Debits versus CreditsDebits versus CreditsBy Michael ReimerBy Michael Reimer

Left Side is the debit

side

Right side is the creditside

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

CashReceivablesSuppliesMachineryLandInventory 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 PayableNotes PayableBank Loan PayableMortgage 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

Withdrawals goes up with a debit

Withdrawals goes down with a credit

M. Reimer, Withdrawals

Debit 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

RevenueDebit Credit

Two different types:Service based:

Work provided to customers (Chapters 3 to 5)

Retail based:Sales of inventory to customers

(Chapter 6)

SalesCommissions EarnedProfessional Fees EarnedRent RevenueInterest 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 ExpenseSupplies ExpenseTelephone ExpenseUtilities ExpenseWages ExpenseRent ExpenseInsurance Expense

Left side is the debit side

Right side is the creditside

Assets

Withdrawals

Expenses

Liabilities

Capital

Revenues