Debits and Credits in principles of accounting.?

Question

What is the best way to remember normal balances and how each account is increased or decreased?

ex:

what effect does a debit or a credit have on accounts payable?

Answer 1

I remember it by remembering that expenses are debits - and if I don't remember the correct entry, I figure it out from that starting point...

If expenses are a debit - then the accounts payable entry is a credit.  When you pay the bill, then you debit accounts payable and credit you bank account.  If you pay cash then you debit expenses and credit your bank account...

If expenses are a debit - the the opposite transaction is a sale or revenue - so sales or revenues are credits - and the money you deposit in your bank account is a debit.  If you are not on cash sales, then because the sale is a credit, you debit accounts receivable.  When you get the cash, you credit accounts receivable and then debit your bank account with the cash deposited.

This gets a little confusing if you look at your bank statement - a deposit is a debit for you, but a credit for the bank - so your bank statement lists the deposits as a credit.  The checks that clear the bank are a credit in your bookkeeping bank account, but a debit on your bank statement...

If expenses are a debit, and the money you take out of the bank to cover the expense is a credit - then any other purchases are also debits...  So if you buy an asset - it is a debit transaction.  If you pay cash, it is a credit to your bank account.  If you get a loan, it is a credit to the loan account.

Remember that double entry bookkeeping operates on the principle that for every transaction, there is an equal and opposite transaction.

Expenses are money going out, so if expenses are a debit, then the cash going out is a credit.

Expenses are money going out, and sales are money coming in, so if expenses are a debit, then sales are a credit.  Because the expenses are a debit, the money going out out of the bank account is a credit and the money going into the bank as a deposit is a debit.  

This works when money is transferred between businesses as well.  Your deposit is a debit to your bookkeeping bank account, but the bank treats that transaction as a credit.  Your sales are a credit to you, but when your customer gets your invoice it is an expense for them, so it becomes a debit for them...

Answer 2

Debits and Credits are misnamed and misleading. I blame banks. You call up the bank, and they say, "I'll credit your account" and you think that is good. And it is, for you, but to you it is a debit.

Perhaps calling it lefties and righties?

Anyway, there are two choices

1. try to memorize every transaction that is a debit and that is a credit. This may be the only choice for some people, or

2. Some people get an "AHA" experience. This accounting method is the result of some 14th century genius, and sometimes people get a glimpse of his logic. Soles the problem of what is a credit or debit forever.

The other answers may be more to the point, but I just felt like this rant. And the best way to remember is to unravel the original logic. Where the money is, and who/what gets the credit.

Answer 3

I remember them by thinking does it benefit me or not. If I get money it is a credit if I lose money it is a debit. You have an atm debit card. It takes money away from your account. When you put money into your savings account it is a credit to you. If you were the bank and they give you money it is a debit to them and a credit to you.

Answer 4

An easy way to remember what are the normal balances of various accounts is by the type they are.  Look at your typical account as a "T" account with debits on the left and credits on the right, keeping in mind that Assets=Liabilities+Equity (A=L+E).  To easily remember what the "normal balance" (always exceptions) is draw the "T" under A=L+E, the debit side is Assets and the credit side is Liabilities and Equity.  For example, the normal balance for accounts payable is a credit balance (right side of "T"), to increases the account balance you credit the account and decrease it by debiting the account.

Another way to look at it is to ALWAYS remember you want your cash (Asset) account to have a debit balance (meaning you have cash).  If you take cash out to pay off an accounts payable (Liability), you debit (decrease) the accounts payable and credit (decrease) the cash account.  You must always have a transaction where the total amount debited equals the total amount credited to keep the golden rule of accounting, A=L+E, in balance.

Answer 5

Assets - normal accounts have a debit balance.  Assets are increased with a debit and decreased with a credit.

(Have you gotten to Contra-assets yet?  Like Accumulated Depreciation?  They're exactly opposite - normal is a credit, decrease is a debit, increase is a credit.)

Liabilities - normal accounts have a credit balance.  Liabilities are increased with a credit and decreased with a debit.

Owner's Equity - Equity accounts have normally debit balances.  They increase with debits and decrease with credits.

Retained Earnings is one of your equity accounts.  When you finish month-end closing, all your expense accounts with debit balances are CREDITED to get them back to zero.  Income Summary is debited to increase it.  When all the closing entries have been made, Income Summary will have a debit balance if you have net income.  You credit this account and debit Retained Earnings to carry forward this month's income.

Expenses - Normal expenses have a debit balance.  They are increased with a debit and decreased with a credit.  Expenses are actually a part of the equity accounts.

Accounts Payable is a liability.  A debit DECREASES the amount owed and a credit INCREASES the amount owed.