Accounting Basics : Debit and Credit

Accounting Basics  Debit and CreditDebits (abbreviated “dr”) and credits (abbreviated “cr”) are unique accounting tools to describe the change in a particular account that is necessitated by a transaction. In other words, instead of saying that cash is “increased” or “decreased,” we say that cash is “debited” or “credited.” This method is again traced to Pacioli, the Franciscan monk who is given credit for the development of our enduring accounting model.

Every transaction can be described in debit/credit form
&
For every transaction, debits = credits
To remember which accounts increase on Debit and decrease on Credit. Remember DEAL.
 
D : Dividends
E : Expenses
A : Assets
L : Losses
 
To remember which accounts increase on Credit and decrease on Debit. Remember GIRLS
 
G : Gains
I : Income
R : Revenues
L : Liabilities
S : Stock holder Equity
 

Types of accounts:

 
 Asset Accounts

No.
Account Title
To
Increase
Description/Explanation of Account
101 Cash Debit Checking account balance (as shown in company records), currency, coins, checks received from customers but not yet deposited.
120 Accounts Receivable Debit Amounts owed to the company for services performed or products sold but not yet paid for.
140 Merchandise Inventory Debit Cost of merchandise purchased but has not yet been sold.
150 Supplies Debit Cost of supplies that have not yet been used. Supplies that have been used are recorded in Supplies Expense.
160 Prepaid Insurance Debit Cost of insurance that is paid in advance and includes a future accounting period.
170 Land Debit Cost to acquire and prepare land for use by the company.
175 Buildings Debit Cost to purchase or construct buildings for use by the company.
178 Accumulated
Depreciation – Buildings
Credit Amount of the buildings’ cost that has been allocated to Depreciation Expense since the time the building was acquired.
180 Equipment Debit Cost to acquire and prepare equipment for use by the company.
188 Accumulated
Depreciation – Equipment
Credit Amount of equipment’s cost that has been allocated to Depreciation Expense since the time the equipment was acquired.

Liability Accounts

No.
Account Title
To
Increase
Description/Explanation of Account
210 Notes Payable Credit The amount of principal due on a formal written promise to pay. Loans from banks are included in this account.
215 Accounts Payable Credit Amount owed to suppliers who provided goods and services to the company but did not require immediate payment in cash.
220 Wages Payable Credit Amount owed to employees for hours worked but not yet paid.
230 Interest Payable Credit Amount owed for interest on Notes Payable up until the date of the balance sheet. This is computed by multiplying the amount of the note times theeffective interest rate times the time period.
240 Unearned Revenues Credit Amounts received in advance of delivering goods or providing services. When the goods are delivered or services are provided, this liability amount decreases.
250 Mortgage Loan Payable Credit A formal loan that involves a lien on real estate until the loan is repaid.

Owner’s Equity Accounts

No.
Account Title
To
Increase
Description/Explanation of Account
290 Mary Smith, Capital Credit Amount the owner invested in the company (through cash or other assets) plus earnings of the company not withdrawn by the owner.
295 Mary Smith, Drawing Debit Amount that the owner of the sole proprietorship has withdrawn for personal use during the current accounting year. At the end of the year, the amount in this account will be transferred into Mary Smith, Capital (account 290).

Operating Revenue Accounts

No.
Account Title
To
Increase
Description/Explanation of Account
310 Service Revenues Credit Amounts earned from providing services to clients, either for cash or on credit. When a service is provided on credit, both this account and Accounts Receivable will increase. When a service is provided for immediate cash, both this account and Cash will increase.

Operating Expense Accounts

No.
Account Title
To
Increase
Description/Explanation of Account
500 Salaries Expense Debit Expenses incurred for the work performed by salaried employees during the accounting period. These employees normally receive a fixed amount on a weekly, monthly, or annual basis.
510 Wages Expense Debit Expenses incurred for the work performed by non-salaried employees during the accounting period. These employees receive an hourly rate of pay.
540 Supplies Expense Debit Cost of supplies used up during the accounting period.
560 Rent Expense Debit Cost of occupying rented facilities during the accounting period.
570 Utilities Expense Debit Costs for electricity, heat, water, and sewer that were used during the accounting period.
576 Telephone Expense Debit Cost of telephone used during the current accounting period.
610 Advertising Expense Debit Costs incurred by the company during the accounting period for ads, promotions, and other selling and expenses (other than salaries).
750 Depreciation Expense Debit Cost of long-term assets allocated to expense during the current accounting period.

Non-Operating Revenues and Expenses, Gains, and Losses

No.
Account Title
To
Increase
Description/Explanation of Account
810 Interest Revenues Credit Interest and dividends earned on bank accounts, investments or notes receivable. This account is increased when the interest is earned and either Cash or Interest Receivable is also increased.
910 Gain on Sale of Assets Credit Occurs when the company sells one of its assets (other than inventory) for more than the asset’s book value.
960 Loss on Sale of Assets Debit Occurs when the company sells one of its assets (other than inventory) for less than the asset’s book value.
 
 
Amazing resources:
1.http://www.accountingcoach.com
1.http://www.principlesofaccounting.com

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