Debits and Credits
No matter the accounting method you use to record entries, all transaction entries are formulated using the double-entry accounting concept. This means that every transaction will always include at least two entries, a debit and a credit, and that the sum of the debits and credits equal each other.
For example, when a company borrows Sy,000 from a bank, the transaction will affect the company's Cash account and the company's Notes Payable account.
One way to visualize business transactions is T-Accounts. T-Accounts are just a tool we u to visualize entries.
example, ABC company paid Slyoo rent, this transaction will affect the company's cash account and company's rent expense account.
Another way to visualize the above business transactions is to write journal entries.
To debit an account means to enter an amount on the left side of the account. To credit an account means to enter an amount on the right side of an account.
Memory Tips: Keep in mind the word/phrase "DEALER' and break it up in the middle (bunch of; letters) to quickly recall the types of accounts that commonly see an increase with a debit or Credit respectively:
- Dividends (Draws)
- Expenses
- Assets
Commonly the following types of accounts are increased with a credit:
- Liabilities
- Equity
- Revenues
I hope the above provides a concise overview of the types of accounts and give you a perspective of how to identify them clearly and easily. Comments..feedback..please post it through ou,Contact us. page. We look forward to hearing from you.
Ruchi loshi