Question

In: Accounting

Why an increase in cash equivalents called debit and not credit according to the journal entry?...

Why an increase in cash equivalents called debit and not credit according to the journal entry?

Bank statements show as a credit the increase in the cash equivalents of our account (e.g payroll)

Expert Solution

There are three Rules of accounting , On that basis we are framing the Journal entries.

Personal Account rule

Real account rule

Nominal account rule

Personal account rule says that.....

Debit = The receiver

Credit = The giver

Real account states....

Debit= what comes in

Credit = What goes out

Nominal account rule states...

Debit= All expenses and losses

Credit = All incomes and gains

IN the first scenario.....Why an increase in cash equivalents called debit :

Increase in cash equivalents means, We are receiving the amount of cash.

According to the real account , We should debit the What comes in.

In the second scenario...bank statement shows as credit the increase in cash equivalents..

It mean, Bank statements are nothing but the cash account maintained by bank on behalf of us.

For bank , the incomes are cash deposits and expenses are cash payments

For eg : payroll .. Employer will deposit the amount in bank.. so that it will deduct from that and post it to out account as salary.

In the above situation From rules of accounting,

Credit means what goes out i.e., cash will decrease in the bank and will be deposited into our account.

ekkarill92 answered 2 years ago

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