Debits & Credits A to Z

The term debit comes from the Latin debitum which means "that which is owing" (the past participle of debere "to owe"). Debit is abbreviated to Dr (for debtor). The term credit comes from the Latin credere/credit meaning "to trust or believe" / "he trusts or believes" via the French credit and the Italian credito. Credit is abbreviated to Cr (for creditor).

The double-entry bookkeeping system refers to a set of rules to record financial information in a financial accounting system wherein every transaction or event impacts at least two different accounts. In modern accounting this is done using debits and credits, and serves as a kind of error-detection system: if, at any point, the sum of debits do not equal the corresponding sum of credits, then an error has occurred.





The above educational video provides a basic class on Journal Entries. Early in your Accounting learning when faced with Journal Entries it's important to ask yourself is this an ASSET or a LIABILITY and should this entry INCREASING or DECREASING the value of that ASSET or LIABILITY? The Map For Debits Credits concept helps to train your brain.

The term debit refers to the left side of an account and credit refers to the right side of an account. A debit is always entered in the left hand column of a Journal or Ledger Account and a credit is always entered in the right hand column. Debit is abbreviated Dr. and Credit is abbreviated Cr.

When you post (record) an entry in the left hand column of an account you are debiting that account. Whether the debit is an increase or decrease depends on the type of account. Likewise, when you post (record) an entry in the right hand column of an account you are crediting that account. Whether the credit is an increase or decrease depends on the type of account.

Simple Debit / Credit Rules:

All Accounts that Normally Have a Debit Balance are Increased with a Debit by placing the amount in the Left Column of the account and Decreased with a Credit by placing the amount in the Right Column of the account.

Assets
Draws
Expenses

All Accounts that Normally have a Credit Balance are Increased with a Credit by placing the amount in the Right Column of the account and Decreased with a Debit by placing the amount in the Left Column of the account.

Liabilities
Owner's Equity ( Capital )
Revenue

All You Need To Know About Debits and Credits
Summarized In One Sentence:

Enter an amount in the Normal Balance Side of an Account to Increase the Balance of an Account and in the Opposite Side of an Account to Decrease the Balance of an Account.

Additional Clarification:

Since Assets, Draw, and Expense Accounts normally have a Debit Balance, in order to Increase the Balance of an Asset, Draw, or Expense Account enter the amount in the Debit or Left Side Column and in order to Decrease the Balance enter the amount in the Credit or Right Side Column.

Likewise, since Liabilities, Owner's Equity (Capital), and Revenue Accounts normally have a Credit Balance in order to Increase the Balance of a Liability, Owner's Equity, or Revenue Account the amount would be entered in the Credit or Right Side Column and the amount would be entered in the Debit or Left Side column to Decrease the Account's Balance.



Principles or Rules of Debit and Credit

Each transaction consists of debits and credits, and for every transaction they must be equal.

' For Every Transaction: ' 'The Value of Debits = The Value of Credits'

This also means that the accounts with debits balances will equal the total value of accounts with credit balances. You can check the arithmetical accuracy of the accounts by doing a trial balance and proving that total debits equal total credits.

The extended accounting equation must also balance: 'A + E = L + OE + R'

(where A = Assets, E = Expenses, L = Liabilities, OE = Owner's Equity and R = Revenues)

So 'Debit Accounts (A + E) = Credit Accounts (L + R + OE)'

Debits are on the left and increase a debit account and reduce a credit account. Credits are on the right and increase a credit account and decrease a debit account.

Examples
1. when you pay rent with cash: you increase rent (expense) by debiting, and decrease cash (asset) by credit.
2. when you receive cash for a sale: you increase cash (asset) by debiting, and increase sales (revenue) by credit.
3. when you buy equipment (asset) with cash: You increase equipment (asset) by debiting, and decrease cash (asset) by credit.
4. when you borrow with a cash loan: You increase cash (asset) by debiting, and increase loan (liability) by credit.



For more information read Bean Counters Debits & Credits and The Quick MBA Accounting

Accounting - Overview 100 to 400

Accountancy is the art of communicating financial information about a business entity to users such as shareholders and managers.

The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management. It is the branch of mathematical science that is useful in discovering the causes of success and failure in business. The principles of accountancy are applied to business entities in three divisions of practical art, named accounting, bookkeeping, and auditing.

Accounting is defined by the AICPA as "The art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof."

Accounting is thousands of years old; the earliest accounting records were found in the Middle East which date back more than 7,000 years. The people of that time relied on primitive accounting methods to record the growth of crops and herds. Accounting evolved, improving over the years and advancing as business advanced.

Early accounts served mainly to assist the memory of the businessperson and the audience for the account was the proprietor or record keeper alone. Cruder forms of accounting were inadequate for the problems created by a business entity involving multiple investors, so double-entry bookkeeping first emerged in northern Italy in the 14th century, where trading ventures began to require more capital than a single individual was able to invest. The development of joint stock companies created wider audiences for accounts, as investors without firsthand knowledge of their operations relied on accounts to provide the requisite information. This development resulted in a split of accounting systems for internal (i.e. management accounting) and external (i.e. financial accounting) purposes, and subsequently also in accounting and disclosure regulations and a growing need for independent attestation of external accounts by auditors.





Today, accounting is called "the language of business" because it is the vehicle for reporting financial information about a business entity to many different groups of people. Accounting that concentrates on reporting to people inside the business entity is called management accounting and is used to provide information to employees, managers, owner-managers and auditors. Management accounting is concerned primarily with providing a basis for making management or operating decisions. Accounting that provides information to people outside the business entity is called financial accounting and provides information to present and potential shareholders, creditors such as banks or vendors, financial analysts, economists, and government agencies. Because these users have different needs, the presentation of financial accounts is very structured and subject to many more rules than management accounting. The body of rules that governs financial accounting is called Generally Accepted Accounting Principles, or GAAP.





A detailed example of how Assets = Liabilities + Owners Equity as you the accounting double entry debit and credit system is seen in action.



We offer a series of free Accounting training videos. See Accounting tag and classes 101-107 from last summer.

Digital Text Books

The future is now. Finally we're starting to get serious about digitizing text books. But don't think you'll save hundreds annually by getting all your college text books free throught Bit Torrents. You know the management teams of printed textbooks don't want to lose their cash cows. You know the thousands of university college bookstores don't want to lose their on campus monopolies'. Yes, you guessed correct...Amazon's Kindle has companies like Sony and Apple scrambling to create a similiar product to sell to you. Early adapters always pay preme prices for the newest must have gadget. These things will be selling for as much as a new mid-level budget PC or high end notebook. How many gadgets can we carry at one time?



On the day after Christmas, Amazon said the Kindle was the most-purchased gift in its history and sales of its electronic books surpassed physical book sales on the holiday itself. Amazon Kindle is a software and hardware platform developed by Amazon.com subsidiary Lab126 for rendering and displaying e-books and other digital media



Now Coursesmart, a joint venture of five textbook publishers, shows how students might use tablet-based textbooks. It is based on their own renderings, not specific applications being developed with Apple.

Can we see people buying two ebook readers? One for Standard Print Books and one for School Text Books? In 2005 the concept of a tablet laptops was gaining momentum -it faded fast. By 2007 the selection, power and price points on laptops under $1,000 was motivating record levels of buyers. In 2009 regardless of the greatest American recession notebooks where flying off the shelf's at $399 price points.

Given there's nothing extremely unique behind any of these technologies, can anyone see one primary light-weight high-powered device that does it all. Assuming we'll always want a very small mobile phone, I referring to the possibility of the Tablet PC/Laptop returning to the lime-light. What do you think?

How's Your Government Accounting & Marketing ?

When your neighbor loses her job, it's a recession. When you lose your job, it's a depression. When federal workers not only keep their jobs but see their pay rise during a recession, it's a sign of the times. And when your home real-estate taxes have risen 18% during the period called the greatest recession and the city tax gets raised I'm ready to ask the federal government to make some layoffs and take some paycuts? How about you? Our state of Ohio employees have taken about a 5% cut but our unionized teachers got raises. let's post a few facts on how painful this great recession has been for the federal government employee vs the private sector employees.

USA Today:

The number of federal workers earning six-figure salaries has exploded during the recession, according to a USA TODAY analysis of federal salary data.

Federal employees making salaries of $100,000 or more jumped from 14% to 19% of civil servants during the recession's first 18 months — and that's before overtime pay and bonuses are counted.

Federal workers are enjoying an extraordinary boom time — in pay and hiring — during a recession that has cost 7.3 million jobs in the private sector.

Since June, the federal government has increased employment by almost 10 percent, while the private sector has cut employment by over 6 percent over the prior two years of decline.

Now you know why I've been advising many students to seek careers in government for over 5 years.

My advice for financial students? Start learning government accounting and tax law. My advice for State and Federal Government? Start hiring those marketing majors. You need someone who could sell Ice to Eskimos' The government worker in this video couldn't sell water in the desert. Start working on those Taxes Are US slogans.

As a young BBA about 40% of our Business School was Accounting majors. When private and public sector recruiters came on campus all us Beta Alpha Phi folks lined-up for the Big 8 CPA firms. Alias, for those of us who were finance majors too, Investment Bankers didn't come to WMU back in 1976. The only government jobs we thought might provide some stability and be cool were for the FBI and CIA. Frankly, we had no required government accounting classes within the core program -there was no need. All of my professors were CPA's and PhD's. I don't recall any of them had worked in government accounting.

It's time to start signing up for any and all government related classes.

After looking at the chart Scott Heintzelman just found(below)the advice I'd give to college business graduates is and old stock traders motto: The Trend Is Your Friend -start working on government internships and interviews. Remember government will not outsource or offshore itself. In 50 years it's never downsized -the trend has only gone up!