12472020 Debis and Credits | Accounting-Simpliied.com Accounting-Simplified.com the easy way to learn accounting onfne, fo roe! Home Debits & Credits in Accounting Home > Double Entry Accounting > Debit & Credit What are debits and credits? Debit and Credit are the respective sides of an account. Debit refers to the left side of an account. Credit refers to the right side of an account. Explanation In accounting, every account or statement (e.g. accounting ledger, trial balance, profit and loss account, balance sheet) has 2 sides known as debit and credit. Ina typical accounting ledger (often referred to as a T-Account) the debit and credit sides are split horizontally as shown below. XYZ Receivable AIC Date Particulars s Date Particulars $ o1-Dee- Sales 0 10-Dec-t Discount allow 500 10-0 Bank 12,000 12,500 12,500 Debit Side Credit Side According to the dial aspect principle, each accounting entry is recorded in 2 equal debit and credit portions. In other words, the total amount that will be recorded in the left side (debit) of accounting ledgers will always equal to the total amount recorded on the right side (credit). For example, you may consider how the accounting entries have been recorded in the Receivable AIC shown above. htps:accounting simplified comiinancialidouble-ertyidebit&-credit htm! 1612472020 Debis and Credits | Accounting-Simpliied.com The ledger has been debited on account of credit sales amounting $12,500 and (as can be ascertained from the particulars) the same amount has been credited in the Sales A/C. Similarly, the credit entries in the Receivable A/C relating to discount allowed and bank receipts are matched with equal amounts recorded on the debit sides of Discount Allowed A/C and Bank AJC respectively. In case of any confusion, please refer Accounting for Sales section for more thorough explanation of the accounting entries discussed above. Now the question arises, how do we know what to record on the debit side of an account and what to record on the credit side? Accounting has specific rules regarding what should be debited and what should be credited as summarized in the chart below: Assets, expenses, liabilities, income & equity are the 5 elements of financial statements. For explanation and examples of the various elements, please refer elements of financial statements section. As with accounting ledgers, all accounting statements are based on the rules of debit and credit. For ‘example, in a balance sheet, assets are reported on the debit side whereas liabilities and equity are presented on the credit side. Although traditional accounts and statements are presented in a T- Account format as above (which makes understanding debits and credits a bit easier for beginners) many accounts and statements nowadays are reported in a vertical format. But fear not! As long as you master the rules of debit and credit, you shall have no problem in understanding their application and presentation Example Record the debit and credit entries of the following transactions: a) Purchase of an office building for $1 million via funds transfer b) Bonus payable to various employees amounting $5 million ¢) Credit Sales during the period amounting $7 million htps:accounting simplified comiinancialidouble-ertyidebit&-credit htm! 2612472020 Debis and Credits | Accounting-Simpliied.com d) Issuance of ordinary shares at par for $10 million a) Purchase of an office building Account 5 Effect Debit Office Bulaing 1,000,000 Increase in Asset Creait Bank 1,000,000 Decrease in Assets b) Performance Bonus Account $ Effect Debit Salaries, wages and benefits 5,000,000 Increase in Expense creait Bonus Payable 5,000,000 Increase in Ladies ©) Credit Sales Account s Effect Debit Accounts Receivables 7,000,000 Increase in Asset Creat Seles Revenue 7,000,000 tnerease in Income 4d) Issuance of ordinary shares Account 5 Effect Debit Bank 10,000,000 Increase in Asset Credit ‘Share Capital 10,000,000 Increase in Equity If you face any problem in understanding the double entries, please refer double entry accounting section. hips: accounting simplified comiinanciaidouble-entyidebit&-credit htm!12472020 Debis and Credits | Accounting-Simpliied.com «Next: Ledger Accounts Select a topic Debit & Credit, Vv Double Entry Accounting > Ledger Accounts > Accounting Equation > Accounting Equation: Assets Example > Accounting Equation: Assets & Liabilities Example Accounting Equation: Assets & Equity Example > Accounting Equation: Liabilities & Equity Example > More Topics > hips: accounting simplified comiinanciaidouble-entyidebit&-credit htm! 4612472020 Debis and Credits | Accounting-Simpliied.com ‘About Contact Disclaimer Privacy Sitemap Copyright, xX @ Management Accounting > @ IFRS > © Audit > © Other Accounting Topics > © Financial Accounting v Introduction to Financial Accounting ‘Accounting Concepts and Principles. Elements of Financial Statements Double Entry Accounting Concept of Double Entry Debits and Credits Ledger Accounts Accounting Equation ‘Accounting Equation: Assets Example Accounting Equation: Assets & Liabilities Example ‘Accounting Equation: Assets & Equity Example Accounting Equation: Liabilities & Equity Example Accounting for Share Capital Accounting for Sales ‘Accounting for Purchases hips: accounting simplified comiinanciaidouble-entyidebit&-credit htm!12472020 Debis and Credits | Accounting-Simpliied.com Accounting-Simplified.com Comment Policy We welcome relevant and precise comments and questions. abeo)) posted here may be shared on other platforms. 0Comments Accounting-Simplified.com —_ Privacy Policy @ Login ~ © Recommend 15 Yiweet f Share Sort by Best + @ Start the discussion... =_ Log IN WITH ‘OR SIGN UP WITH Disaus (2) Name Be the first to comment. © subscribe © Add Disqus to your siteAdd DisqusAdd Newsletter Join our free newsletter for the la updates, discussions, quizzes & more. Your emai Subscribe Accounting Simplified Luke ‘Accounting-Simplifed.com | Allright reserved | Copyright 2010-201 hips: accounting simplified comiinanciaidouble-entyidebit&-credit htm!