Question

In Chapters 1 and 2 you have been learning about the accounting equation, debits/credits, and account normal balances. The accounting equation is the foundation of accounting. Understanding debits/credits and the account normal balances are just as important. Sometimes, these concepts are difficult to understand and/or remember.  Please research the Internet to find fun and easy ways to remember this information. It could be a song, a mnemonic, phrase, video, etc. It can even be something that you have created. Make sure that the information is college appropriate. Please post your findings and include a link that references the material. Then in a minimum of a paragraph, summarize why you choose this source, how it has helped you remember the material, and why other students would find it helpful.

Answer 1

A debit is an accounting entry that either increases an asset or expense account or decreases a liability or equity account. It is positioned to the left in an accounting entry. A credit is an accounting entry that either increases a liability or equity account or decreases an asset or expense account.

Debits and credits are equal but opposite entries in your books. If a debit increases an account, you will decrease the opposite account with a credit. A debit is an entry made on the left side of an account.

For example, you would debit the purchase of a new computer by entering the asset gained on the left side of your asset account.

A credit is an entry made on the right side of an account.Record the corresponding credit for the purchase of a new computer by crediting your expense account.

Debit and credit accounts

Record credits and debits for each transaction that occurs. You record two or more entries for every transaction. This is considered double-entry bookkeeping.

You will separate your transactions into accounts while doing your bookkeeping. Five common accounts include:

• Assets: Resources owned by a business which have economic value you can convert into cash (e.g., land, equipment, cash, vehicles)
• Expenses: Costs that occur during business operations (e.g., wages, supplies)
• Liabilities: Amounts owed to another person or business (e.g., accounts payable)
• Equity: Your assets minus your liabilities
• Revenue: Cash earned from sales

The reason for this seeming reversal of the use of debits and credits is caused by the underlying accounting equation upon which the entire structure of accounting transactions are built, which is:

Assets = Liabilities + Equity

Thus, in a sense, you can only have assets if you have paid for them with liabilities or equity, so you must have one in order to have the other. Consequently, if you create a transaction with a debit and a credit, you are usually increasing an asset while also increasing a liability or equity account (or vice versa). There are some exceptions, such as increasing one asset account while decreasing another asset account. If you are more concerned with accounts that appear on the income statement, then these additional rules apply:

• Revenue accounts. A debit decreases the balance and a credit increases the balance.

• Expense accounts. A debit increases the balance and a credit decreases the balance.

• Gain accounts. A debit decreases the balance and a credit increases the balance.

• Loss accounts. A debit increases the balance and a credit decreases the balance.

If you are really confused by these issues, then just remember that debits always go in the left column, and credits always go in the right column. There are no exceptions.