Debits and Credits

Posted by Professor Cram in Accounting Cycle

Double Entry Accounting System

In a double entry accounting system, a Debit is any entry recorded on the left and a Credit an entry recorded on the right.

Debits and credits do not mean a decrease or increase. Debits and Credits are recorded as positive numbers.

Each account in a company's general ledger (as identified in the chart of accounts) has two columns — one for debits and one for credits. The type of account and which column the entry is posted in determines if it is a decrease or an increase.

The double entry requires each transaction to affect at least two entries, creating a balance within the system. Thus if one account is debited then another must be credited, allowing for a total of all debits and credits to be equal.

Balance Sheet Account quick reference:

Account Type Debits Credits
The type of account determines whether a debit or a credit is a loss or gain. On the Left On the Right
Assets (cash) gain + loss -
Liabilities (accounts payable) loss - gain +
Owner's Equity (retained earnings) loss - gain +

Income Statement Account quick reference

Revenue – Expenses = Income

Account Type Debits Credits
The type of account determines whether a debit or a credit is a loss or gain. On the Left On the Right
Revenue loss - gain +
Expenses gain + loss -
Income loss - gain +
Share

Comments

2 Responses to “Debits and Credits”

  1. With ACH Processing, You Get Your Payments Faster | Tucson Marketing Pro says:

    [...] Debits and Credits | Accounting: Accounting Cycle | College-Cram.com [...]

  2. Whats a good and easy to use accounting software? says:

    [...] Debits and Credits | Accounting: Accounting Cycle | College-Cram.com [...]

Leave a Reply