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Debits &amp Credits 1

The document discusses debits and credits in accounting. It explains that debits increase asset, expense, and drawing accounts, while decreasing liability, equity, and revenue accounts. Credits have the opposite effect, increasing liability, equity, and revenue accounts, while decreasing asset, expense, and drawing accounts. The accounting equation - Assets = Liabilities + Equity - forms the basis for debits and credits, with normal debit and credit balances outlined for different account types. Examples are provided to illustrate debit and credit entries.

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Joji Isac P
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50 views13 pages

Debits &amp Credits 1

The document discusses debits and credits in accounting. It explains that debits increase asset, expense, and drawing accounts, while decreasing liability, equity, and revenue accounts. Credits have the opposite effect, increasing liability, equity, and revenue accounts, while decreasing asset, expense, and drawing accounts. The accounting equation - Assets = Liabilities + Equity - forms the basis for debits and credits, with normal debit and credit balances outlined for different account types. Examples are provided to illustrate debit and credit entries.

Uploaded by

Joji Isac P
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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DEBITS & CREDITS

Explanation

ACCOUNTING EQUATION

ASSETS = LIABILITIES DEBITS AND CREDITS EQUATION IS A VARIATION OF THE FULLY EXPANDED EQUATION. ASSETS + DRAWING + EXPENSES=LIABILITIES+OWNERS EQUITY +REVENUE. Therefore DEBITS = CREDITS.

What is Debit?

A debit in accounting language is an entry made on the left side of the of a journal or ledger that increases an asset, drawing or expense or an entry that decreases a liability , owners equity or revenue.

What is Credit?

A credit in accounting language is an entry made on the right side of journal or ledger that increases a liability, owners equity or revenue or an entry that decreases an asset , draw or an expense.

Debit/Credit Equation

Assets + Drawing + Expense =Liabilities +Owners Equity +Revenue. All accounts that normally have a debit balance are on the left side of the equation. All accounts that normally have a credit balance are on the right side of he equation.

Summarised Debit/Credit Rule Table


ACCOUNT TYPE DEBIT ASSETS LIABILITIES OWNERS EQUITY REVENUE EXPENSE DRAWING INCREASE DECREASE DECREASE DECREASE INCREASE INCREASE CREDIT DECREASE INCREASE INCREASE INCREASE DECREASE DECREASE NORMAL DEBIT BALANCE CREDIT BALANCE CREDIT BALANCE CREDIT BALANCE DEBIT BALANCE DEBIT BALANCE

Normal Account Balances


Debit Balances: Asset : Normally a debit balance. Drawings :Normally a debit balance Expense : Normally a debit balance.

Contd

Credit Balances : Liabilities : Normally a credit balance Owners Equity: Normally a credit balance. Revenue : Normally a credit balance.

A debit increases an asset while a credit decreases an asset. A debit decreases a liability while a credit increases a liability. A debit decreases owners equity while a credit increases owners equity.

A debit decreases revenue while credit increases revenue. A debit increases an expense while a credit decreases an expense. A debit increases a drawing while a credit decreases a drawing.

All accounts that normally have a debit balance are increased with a debit and decreased with a credit. All accounts that normally have a credit balance are increased with a credit and decreased with a debit.

Example 1

My business has an advertisement expense of Rs.20,000.

Conclusion

Dont worry if you have not fully grasped the concept of Debits & Credits yet. Keep in mind the old saying Out of confusion comes knowledge Practice makes Perfect.

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