Understanding Debits and Credits Essay
RULE NO. 2:
For every debit, there is a credit.
Paying close attention to the previous topics discussed, this eternal rule in accounting has an identical goal with that of the basic accounting equation: KEEP BOTH SIDES EQUAL. Whatever happens.
The terms debit and credit are used in recording business transactions which will indicate the increases or decreases of a specific account, be it an asset, liability, owner’s equity or capital, revenue, expenses and the owner’s drawings. Being on the left side of the equation, all assets will increase on the left side or debit side and its corresponding “partner” account like for example, the investment of an owner, will take the right side or credit side.
Going back to The …show more content…
THE RULES OF DEBIT AND CREDIT
Account Debit Credit
The accompanying illustrations are transactions for a printing shop business during its first month of operations. Analyzing transactions in terms of debit and credit will be a lot easier as it uses the same concept of the basic accounting equation.
Transaction 1 – Investments
On August 1 of the current year, Glen Emanuel opens a printing shop he named Manu’s Print Shop. He invests cash of Php200,000 and a second-hand large format printer worth Php350,000.
Cash 200,000 G.Emanuel, Capital 550,000
Printer Equipment 350,000
• The cash and printer equipment are assets of the business; assets are on the left side of the equation or debit side, so both items will be debited because it caused the business assets to increase.
• The assets invested came from the owner’s investments, it would logically follow that business capital will increase. Owner’s equity or capital is on the right side of the equation, therefore any increase in this category must be placed on the credit side;
• This particular transaction gives another meaning to debit and credit: