Bookkeeping: Credit and Debits


D

DarkProtoman

Could you tell me why INCREASES to cash are debits, and DECREASES are
credits? Could you give me a little chart to explain, for the four main
accts, which are increases and which are decreases?

Also, is this correct:

Cash Cr Dr
-----------------------------------------------------------
Paycheck 475.00
Loan Bill 35.84
Sprint PCS 40.00

Thanks!!!!!!!
 
Ad

Advertisements

R

Rusty

An increase in an ASSET is a DEBIT
A decrease in an ASSET is a CREDIT

An increase in a LIABILITY is a CREDIT
A decrease in a LIABILITY is an DEBIT

Cash is an ASSET so INCREASES are DEBITS.

This seems odd to first time accounting students because if they have money
in the bank their account is in CREDIT. That's because the account balance
is viewed from the bank's point of view. It is your money not theirs - they
owe it to you - so it is a LIABILITY in their books, hence they say your
account is in CREDIT.

I can't comment on your journal entry example without some explanation of
what you tare trying to record. I can say it doesn't balance :-(

Cheers,
Rusty
 
D

DarkProtoman

Rusty said:
An increase in an ASSET is a DEBIT
A decrease in an ASSET is a CREDIT

An increase in a LIABILITY is a CREDIT
A decrease in a LIABILITY is an DEBIT

Cash is an ASSET so INCREASES are DEBITS.

This seems odd to first time accounting students because if they have money
in the bank their account is in CREDIT. That's because the account balance
is viewed from the bank's point of view. It is your money not theirs - they
owe it to you - so it is a LIABILITY in their books, hence they say your
account is in CREDIT.

I can't comment on your journal entry example without some explanation of
what you tare trying to record. I can say it doesn't balance :-(

Cheers,
Rusty
Trying to record my finances. And here's the other side

Accts. Receivable Cr Dr
-------------------------------------------------------------------------
Paycheck 475.00
Loan Bill 35.84

Accts. Payable Cr Dr
----------------------------------------------------------------
Sprint PCS 40.00



Now does it balance? And, what's a contra-liability account used for? I
know that a contra-asset account is used for depreciation. And, if the
value of an asset changes, do I update it? Like I bought a 1oz. gold
biscut for $400, and it's now worth $475, do I change it's recorded
value? Does gold depreciate? Thanks!!!!
 
G

GO

DarkProtoman said:
Trying to record my finances. And here's the other side

Accts. Receivable Cr Dr
-------------------------------------------------------------------------
Paycheck 475.00
Loan Bill 35.84

Accts. Payable Cr Dr
----------------------------------------------------------------
Sprint PCS 40.00



Now does it balance? And, what's a contra-liability account used for? I
know that a contra-asset account is used for depreciation. And, if the
value of an asset changes, do I update it? Like I bought a 1oz. gold
biscut for $400, and it's now worth $475, do I change it's recorded
value? Does gold depreciate? Thanks!!!!
Total credits must equal total debits and vice versa.
Your example is incomplete.
The way to check your books is to do a trial balance. Mind you, this
doesn't pick up all mistakes.
Always remember this main point: Total credits must equal total debits -
this is the main rule of double entry book keeping. See why it is double
entry!
 
G

Greg Hansen

DarkProtoman said:
Could you tell me why INCREASES to cash are debits, and DECREASES are
credits? Could you give me a little chart to explain, for the four main
accts, which are increases and which are decreases?

Also, is this correct:

Cash Cr Dr
-----------------------------------------------------------
Paycheck 475.00
Loan Bill 35.84
Sprint PCS 40.00

Thanks!!!!!!!
Define an increase in owner's equity to be a credit, and require
adjustments to two accounts for every transaction and that debits should
equal credits.

If you get some cash, your equity increases. Your cash account also
increases. It's a credit to equity, so a ______ to your cash account.

One arbitrary choice was made. But once made, all others follow.
 
A

Anita

Now does it balance? And, what's a contra-liability account used for? I
know that a contra-asset account is used for depreciation. And, if the
value of an asset changes, do I update it? Like I bought a 1oz. gold
biscut for $400, and it's now worth $475, do I change it's recorded
value? Does gold depreciate? Thanks!!!!

A contra-liability account is an account used to offset a liability to
bring it to actual. Where this is commonly used is to reclass the
current portion of long term debt. Because a portion of a loan will be
due within the upcoming year, it is often desirable to reclass that
portion to an account called "current portion of long term debt". Using
a contra account allows us to not touch the principal of the loan and
to more easily track it's value to corroborating documents.

Whether you adjust your books for the increases or decreases in value
of assets depends entirely on the purpose of holding that asset and
what standards you are obligated to follow. Generally speaking, the
value of that lump of gold will be adjusted because it is a liquid
asset (can be sold easily). As well because it is more of an
investment, it would be desirable to recognize the change in value so
you can see what your investment income over the reporting period has
been.

About the gold depreciating quetion - think about it a little. Does the
gold fall apart or need to be fixed over time? Or is it still gold in 5
years time?
Answer being of course no it does not depreciate - it can lose value
but not depreciate.

Anita
 
Ad

Advertisements

D

DarkProtoman

Anita said:
A contra-liability account is an account used to offset a liability to
bring it to actual. Where this is commonly used is to reclass the
current portion of long term debt. Because a portion of a loan will be
due within the upcoming year, it is often desirable to reclass that
portion to an account called "current portion of long term debt". Using
a contra account allows us to not touch the principal of the loan and
to more easily track it's value to corroborating documents.
Ah. OK, let's say I OWN a $2500 revolving loan at 20% interest; minimum
payment of 25% of the outstanding balance. Is this correct?:


Cash Dr Cr Bal.
----------------------------------------------------------
Start 0.00
Loan 2500.00 (2500.00)
Payment 750.00 (1750.00)

Assets Dr Cr Bal.
-----------------------------------------------------------
Start 0.00
Loan 2500.00 2500.00

Accts. Recievable Dr Cr Bal.
-------------------------------------------------------------------
Start 0.00
Payment 750.00 750.00

Where do I put the interest accrued? And, how do I make a contra asset
account for the loan, to show me it's value. It should be currently at
$2250.
 
S

S.M. Serba

I think you need to take an introductory accounting class.

S.
Ah. OK, let's say I OWN a $2500 revolving loan at 20% interest; minimum
payment of 25% of the outstanding balance. Is this correct?:
You don't OWN a loan, you OWE it.

You have liability account called Interest Payable, you have an expense
account called Interest Expense. When you pay your loan payment it is
made up of principal and interest. You credit the bank the amount of
the loan payment and debit the Loan Payable account the amount of the
PRINCIPAL paid, and debit the Interest Payable account the amount of
the INTEREST paid.

For the rest, take Accounting 101 at your local college.
 
D

DarkProtoman

S.M. Serba said:
I think you need to take an introductory accounting class.

S.


You don't OWN a loan, you OWE it.

You have liability account called Interest Payable, you have an expense
account called Interest Expense. When you pay your loan payment it is
made up of principal and interest. You credit the bank the amount of
the loan payment and debit the Loan Payable account the amount of the
PRINCIPAL paid, and debit the Interest Payable account the amount of
the INTEREST paid.

For the rest, take Accounting 101 at your local college.
No, I do OWN it; I LENT $2500 out to someone.
 
S

S.M. Serba

You did not specify that it was a loan owed to you. You said you
"owned" a loan. I often see the most educated persons confuse "owe" and
"own". There is a difference.

As a point of syntax and grammar, you still do not own a libability or
asset like a loan, receivable or payable. You "owe" it or are "owed"
it. It is intangible. You can only "own" a tangible asset, since to
"own" is to possess. You do not possess the loan, you possess the right
to collect on it.

To "owe" or be "owed" is to have an obligation to pay, or a right to
collect. You have the "right" to collect the money "owed" to you, but
you cannot "own" the loan itself.

Stephanie
 
Ad

Advertisements

D

DarkProtoman

S.M. Serba said:
You did not specify that it was a loan owed to you. You said you
"owned" a loan. I often see the most educated persons confuse "owe" and
"own". There is a difference.

As a point of syntax and grammar, you still do not own a libability or
asset like a loan, receivable or payable. You "owe" it or are "owed"
it. It is intangible. You can only "own" a tangible asset, since to
"own" is to possess. You do not possess the loan, you possess the right
to collect on it.

To "owe" or be "owed" is to have an obligation to pay, or a right to
collect. You have the "right" to collect the money "owed" to you, but
you cannot "own" the loan itself.

Stephanie
Of course you can; banks list their loans on their long term asset
account. I'll use whatever terminology I damn please, as long as it's
clear.
 
Ad

Advertisements


Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Similar Threads


Top