ACCOUNTING FOR

DECISIONS
Dr. Debojyoti Das 1
Assistant Professor and Young Faculty Research Chair
Indian Institute of Management Bangalore

03/09/2022
 RECAP: IDENTIFY ASSETS, LIABILITIES &
OWNER’S EQUITY
Assets Liabilities Owner’s Equity
Accounts Receivable Wages Payable Retained Earnings
This is a liability account used to show the obligation to
pay employees who have worked for a period for which This is the portion of owners' equity that reflects the
This is an asset account used to show the claim to receive earnings that have not been distributed to shareholders as
cash at some future date for goods or services that your they have not been paid. Very common as most
employees are paid "in arrears", which is after they have dividends but have been retained in the business to
company has supplied to a customer on credit. finance growth or future operations.
performed the work. Also commonly called "accrued
payroll."

Investments Notes Payable Paid-in Capital

An asset for the company, these are financial instruments This is a liability account used to show the obligation to This is an owners' equity account used to show amounts
such as stocks or bonds that the business has purchased in pay some third party for an amount borrowed for which of cash contributed to (invested in) the business by the
hopes of generating some return. the company signed a promissory note. owners.

Equipment Long-term Debt Salary Expense

These are long-lived physical assets such as buildings, This is a liability account used to show the obligation to This is an expense related to the salaries of employees.
vehicles, or machines, which are expected to provide repay a loan (or that portion of a loan) which will be due All revenues and expenses are considered part of owners’
value to the business for periods in excess of one year; in more than one year. equity.
sometimes referred to as fixed assets.
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 Create financial Expert
RECORDING PROCESS IN ACCOUNTING statements

Create trial
balance

Post to
T-accounts

Create journal
entries

Understand
transactions

Identify
Beginner
transactions 03/09/2022 3
JOURNAL ENTRIES: DEBITS AND
CREDITS
 A debit is one-half of the accounting transaction.
 The other half is known as the credit.

Debit (Dr.) Credit (Cr.)

These are supposedly derived from the Italian terms, Debitori (Dr.) and Creotori (Cr.)

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JOURNAL ENTRIES: DEBITS AND
CREDITS
Let us look at the accounting equation again:

Assets = Liabilities + Owner’s equity

Debit Credit Owner’s Credit
contribution
Credit Debit Debit

Credit
Revenues
(Good Kid)
Debit

Debit
Expenses
(Bad Kid)
Credit
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JOURNAL ENTRIES: DEBITS AND
CREDITS
Another way of summarizing:

Debit Credit
Credit Debit

Assets Liabilities

Expenses Owner’s
Contribution
Revenues

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QUIZ TIME!
Trade payable increases with a:
(a) Debit
Liabilities decrease with a debit.
(b) Credit
Liabilities increase with credit.

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QUIZ TIME!
Cash-in-hand decreases with a:
(a) Debit
Assets increase with a debit.
(b) Credit
Assets decrease with a credit.

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QUIZ TIME!
Accounts receivables increases with a:
(a) Debit
Assets increase with a debit.
(b) Credit
Assets decrease with a credit.

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QUIZ TIME!
The owner’s contribution decreases with a:
(a) Debit
Owner’s equity decreases with a debit.
(b) Credit
Owner’s equity increase with a credit.

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 A FEW THINGS TO REMEMBER ABOUT
JOURNAL ENTRIES
 Every journal entry has one line for each account affected.
 There are always at least two accounts affected.
 The total of all debits must equal the total of all credits.
 Journal entries are generally formatted with the debits first, then
credits.
 Each journal entry has a date associated with the entry.

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JOURNAL ENTRIES
Page 104
3.5. (a) Ajit invested cash
Accounts affected: Cash (A), Share Capital (OE)
Debit (Dr.) Cash A/c Credit (Cr.)
(a) 10,000

Debit (Dr.) Share Capital A/c Credit (Cr.)

(a) 10,000

Cash A/c …Dr. 10,000

To Share Capital A/c 10,000

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JOURNAL ENTRIES
(b) Took loan
Accounts affected: Cash (A), Loan Payable (L)
Debit (Dr.) Cash A/c Credit (Cr.)
(b) 2,000

Debit (Dr.) Loan Payable A/c Credit (Cr.)

(b) 2,000

Cash A/c …Dr. 2,000

To Loan Payable A/c 2,000

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JOURNAL ENTRIES
(c) Bought equipment for cash
Accounts affected: Cash (A), Equipment (A)
Debit (Dr.) Cash A/c Credit (Cr.)
(c) 9,000

Debit (Dr.) Equipment A/c Credit (Cr.)

(c) 9,000

Equipment A/c …Dr. 9,000

To Cash A/c 9,000

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JOURNAL ENTRIES
(d) Paid insurance (for one year)
Accounts affected: Cash (A), Prepaid Insurance (A)
Debit (Dr.) Cash A/c Credit (Cr.)
(d) 480

Debit (Dr.) Prepaid Insurance A/c Credit (Cr.)

(d) 480

Prepaid Insurance A/c …Dr. 480

To Cash A/c 480

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JOURNAL ENTRIES
(e) Supplies on credit
Accounts affected: Supplies (A), Trade Payables (L)
Debit (Dr.) Supplies A/c Credit (Cr.)
(e) 700

Debit (Dr.) Trade Payables A/c Credit (Cr.)

(e) 700

Supplies A/c …Dr. 700

To Trade Payables A/c 700

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JOURNAL ENTRIES
(f) Billed customers
Accounts affected: Trade Receivables (A), Revenue from Services (OE)
Debit (Dr.) Trade Receivables A/c Credit (Cr.)
(f) 1,400

Debit (Dr.) Revenue from Services A/c Credit (Cr.)

(f) 1,400

Trade Receivables A/c …Dr. 1,400

To Revenue from Services A/c 1,400

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JOURNAL ENTRIES
(g) Provided services for cash
Accounts affected: Cash (A), Revenue from Services (OE)
Debit (Dr.) Cash A/c Credit (Cr.)
(g) 3,200

Debit (Dr.) Revenue from Services A/c Credit (Cr.)

(g) 3,200

Cash A/c …Dr. 3,200

To Revenue from Services A/c 3,200

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JOURNAL ENTRIES
(h) Received cash in advance
Accounts affected: Cash (A), Unearned Revenue (L)
Debit (Dr.) Cash A/c Credit (Cr.)
(h) 150

Debit (Dr.) Unearned Revenue A/c Credit (Cr.)

(h) 150

Cash A/c …Dr. 150

To Unearned Revenue A/c 150

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JOURNAL ENTRIES
(i) Paid for supplies in (e)
Accounts affected: Cash (A), Trade Payables (L)
Debit (Dr.) Cash A/c Credit (Cr.)
(i) 300

Debit (Dr.) Trade Payables A/c Credit (Cr.)

(i) 300

Trade Payables A/c …Dr. 300

To Cash A/c 300

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JOURNAL ENTRIES
(j) Paid salaries
Accounts affected: Cash (A), Salaries Expenses (OE)
Debit (Dr.) Cash A/c Credit (Cr.)
(j) 800

Debit (Dr.) Salaries Expenses A/c Credit (Cr.)

(j) 800

Salaries Expenses A/c …Dr. 800

To Cash A/c 800

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JOURNAL ENTRIES
(k) Collected receivables
Accounts affected: Cash (A), Trade Receivables (A)
Debit (Dr.) Cash A/c Credit (Cr.)
(k) 1,100

Debit (Dr.) Trade Receivables A/c Credit (Cr.)

(k) 1,100

Cash A/c …Dr. 1,100

To Trade Receivables A/c 1,100

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 WHAT DID WE LEARN TODAY?
 Passing journal entries
 Posting to T-accounts

 Practice questions: 3.6, 3.7, 3.8, 3.11, 3.12, BDC 3.2 (Kapoor Software)

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