lets’ just say this is a blank flash card we learned notes payable today
right? so put notes payable on one side and on the other side is a credit balance account
therefor a credit increases and a debit decreases you with me? And you can say down here if
you want a liability and where do notes payable go? The balance sheet correct? But I want
you to think of all your different accounts that you used and I want you to learn your
account balances I cannot stress this enough you have to learn your account balances you
have to know which accounts are increased with the debit and thus are debit balance
accounts and which accounts are increased with the credit and thus are increased with
the credit you have to know this. If you don’t learn this if you’re stubborn and you say
Krug I don’t want to learn this you should drop the class. I don’t mean to be so dramatic
but you cannot do accounting unless you know this has anybody had accounting before in
high school or something? Ok let me ask you this is anybody here taking a math class?
At JCCC Jake you are you’re taking statistics nobody else is taking a math class? You’re
done, what you’re taking statistics alright nobody here is taking college algebra you
are? What your name back there? “Brian I’m taking calculus” oh you’re taking calculus?
Brian is taking calculus ok. Ok let me give this quiz I’m going to give this quiz to just
Brian, and I don’t want you to be smart-aleck just look at the quiz and I want you to answer
this for me. One, two, three, four, blank, six, seven, eight, nine, ten ok I want you
to think about this don’t be a smart-aleck, but Brian what number what is the answer that
goes in that blank? Five. Five very good give him a round of applause now let me ask you
this lets say that Brian did not know what went in that blank. Ok let’s say he thought
the answer was four Matt how do you think Brian is going to do in Calculus “probably
about as good as I would” ok not very well is he? What if he had to think about this
for a while? Do you think he’s going to do good in calculus no. What if he thought the
answer was negative two, or what if he thought the answer was pie, or fourteen ninety two,
or Abraham Lincoln if he doesn’t know what goes in that blank and if he know it quickly
he is going to flunk calculus in a very bad way am I correct? Alright you have to know
this you have to know this now you don’t know the full implications of everything I’m telling
you right now ok. Remember when you learned your multiplication tables when you’re a kid
and you would learn that two times three equals six right there was a point in your learning
that you just memorized that two times three equals six later on you might have realized
that three times two also equals six, or six divided by three equals two, or six divided
by two is three, or if you have six cookies and three friends you each get two cookies,
or that you can even graphically represent three times two by going three rows of two
or two rows of three right? But at some point in your learning you just had to memorize
three times two equals six correct? And then that other thing came about with more knowledge
that’s where you are now you don’t fully understand the implications when I say that cash is a
debit balance account notes payable is a credit balance account, but you need to learn this.
If you don’t learn this you will not do good in this class. I used to do tutoring when
I was at Kansas State University and I would get I’d have a student call me and they were
in chapter four or five and they would be flunking the class and they would call for
help and so I would go over there and try and help them the first thing that I would
do is I would give them a quiz on their account balances to see if they knew which accounts
are debit balance accounts which accounts were credit balance accounts and they didn’t
know it I told them that they you should probably should just drop the class. Just like Brian
I would tell you if you don’t know how to count to ten should you be taking calculus
no. Can I say this this strong enough you folks at home you need to make your flashcards
I’m going to email you a list or it will be posted under chapter two on angel a list of
the accounts and what their balance is so that you can use that to make your own flash
cards ok. I will give this to you guys as well but you need to know which accounts are
debit balance accounts and which accounts are credit balance accounts. Here’s how you’ll
know somebodies flunking this class if in three weeks from now if I’m working with someone
and I go hey John “ok work with me is cash a debit balance account or a credit balance
account? Oh it’s a um debit credit no uh debit? No John you’re flunking right? If I ask you
your middle name do you have to think about it? No you know it that’s what I want you
to be with these accounts. Cash debit balance account it increase with the debit decreases
with the credit, notes payable it’s a credit balance account it increases with the credit
and decreases with the debit, you understand? Can I make this anymore clear alright make
your flash cards the difference is not between those who want to do flash cards and those
who don’t the difference between those who by the time they go to bed tonight versus
those I’m going to do it tomorrow or next week. No do it tonight before you go to bed
have your flash cards I showed you an example what they could look like. Alright one last
thing I will let you go is let me give you your homework ok and do them in this order
if you would but I want you to do quick study two point one two point four two point five
two point three, but more important than that I want you to make flash cards ok are you
with me? Alright guys this is an important lecture watch it again if you have to well
see you later bye-bye.

100 Replies to “Accounting 1: Program #6 – “Intro to Debits and Credits””

  1. Great teacher, I'm taking ACC 101 and my teacher just wants us to learn from the book without explaining it. I learned more from this video then a 3 hour class.Thanks  

  2. Here's an expanation of Dr and Cr from Wikipeida.
    In its original Latin, Pacioli's Summa used the Latin words debere (to owe) and credere (to entrust) to describe the two sides of a closed accounting transaction. When his work was translated, the Latin words debere and credere became the English debit and credit. The abbreviations Dr (for debit) and Cr (for credit) likely derive from the original Latin. 

  3. Excellent teaching. You make things so much more understandable than trying to learn online from an unengaged teacher and just a book. I wish I could go to JCCC. I found this link for flashcards, although I'm not sure if they are the exact same ones used in the class.

  4. 3 kinds of accounts.
    Personal , Real and Nominal.
    Personal – Dr the receiver and credit the giver.
    Real – Dr what comes in Credit what goes out.
    Nominal – All expenses/loss are debit and all profits/gains are credited.

  5. How can I make a trial balance if there is the account that have debit equal credit? Do I need to write 0 on both sides

  6. anyone having issues with the concepts of debits and credits look up the youtube video called debits and credits, this video makes it really easy to understand and remember

  7. Thanks for uploading these videos,.  I like your teaching style and the way you present concepts is clear and straightforward. Big help for me.    

  8. I watched this last week, and I think I remember him saying that he's not sure why it's called credit and debit (or at least he doesn't know why debit is abbreviated "dr."). I couldn't leave comments on that computer, so I'm coming back to say:
    debit = debere (to owe) and credit = credere (to entrust)! For instance, pay an expense by debit Expense account and credit Asset account. The asset account is "entrusting" money to the expense account. Of course, these definitions aren't very practical by now, but that's why they're dr and cr 🙂

  9. I'm
    Horrible at math I'm thinking about majoring in accounting and I have to take a business cal class should I be worried ?

  10. Exceptionally professional Lecturer!!! THAnK U!!

    For my friends: This will make ur life easier to understand Debit and Credit..
    DEAD- Debit–> Expenses, assets and Drawings
    CLIC- CREDIT–> Liabilites, Income, Capital!!!

    All the best guys!!!

  11. Anything that is normally added to the Left side of the accounting equation OR subtracted from the R side is a debit balance account. Vice versa is also true.
    You don't need flash cards. If you understand this concept, you can always figure out what type of balance account something is.
    Memorizing will help you know it faster, but getting the concept will help you more in the long run. BTW, this guy is a phenomenal teacher. I am learning so much so from him.
    I just prefer concept based learning rather than rote memorization.

  12. My boss and I disputed unearned revenue recently – $230,000 – I always felt we needed to lose this money that doesn't belong us after one year.  She said it's a big liability whether holding or refunding.  I specialize in A/P and I have no problem with reimbursement!

  13. Flashcard for this lecture. You are welcome!  Do not ask my name. I AM LEI FENG!

  14. One of my professors taught us this way…

    W-A-D-E (Withdrawal, Assets, Dividend, Expenses)
    L-C-R as in the dice game (Liabilities, Capital, Revenues)

  15. Remember this to know which has a normal debit balance and which has a normal credit balance:

    "After Eating Dinner, Let's Read Comics"

    This stands for: Assets, Expenses, Drawing, Liabilities, Revenue, and Capital.

    Everything on the left side of the comma, (After Eating Dinner) has a normal DEBIT BALANCE. Everything on the right side of the comma (Let's Read Comics) has a normal CREDIT BALANCE.

    So, if you are looking at an expense account, just think to yourself, "After Eating Dinner…" Then you will know Eating stands for Expenses. And Eating is on the left side of the comma. So, you will know expenses has a normal debit balance – Expenses will increase with a debit and decrease with a credit.

    If you are looking at a revenue account, do the same thing.. Think to yourself.. "After Eating Dinner, Let's READ Comics. Read stands for Revenue and is on the right side of the comma. The right side is the credit side. So, revenues have a normal credit balance – revenues will increase with a credit and decrease with a debit.

    Hope this helps! 🙂

  16. Learning Accounting concepts can be difficult but it doesn't have to be. The Bookkeepers are here to make learning those concepts, simple! Tweet out your Accounting questions to @BookKeeper_Help and we will explain them in the simplest ways possible.

  17. Its truly amazing to listen to your lectures! I am completely a novice to Accounting and the way these lectures are going is making perfect sense to me. Excellent Work!

    I was just wondering if something on Annual Report could be published by you to give details on what are the different sections of Annual Report how do we read it, what is the benefits of the report from Investors point of view.

    Thanks much again!

  18. This is really helpful. These videos are getting me ready for my first accounting class, which I will be starting in January.

  19. sir…why i should not record the increases of cash on the credit side…and decreases of cash on the debit side?

  20. I use DEALOR to remember credits and debits DEA= DIVIDENDS, EXPENSES, ASSETS; LOR=LIABILITIES, OWNERS EQUITY, & REVENUE……also what a great professor

  21. The "DR" and "CR" abbreviations come from Latin "debere" and "credere" the past participles of "debitum" and "creditum".

  22. A=L+OE;
    Since OE=C(Capital)-W(Withdrawals)+R(Revenue)-E(Expenses);
    So A=L+C-W+R-E;
    And therefore, A+W+E=L+C+R
    Finally, A, W, E (left side) are Dr; L, C, R(right side) are Cr.

    This is my way to memorize this principle.

    Good luck!! Folks!!LOL

    Frankly, cards are not my types…

  23. Assets, expenses, losses, and the owner's drawing account will normally have debit balances. Their balances will increase with a debit entry, and will decrease with a credit entry.

    Liabilities, revenues and sales, gains, and owner equity and stockholders' equity accounts normally have credit balances. These accounts will see their balances increase when the account is credited. Their balances will decrease when they debited.

    i am studying CPA but i Love your teaching Method —God Bless you

  24. I am little confused between Unearned Revenue and Revenue, from previous classes I got that whenever we sell/deliver products/services, it means that we earned revenue and should consider it as an asset, is it not same as unearned revenue? As such, should we make two entries:- Credit Unearned Revenue and Debit Account Receivable? Kindly clarify if you still check comments. Any one reply to me…

  25. Let's understand this mathematically…

    A = L + OE
    Now let's assume if A increases => it is recorded on the Debit side. Consider this was in Luca Pacioli's mind who invented accounting.


    1. Can I say – A ∝ (Directly Proportional) to L
    So this means A↑ => L↑
    A↑ = Increase in A.

    If increase in A, is recorded on the debit side, now since L is on the other side of the equation (A = L + OE), an increase in L is recorded on credit side.

    2. Can I say – A ∝ (Directly Proportional) to OE
    So this means A↑ => OE↑

    If increase in A, is recorded on the debit side, now since OE is on the other side of the equation (A = L + OE), an increase in OE is recorded on credit side.

    3. Now let us understand the component of OE. OE = OC – OD + Rev – Exp
    And here components of OE is not on the accounting equation's other side.
    We know now OE↑ is recorded on credit side.

    OE ∝ OC => OE↑ means OC↑ and hence both are recorded on credit side.
    OE ∝ 1/OD => OE↑ means OD↓ and hence increase in OD is recorded on debit side.
    OE ∝ Rev => OE↑ means Rev↑ and hence both are recorded on credit side.
    OE ∝ 1/Exp => OE↑ means Exp↓ and hence increase in Exp is recorded on debit side.


  26. A better way to explain debits and credits is to say that money has to come from somewhere and go somewhere else. When money is coming from within the business, it's a debit. When it comes from outside the business, it's a credit. When you get a loan, you record a Notes Payable as a credit because that money is coming from within the company. Then you record a debit in the Cash account because that money is now within the business.

  27. From what I can gather, and noone take my word on this, I picked up the following from the lecture.

    Assets = Liabilities + Owners Equity

    and Owners Equity = Owners Capital – Owners Withdrawals + Revenues – Expenses

    The list given was:
    Asset – Debit Increases, Credit Decreases
    Liability – Credit Increases, Debit Decreases
    Owners Capital/Capital – Credit Increases, Debit Decreases
    Owner's Withdrawals/Withdrawals – Debit Increases, Credit Decreases
    Revenue – Credit Increases, Debit Decreases
    Expenses – Debit Increases, Credit Decreases

    According the accounting equation, It kinda looks like the following:

    A = L + E

    The left hand side of the equation increases through debit
    The right hand side of the equation increases through credit

    The only reason that Expenses and Withdrawals are debit accounts is because they decrease the credit of the Equity accounts.

    So basically: Debits must equal Credits.

  28. I loved very much the class, It is useful in many ways. How can i get the book you introduced so that i can follow at the same time doing exercise?

  29. I really struggled in accounting,, but was still able to pull off a good grade but I'm watching these videos as a review. This guy is a really good teacher. He breaks it down at the elementary level so people can understand it. Thanks.

  30. I think remembering what Is debit balance account and what one is credit balance account it's better to keep in mind that all accounts which are on asset side such as…cash,notes receivable, machinery, are debit balances accounts and all accounts on liability side are credit balance accounts… Like Notes payable etc.

  31. He explains every term with real life example which makes everything so clear ! Best accounting class ever!

  32. wow that a perfect explanations. Yes Account receivable is a Asset in a business.I consider cash in a business is a Asset. We students should know this well. You have to record the 55 thousand down in the balance sheet and the dates you received that money from customers.We need to record the revenue down because revenue is the profits in a business or company that is coming inside of that business. yes professor principles is one historic cost , the revenue. recognition matching and the full disclosure again under the constraints you can see cost benefits, materiality, the industry practices and conservatism this are the mainly ideas of implementation. That so great of you sir. for that sound explanations for Accounting.the increases in left side or decreases on the right I fell what you debt on the left should be credit to the right side in accounting. For the T accounting when people are making it to record. The debt or credit they should not forget to record the dates down. so the bank or company should known when they gets that money. perfectly correct.

  33. The meaning of A= L+OE. first of all we all should know that Assets = to Liability = to owners of Equity when we know this definitions it will very easy for students should know where we can debt or credit some our assets or transactions is my own idea I have.

  34. I could never figure out why this professor seemed so familiar to me and then i came across and episode of Jimmy Kimmel live. They're voices are absolutely the same!

  35. Student: Krug, you ever curl up in a little ball and pretend you're in your mothers womb?
    Krug: That is a great question, these are great questions guys.

    Good videos and great teaching btw

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