Accumulated depreciation, putting assets on the books, fifo and lifo inventory valuation, and so. All general ledger accounts should be thought of as specially formatted records shaped as a big t. Well also discuss how debits and credits work with the five account types. What exactly does it mean to debit and credit an account.
Accounting debits and credits explained in an easytounderstand way. Im the first to admit that math related things tend to go over my head. Careful, as banks refer to debit cards, credit cards, account debits, and account credits differently than the accounting system. A debit is an accounting entry that either increases an asset or expense account, or decreases a liability or equity account. The debit and credit rules used to increase and decrease accounts were established hundreds of years ago and do not correspond with banking terminology. Information contained in these books of original entry must be transferred or posted to general ledger accounts. You will record these transactions in two accounts. The totals of the debits and credits for any transaction must always equal each other, so that an accounting transaction is always said to be in balance. Unfortunately, the accounting for that first month is just getting started, next time in accounting 101 part 2, we will look at the rest of the debits and credits associated with your first month of business, and post those into zoho books as well. How banks handle debits and credits accountingcoach. Every accounting transaction involves at least one debit and one credit.
While we will focus on use of zoho books, the concepts within this article. Debits and credits taccounts, journal entries accountingcoach. Accounts, debits, and credits principles of accounting. When you hear your banker say, ill credit your checking account, it means the transaction will increase your checking account balance. These entries makeup the data used to prepare financial statements such as the balance sheet and income statement. Not really in this accounting tutorial youll discover the true meaning of debits and credits in. Transactions are events that change the composition of a firms assets, liabilities, and equity. You must record business transactions in your small business accounting books. Debits, credits, assets, draw, expenses, liabilities, equity, revenue. If a debit increases an account, you will decrease the opposite account. On the customers books one would debit decrease a payable account liability.
The collection of all accounts is called the general ledger. We use simple math concepts to take the confusion out of debits and credits. This will also help with the income statement which is revenues expenses. Understanding debits and credits accounting and payroll. Accountants and bookkeepers record transactions as debits and credits while keeping the accounting equation constantly in balance. The amount in every transaction must be entered in one account as a debit left side of the account and in another account as a credit right side of the account. The sum of debits and the sum of credits for each transaction and the total of all transactions are always equal. Depreciation, accumulated depreciation, putting assets on the books, fifo and lifo inventory. If you have trouble remembering which goes on the left and which on the right, one trick you can do is to think of the letter r for r ight. If a transaction were not in balance, then it would not be possible to create financial statements. In actuality, these labels would instead be debit and credit.