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Debits versus Credits By Michael Reimer
Left Side is the debit side Right side is the credit side
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
Cash Receivables Supplies Machinery Land Inventory 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 Payable Notes Payable Bank Loan Payable Mortgage 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 Revenue Debit Credit
Two different types: Service based: Work provided to customers (Chapters 3 to 5) Retail based: Sales of inventory to customers (Chapter 6)
Sales Commissions Earned Professional Fees Earned Rent Revenue Interest 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 Expense Supplies Expense Telephone Expense Utilities Expense Wages Expense Rent Expense Insurance Expense
Left side is the debit side Right side is the credit side
Assets Withdrawals Expenses
Liabilities Capital Revenues
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