So true - but the explanation of what a debit and a credit is is pretty
straightforward.
A debit is a positive addition to an account. A positive addition to an
account that normally carries a positive balance, like cash on hand or
accounts receivable, increases the positive balance. You can debit
(i.e. add a positive amount) to an account that normally carries a
negative balance, like accounts receivable, and reduce the negative
balance.
A credit is a negative addition (i.e. subtraction) from an account. A
credit to a liability account (one that carries a negative balance)
increases the liability, A credit to an asset account, like cash on
hand, reduces the balance of the asset account.
Simplified Accounting 101
Assets = Liabilities + Equity
Assets are debit (positive) balance accounts,
Liabilities and Equity are credit (negative) balance accounts.
Adding a debit (positive) to a debit balance account increases the
balance in the account.
Adding a debit (positive to a credit balance account decreases the
balance in the account.
Adding a credit (negative) to a debit balance account decreases the
balance in the account.
Adding a credit (negative to a credit balance account increases the
balance in the account.
On Tue, 2003-02-04 at 09:50, Liberty Young wrote:
> Two of the biggest mental obstacles to understanding double entry
> accounting are the words
> credit
> debit
>
> Many of us in my accounting 101 class had a hard time coming to grips
> with that. Credits don't mean you put money in, debits don't mean you
> took money out.
> A lot of the students had a hard time understanding that a debit of a
> cash account could mean putting money into a cash account.
>
> Jim's explanation is good, but it glosses over the use of the words
> credit and debit, which trips up many of us who are accounting and the
> use of double entry accounting.
>
> On Sat, 2003-02-01 at 15:33, Jim wrote:
> > The simple explanation to double entry accounting is that for every
> > debit you enter, you must enter a corresponding credit. If you debit an
> > asset account for $100.00, you must make one or more credit entries
> > matching the $100.00 debit.
> >
> > e.g. - you transfer $100.00 into cash. That cash has to have come from
> > somewhere. It could be a transfer from another asset account, which
> > would necessitate a credit to that other asset account, or it could be
> > offset by a credit to a liability account, such asaccounts payable or
> > owner equity.
> >
> > The reasoning for this is simple - assets must always equal liabilities
> > plus equity.
> >
> > On Sat, 2003-02-01 at 12:44, David Mandala wrote:
> > > You might want to get a book on double entry bookkeeping. Any accountant
> > > knows how to set it up and make entries. It is not intuitive without so
> > > type of training. That said double entry bookkeeping is how most
> > > businesses track their finances. Single entry is frowned up in
> > > accounting circles.
> > >
> > > Cheers,
> > >
> > > Davidm
> > >
>
>
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