LO2-3 Effects of Debits and Credits on Assets, Liabilities, and Stockholders’ Equity

What does “debit” mean in accounting?

Debit means left side of an account.

What does “credit” mean in accounting?

Credit means right side of an account.

Which side increases asset accounts?

Debit (left side)

Which side increases liability and equity accounts?

Credit (right side)

What’s the DEALOR acronym stand for?

• Dividends → increase with Debits

• Expenses → increase with Debits

• Assets → increase with Debits

• Liabilities → increase with Credits

• Owners’ Equity → increase with Credits

• Revenue → increase with Credits

What type of account is revenue?

Revenue is part of equity → increases with credit

What type of account is an expense?

Expense reduces equity → increases with debit

What type of account is dividends?

Dividends reduce equity → increase with debit

What happens when the company buys a building by taking out a $5,000 loan?

• Buildings (Asset) increases → Debit

• Notes Payable (Liability) increases → Credit

What happens when the company earns $1,800 cash for services?

• Cash (Asset) increases → Debit

• Service Revenue (Revenue) increases → Credit

What happens when the company pays $1,200 for advertising?

• Advertising Expense (Expense) increases → Debit

• Cash (Asset) decreases → Credit

What happens when the company repays $1,000 of the loan?

• Notes Payable (Liability) decreases → Debit

• Cash (Asset) decreases → Credit

What happens when the company buys $800 of supplies for cash?

• Supplies (Asset) increases → Debit

• Cash (Asset) decreases → Credit