The basics of accounting 2

Debits versus Credits
By Michael Reimer


Left Side is Right side
the debit
is the credit
side
side


 This is where all the daily

transactions of a business are
recorded.


 The general journal entries are

posted here.

 The account balances are updated

each day.


 Assets = Liabilities + Owner’s Equity


 Left side of the balance sheet

equation

 Normal asset balance is a debit


 Assets go up

with a debit

 Assets go down

with a credit

Assets
Debit Credit


 Properties or economic resources
 Provision of future company

benefits


 Cash
 Receivables
 Supplies
 Machinery
 Land
 Inventory held for sale

 Right side of the balance sheet

equation

 Normal liability balance is a credit


 Liabilities go up

with a credit

 Liabilities go

down with a
debit

Liabilities
Debit Credit


 Debts or payables owed by the

business

 A reduction of future assets of the

business

Accounts Payable
Notes Payable
Bank Loan Payable
Mortgage Payable


 Two Accounts:
 Capital: records the owner’s investment

in the business

 Withdrawals: records the owner’s

personal drawings from the business


 Capital goes up

with a credit

 Capital goes

down with a
debit

M. Reimer, Capital

Debit

Credit

M. Reimer,
 Withdrawals goes
Withdrawals
up with a debit
Debit
Credit
 Withdrawals goes

down with a
credit


 Is linked with another account
 Has an opposite balance to its

counterpart

 Reduces the value of its counterpart


 Revenues – Expenses = Profit or Loss


 Revenues go up

with a credit

 Revenues go

down with a
debit

Revenue
Debit Credit


 Two different types:
 Service based:
 Work provided to customers (Chapters 3 to 5)

 Retail based:
 Sales of inventory to customers (Chapter 6)


 Sales
 Commissions Earned
 Professional Fees Earned
 Rent Revenue
 Interest Earned


 Expenses go up

with a debit

 Expenses go

down with a

credit

Expenses
Debits Credits


 Incur costs while doing daily

business

 Show a consumption of assets to

generate revenues


 Advertising Expense
 Supplies Expense
 Telephone Expense
 Utilities Expense
 Wages Expense
 Rent Expense
 Insurance Expense


Left side is
the debit
side

Right side
is the credit

side