Updated: Apr 15
Credit vs Debit Do you get confused by debit and credit transactions? 😬
Let’s go through these transactions so you have error-free books and accurate financial reports!
(𝟭) 𝗪𝗵𝗮𝘁 𝗮𝗿𝗲 𝗗𝗲𝗯𝗶𝘁 (𝗗𝗿) 𝗮𝗻𝗱 𝗖𝗿𝗲𝗱𝗶𝘁 (𝗖𝗿) 𝘁𝗿𝗮𝗻𝘀𝗮𝗰𝘁𝗶𝗼𝗻𝘀? These are a feature of double-entry accounting (the QuickBooks style) Every transaction has an OPPOSITE entry that BALANCES the first (debit vs. credit). Let’s say you pay $600 cash for a new desk. The $600 flows OUT of your cash account (credit) and INTO your furniture asset account (debit). (𝘘𝘶𝘪𝘤𝘬 𝘵𝘪𝘱: 𝘥𝘦𝘣𝘪𝘵𝘴 𝘢𝘳𝘦 𝘈𝘓𝘞𝘈𝘠𝘚 𝘪𝘯 𝘵𝘩𝘦 𝘭𝘦𝘧𝘵 𝘤𝘰𝘭𝘶𝘮𝘯 𝘢𝘯𝘥 𝘤𝘳𝘦𝘥𝘪𝘵𝘴 𝘪𝘯 𝘵𝘩𝘦 𝘳𝘪𝘨𝘩𝘵!)
(𝟮) 𝗗𝗼𝗲𝘀 𝗮 𝗰𝗿𝗲𝗱𝗶𝘁 𝗮𝗹𝘄𝗮𝘆𝘀 𝗱𝗲𝗰𝗿𝗲𝗮𝘀𝗲 𝗮𝗻 𝗮𝗰𝗰𝗼𝘂𝗻𝘁? No, Debits increase asset and expense accounts. Credits increase revenue, liability, and owner’s equity accounts. 𝗜𝗳 𝘆𝗼𝘂 𝗯𝗼𝗿𝗿𝗼𝘄 $𝟮,𝟬𝟬𝟬 𝗳𝗿𝗼𝗺 𝘁𝗵𝗲 𝗯𝗮𝗻𝗸: you debit the cash account and credit the bank loan account
(𝟯) 𝗢𝗻 𝗺𝘆 𝗯𝗮𝗻𝗸 𝘀𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁, 𝗮 𝗰𝗿𝗲𝗱𝗶𝘁 𝗮𝗹𝘄𝗮𝘆𝘀 𝗺𝗲𝗮𝗻𝘀 𝗺𝗼𝗻𝗲𝘆 𝗴𝗼𝗶𝗻𝗴 𝗶𝗻! Yup – but you’re seeing only one side of the double-entry. Still clear as mud?
Here is an article that explains further, https://buff.ly/3zuNBJY