Debits are Positive and Credits are Negative Often we think of accounting as a new language that we must learn to speak but, actually it is the same math we already know we just have to expand on it.

Debits are Positive and Credits are Negative When you hear that Debits are on one side and credits are on another you get this picture in your head

Debits are Positive and Credits are Negative In reality however you should think like this

Debits are Positive and Credits are Negative Fortunately you already know this method because it is the +- scale in accounting is the same as it is in math.

What is a normal balance? The first thing you should know about normal balances is that some things are bad for the business and some things are good for the business. The good things go up positively the bad things go up negatively.

Good for business When a business gets money, it is good When a business gets property, it is good When a business pays its bills, it is good When a business receives something, it is good

Bad for Business When a business owes money, it is bad When a business owes property, it is bad When a business owes bills, it is bad When a business has to pay money for something, it is bad

Debits are good therefore positive The statement “when a business gets money, it is good.” What we mean is that if someone pays us,we have money, and that is a good thing or a plus (+) for the business. If something is normally good for us, then it will normally go on the debit side. Therefore we can say that money or “cash” has a normal side debit.

Credits are bad therefore negative When a business owes money, it is bad. What we mean is, if we owe somebody it isn’t good, it is (-) for the business therefore a credit.

How can we balance? Since a business is owned by somebody it always owes somebody everything it has. So every time a business gets cash it also owes that cash to the owner. So debits will always = credits.

How can we balance? But wait, have we given the owner cash yet? No! So we can’t call the owner’s side cash then can we? Instead we need to give it a name. In business, any form of wealth capable of being employed in the production of more wealth is called capital. The money in a business is used to make more money until it is taken out, so the money we owe the owner is called capital.

How can we balance? There now, lets put it on the scale

How can we balance? As we stated before what is good for business is (+) or in accounting we call it debit and the (-) side we call a credit. (+)(-)

What are some good things? There can be many things that are good for a business. An asset is anything owned so in accounting we call anything the business physically owns an asset. Assets are examples of good things for a business. If they are good for business then their normal balance is a (+) and wrote in accounting as a debit.

What else is good? We can also have something good for a business that isn’t owned. Lets suppose you barrowed some money from a friend so you could buy a yoyo. Having the yoyo is good, you physically own it, so you have an asset. Assets are good for you (asset = debit). However, you have to pay your friend back which is not good for you. Liabilities are obligations. You are obligated to pay back your friend so your friend is a “liability account” and bad for you (liabilities = credit). When you pay back your friend it is good because you don’t owe him that amount anymore right? So, paying on an account is good for you (pay on account = debit).

What else is good? Lets put it on the scale. (+)(-) Barrowed money from friend (+)(-) Spent the money on a YoYo You lost cash not good for youYou gained an asset good for you (+)(-) Paid your friend back You lost cash not good for youYou paid your bill good for you You gained an asset good for youYou gained a Liability not good for you

Normal Balance So now lets figure out some normal balances shall we? Normally when we have cash it is good so normal balance for cash = (+) wrote as debit Normally when we have supplies it is good so normal balance for supplies = (+) wrote as debit Normally when we pay a bill it is good so normal balance for pay on account = (+) wrote as a debt Normally when we owe somebody it is bad so normal balance for liability = (-) wrote as credit Normally the fact that we owe all our money to the owner is bad so normal balance for capital = (-) wrote as credit

Normal Balance Accounts go up on their normal balance side. Debit (+)(-) Credit Debit (+)(-) Credit Debit (+)(-) CreditDebit (+)(-) Credit Debit (+)(-) Credit Debit (+)(-) Credit CashSuppliesJohn CapitalCarTractor Normal Balance Having cash is good Having Supplies is goodOwing somebody is bad The owner can take our money badHaving a car is good Having a tractor is good

Normal Balance So now you try a couple. If you said the normal balance for assets is debit your right What is the normal balance for liabilities? What is the normal balance for assets? If you said the normal balance for liabilities is credit your right

Normal Balance There are a couple of accounts we have to think about in order to determine their normal balance. Revenue = part of the income statement. The income statement is made to show the owner how much money he is going to get. So now that we know that we can say if he sees he is getting money it is bad for us. So sales = bad or (-) wrote as Credit. Expenses = part of the income statement. The income statement is made to show the owner how much money he is going to get. So if the owner sees he isn’t getting money because of expenses it is good for us (we don’t owe him) So expenses = good or (+) wrote as a Debit

Normal Balance Lets do a problem real quick so we can think about what we just learned. We received cash from sales. Debit (+)(-) Credit Cash Normal Balance Debit (+)(-) Credit Sales Normal Balance Getting Cash is a good thing and since we know that cash is good we know its normal balance is Debit. Sales is a revenue and it is what the owner will see, that is bad for us (he can take out his money) so we know that the normal balance for sales is Credit

Normal Balance Lets do a problem with money just so you can see it We received $ from sales. Debit (+)(-) Credit Cash $ Debit (+)(-) Credit Sales $ Getting Cash is a good thing and since we know that cash is good we know its normal balance is Debit. Sales is a revenue and it is what the owner will see, that is bad for us (he can take out his money) so we know that the normal balance for sales is Credit

Normal Balance We shall review the normal balances one last time just so you can see them together. Debit (+)(-) Credit Debit (+)(-) Credit Debit (+)(-) CreditDebit (+)(-) Credit Debit (+)(-) CreditAssetsLiabilities Owners Equity ExpensesRevenue Normal Balance Owning an item is good Owing Money is bad Owing somebody is bad We don’t have to pay the owner this so it is goodWe have to pay the owner this so it is bad

Normal Balance You should now have a good idea of how normal balances work. If you get in a jam just think “what is good for the business” and you will be able to determine is it is a debit or a credit.

The End