Presentation on theme: "Debit and Credits Origin & Use. Origins of Accounting Luca Pacioli-father of accounting Double entry accounting suggested Using “ increases” and “decreases”"— Presentation transcript:
Debit and Credits Origin & Use
Origins of Accounting Luca Pacioli-father of accounting Double entry accounting suggested Using “ increases” and “decreases” for accounts doesn’t go far enough Need to incorporate debit and credit “Debit”(debitum-debito) means “what is due” “Credit”(creditum-credito) means” something entrusted to another-i.e.a loan”
Another rule Debits must equal credits Each account has two columns-one for increases and one for decreases. Debit is the left column in a T-account, Credit is the right column. The net balance of an account is listed in a Trial Balance.
More on debit and credit Stickman diagram- george He has no pocket, cannot store anything He can receive money only with his right hand and can pass money along only with his left hand. Whoever pays George will be his “creditors(Coming from), those who receive money from him will be his “debtors”(Going to)
Debit and Credit Creditors include Edward, Lynn and Renee. Edward does not expect the money he paid to George to be repaid for a long time(stockholders); Lynn expects George to pay her in a short time(debt holders); Renee does not expect George to repay money she gives him(revenues)
Debit and Credit Debtors include Alan and Ellen. Allen repays George the money that he receives from him(assets). Ellen never repays the money that George pays her(expenses). Since George does not have a future obligation to Renee(profit) or expect anything from Ellen(Loss), any difference in amount belongs to George
Debits and Credits Remember that George still owes Edward and Lynn, while Alan owes him. Now substituting accounting terms for people, we find that : assets-expenses= equities-liabilities- revenue /or assets-loss=equities+ liabilities or / assets= equities +liabilities+profit
An example Purchase of inventory An asset(inventory) is increased; another account(person) must pay the company because George cannot keep cash, so the debit is to inventory and the credit is to cash(another asset account)- or it could be a credit to a liability account(accounts payable)-Lynn in the above example
An Introduction to Quickbooks and the Accounting Cycle One of the first task is to set up the company including its chart of accounts Accounts will be different for different businesses. You will be setting up your own company on Quickbooks for the Web
Key menu items for Quickbooks Company Customers Vendors Employees Banking Reports
Setup for Quickbooks You will be entering Intuit main site. Find : Www. quickbooks.com To do the 30 day trial, you need to click on the icon and supply some information including a business name, description and .
Quickbooks Quickbooks will start you with a sample chart of accounts, you will need to add or modify accounts Use Banking for transactions. Make journal entries. Use this for your sample transactions in lab. Use Reports to print any of the financial statements. Quickbooks for the Web does not have a payroll module