Foundations of Accounting · Module 2: Double entry
Which Side Goes Up?
Chapters
- Rule
- Week one
- Trial balance
- Recap
In short
Every transaction is recorded in two accounts, with equal debits and credits. Drawings, expenses and assets increase with a debit; liabilities, equity and revenue increase with a credit (DEALER). A trial balance that balances proves debits equal credits, not that there are no errors.
- D-E-A (drawings, expenses, assets) go up with a debit.
- L-E-R (liabilities, equity, revenue) go up with a credit.
- Omitting a whole transaction leaves the trial balance in balance.
Transcript
Rule
Every transaction touches two accounts: one on the left, one on the right. The hard part is knowing which side makes an account go up. The whole rule fits in one word: DEALER. Drawings, expenses, assets. A debit makes them go up. Liabilities, equity, revenue. A credit makes them go up. To make any account go down, use the other side.
Week one
Meet Kookaburra Cleaning, in its first week. Day one: the owner puts in $10,000 cash. Cash is an asset, so debit Cash. The owner's money is capital, which is equity. Credit Capital. Day two: equipment for $3,000, on credit. Debit Equipment, credit Accounts payable. Day three: a cleaning job, paid in cash, $1,200. Debit Cash. Pause. Which account gets the credit? Revenue. Revenue goes up with a credit. Day four: rent of $500. Debit Rent expense, credit Cash. Day five: the owner takes $300 for personal use. Debit Drawings, credit Cash.
Trial balance
Now list every balance. Cash ends the week at $10,400. Debits: cash, equipment, rent and drawings. $14,200. Credits: capital, accounts payable and revenue. Also $14,200. It balances. But a balanced trial balance can still hide errors. Leave out a whole transaction, and both sides fall short by the same amount.
Recap
Debit to grow D, E, A. Credit to grow L, E, R. Every entry, both sides. Next: practice Module 2 in the CPA dashboard while it is fresh. Subscribe so you catch the next lesson.
Try a question on this lesson
From the EstatePass Foundations of Accounting bank. Answer it, then read the explanation.
Which of the following accounts normally has a credit balance in the ledger of a sole trader?
Sources
- Double-entry principle
- CPA question bank: cpa-foa-0016, 0017, 0021
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