some general rules about debiting and crediting the accounts

Some general rules about debiting and crediting the accounts are: Expense accounts are debited and have debit balances Revenue accounts are credited and have credit balances Asset accounts normally have debit balances To increase an asset account, debit the account To decrease an asset account, credit the account Liability accounts normally have credit balances To increase a liability account, credit the account To decrease a liability account, debit the account

Asset AccountsNo.Account TitleToIncreaseDescription/Explanation of Account

101CashDebitChecking account balance (as shown in company records), currency, coins, checks received from customers but not yet deposited.

120Accounts ReceivableDebitAmounts owed to the company for services performed or products sold but not yet paid for.

140Merchandise InventoryDebitCost of merchandise purchased but has not yet been sold.

150SuppliesDebitCost of supplies that have not yet been used. Supplies that have been used are recorded in Supplies Expense.

160Prepaid InsuranceDebitCost of insurance that is paid in advance and includes a future accounting period.

170LandDebitCost to acquire and prepare land for use by the company.

175BuildingsDebitCost to purchase or construct buildings for use by the company.

178Accumulated Depreciation - BuildingsCreditAmount of the buildings' cost that has been allocated to Depreciation Expense since the time the building was acquired.

180EquipmentDebitCost to acquire and prepare equipment for use by the company.

188Accumulated Depreciation - EquipmentCreditAmount of equipment's cost that has been allocated to Depreciation Expense since the time the equipment was acquired.

Liability AccountsNo.Account TitleToIncreaseDescription/Explanation of Account

210Notes PayableCreditThe amount of principal due on a formal written promise to pay. Loans from banks are included in this account.

215Accounts PayableCreditAmount owed to suppliers who provided goods and services to the company but did not require immediate payment in cash.

220Wages PayableCreditAmount owed to employees for hours worked but not yet paid.

230Interest PayableCreditAmount owed for interest on Notes Payable up until the date of the balance sheet. This is computed by multiplying the amount of the note times the effective interest rate times the time period.

240Unearned RevenuesCreditAmounts received in advance of delivering goods or providing services. When the goods are delivered or services are provided, this liability amount decreases.

250Mortgage Loan PayableCreditA formal loan that involves a lien on real estate until the loan is repaid.

Owner's Equity AccountsNo.Account TitleToIncreaseDescription/Explanation of Account

290Mary Smith, CapitalCreditAmount the owner invested in the company (through cash or other assets) plus earnings of the company not withdrawn by the owner.

295Mary Smith, DrawingDebitAmount that the owner of the sole proprietorship has withdrawn for personal use during the current accounting year. At the end of the year, the amount in this account will be transferred into Mary Smith, Capital (account 290).

Operating Revenue AccountsNo.Account TitleToIncreaseDescription/Explanation of Account

310Service RevenuesCreditAmounts earned from providing services to clients, either for cash or on credit. When a service is provided on credit, both this account and Accounts Receivable will increase. When a service is provided for immediate cash, both this account and Cash will increase.

Operating Expense AccountsNo.Account TitleToIncreaseDescription/Explanation of Account

500Salaries ExpenseDebitExpenses incurred for the work performed by salaried employees during the accounting period. These employees normally receive a fixed amount on a weekly, monthly, or annual basis.

510Wages ExpenseDebitExpenses incurred for the work performed by non-salaried employees during the accounting period. These employees receive an hourly rate of pay.

540Supplies ExpenseDebitCost of supplies used up during the accounting period.

560Rent ExpenseDebitCost of occupying rented facilities during the accounting period.

570Utilities ExpenseDebitCosts for electricity, heat, water, and sewer that were used during the accounting period.

576Telephone ExpenseDebitCost of telephone used during the current accounting period.

610Advertising ExpenseDebitCosts incurred by the company during the accounting period for ads, promotions, and other selling and expenses (other than salaries).

750Depreciation ExpenseDebitCost of long-term assets allocated to expense during the current accounting period.

Non-Operating Revenues and Expenses, Gains, and LossesNo.Account TitleToIncreaseDescription/Explanation of Account

810Interest RevenuesCreditInterest and dividends earned on bank accounts, investments or notes receivable. This account is increased when the interest is earned and either Cash or Interest Receivable is also increased.

910Gain on Sale of AssetsCreditOccurs when the company sells one of its assets (other than inventory) for more than the asset's book value.

960Loss on Sale of AssetsDebitOccurs when the company sells one of its assets (other than inventory) for less than the asset's book value.

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Sample Accounting Transactions

Example 1: Owner invests $5,000 in the company.Analysis: Since money is deposited into the checking account, Cash is debited (the balance increased by $5,000). What account receives a credit? An Equity account called Owners Equity or Capital Contribution. Since Equity accounts are negative accounts, crediting this Equity account increases its balance by $5,000.Debit Cash (increase its balance)Credit Owners Equity (increases its balance)

Example 2: The Company borrowed $8,000 from a bank.Analysis: Since the money will be deposited into the checking account, Cash is debited (the balance increased by $8,000.) The account to receive the credit is a Liability account called Loans Payable (you may create a separate account or subaccount for each loan). Liability accounts are credit accounts, so crediting the Liability account increases its negative balance by $8,000 (move to the left on the number line).Debit Cash (increases its balance)Credit Loans Payable (increases its balance)Example 3: Your bank charges you a $14 a month statement fee.Analysis: This transaction is entered via a journal entry each month when the statement fee is identified on the bank statement. Since money was removed from the checking account, Cash must be credited (the balance decreased by $14). The Expense account called Bank Service Charges will receive the debit.Debit Bank Fees (increases its balance)Credit Cash (decreases its balance)Example 4: You write a check for a loan payment of $540 for the $8,000 loan you acquired in Example 2. Of this amount, $500 is being applied to the principal, and $40 is loan interest.Analysis: Since a check is being written, the Accounting software will automatically credit Cash. In this casethe debit is split between two accounts. To reflect the $500 that has been applied to the loan balance, debit the loan account. (Since it is a liability account, a debit will reduce it's balance, which is what you want.) The $40 interest paid is an expense, so debit the expense account called Interest. Remember that even though the debit is split between two accounts, thetotal debit must always equal the total credit.Debit Loans Payable $500 (decreases its balance)Debit Interest Expense $40 (increases its balance)Credit Cash $540 (decreases its balance)Example 5: the Company wrote a check for $8,500 of equipment.Analysis: Since a check was written, credit Cash. We will debit an Asset account called Equipment or something similar. Note: Remember, if you purchase an item for more than about $500, you should depreciate the item; not expense it. ($500 is a "rule of thumb," but I am not suggesting you use it.) So the Asset account receives the debit instead of an expense account. To record the depreciation, journal entries would be entered for one or more years. Always consult with your Accountant when purchasing company assets.Debit Equipment (increases its balance)Credit Cash (decreases its balance)Example 6: the Company wrote a check for $318 of office supplies.Analysis: Since a check was written, credit Cash. We debit the Expense account called Office.Debit Office (increases its balance)Credit Cash (decreases its balance)Example 7: the Company purchased $318 of office supplies on credit and you entered a bill into system.Analysis: When you enter a bill, system automatically credits the Liability account called Accounts Payable. And since you purchased office supplies, the Office expense account is debited.Debit Office (increase its balance)Credit Accounts Payable (increases its balance)Example 8: You paid the bill for $318 of office supplies purchased in Example 7.Analysis: When the bill was entered, Office was debited and A/P was credited. Debit Accounts Payable (decreases its balance)Credit Cash (decrease its balance)Example 9: the Company paid $450 cash for Product A - a COGS part.Analysis: In the check window, choose the COGS account from the Expenses tab, or choose an Item from the Items tab and then the COGS account associated with the Item will be debited.Debit COGS (increase its balance)Credit Cash (decrease its balance)Example 10: the Company sold Product A for $650 cash.Analysis: When you enter the cash sale, debit Cash (or you could choose to deposit to Undeposited Funds - see Example 14). You will have to choose an Item for the sale it might be Prod A income and associated with the Sales account.Debit Cash (increases its balance)Credit Sales (increases its balance)Example 11: the Company sold Product A for $650 on credit.Analysis: When you create an invoice, you must specify an Item for each separate charge on the invoice. credit the revenue account(s) associated with these Items. And debits the Invoice amount to A/R.Debit Accounts Receivable (increases the balance)Credit Sales (increases the balance)Example 12: the Company received a payment for the $650 invoice above.Analysis: When you created the invoice, debit the A/R account. When you post the invoice payment, credit A/R - in effect reversing the earlier debit. Debit Cash.Debit Cash (increases the balance)Credit A/R (decreases the balance)Example 13: The owners writes himself a check for $1,000.Analysis: Since a check was written, credit Cash. The account you chose for the debit is and Equity account called Draw (Sole Proprietor) or Distribution (Corporation). Note: These are the only non-contra Equity accounts that are positive accounts and receive debits.Debit Owners Draw (increases its balance)Credit Cash (decrease its balance)Example 14: the Company has many sales receipts during the day, but you would like one deposit to Cash for the entire day's sales.Scenario: You receive over 50 cash payments each day, For each cash sale, you use Create Sales Receipt. For payment of an invoice, you use Receive Payments. You may also opt to enter a payment directly using Record Deposits.

JOURNAL ENTRIES, ACCOUNT STATEMENT and ACCOUNT BALANCES EXAMPLE

Example 1: Financing Activities

Owner invested $10,000 in the company.

Analysis of TransactionStepsDebit or Credit ?

1Increase in Assets (Cash) by $10,000Debit

2Increase in Owner's Equity by $10,000Credit

Journal EntryDebitCredit

Cash10,000

Owner's Equity10,000

Description of Journal EntryOwner invested $10,000 in the company.

Results of Journal EntryCash balance increases by $10,000. --> Increase in AssetsOwner's Equity balance increases by $10,000. --> Increase in Owner's Equity

Example 2: Financing Activities

The company borrowed $20,000 from a bank.



2Increase in Liabilities (Borrowings) by $20,000Credit


Cash20,000

Borrowings20,000

Description of Journal EntryBorrowed $20,000.

Results of Journal EntryCash balance increases by $20,000. --> Increase in AssetsBorrowings balance increases by $10,000. --> Increase in Liabilities

Example 3: Investing Activities

The company purchased $12,000 equipment and paid in cash.


1Increase in Assets (Equipment) by $12,000Debit

2Decrease in Assets(Cash) by $12,000Credit


Equipment12,000

Cash12,000

Description of Journal EntryPurchased $12,000 equipment in cash.

Results of Journal EntryEquipment balance increases by $12,000. --> Increase in AssetsCash balance decreases by $12,000. --> Decrease in Assets

Example 4: Operating Activities

The company purchased $6,000 merchandise (600 units) on credit.


1Increase in Assets (Merchandise) by $6,000Debit

2Increase in Liabilities (Accounts Payable) by $6,000Credit


Merchandise6,000

Accounts Payable6,000

Description of Journal EntryPurchased $6,000 merchandise on credit.

Results of Journal EntryMerchandise balance increases by $6,000. --> Increase in AssetsAccounts Payable balance increases by $6,000. --> Increase in Liabilities


The company sold 500 units of merchandise at the price of $11,000. Customer paid $9,000 in cash at the time of sale.

Analysis of Transaction Note: This transaction includes both "REVENUE" and "EXPENSE" components.

(1) REVENUE sideStepsDebit or Credit ?


2Increase in Assets (Accounts Receivable) by $2,000Debit

3Increase in Revenue (Sales) by $11,000Credit

(2) EXPENSE sideStepsDebit or Credit ?

1Increase in Expenses (Cost of Merchandise Sold) by $5,000($6,000 / 600 units = $10 per unit)($10 per unit X 500 units sold = $5,000 cost)Debit

2Decreasein Assets (Merchandise) by $5,000Debit

(1) REVENUEJournal EntryDebitCredit

Cash9,000

Accounts Receivable9,000

Sales Revenue11,000

Description of Journal EntrySold merchandise at $11,000 price and received $9,000 in cash.

Results of Journal EntryCash balance increases by $9,000. --> Increase in AssetsAccounts Receivable balance increases by $2,000. --> Increase in AssetsSales Revenue account balance increases by $11,000. --> Increase in Revenue

(2) EXPENSEJournal EntryDebitCredit

Cost of Merchandise Sold5,000

Merchandise5,000

Description of Journal EntryTo record the cost of merchandise sold.

Results of Journal EntryMerchandise balance decreases by $5,000. --> Decrease in AssetsCost of Merchandise Sold account balance increases by $5,000. --> Increase in Expense


The company paid $3,500 salaries.


1Increase in Expenses (Salaries Expense) by $3,500Debit

2Decreasein Assets (Cash) by $3,500Credit


Salaries Expense3,500

Cash3,500

Description of Journal EntryPaid $3,500 salaries.

Results of Journal EntryCash balance decreases by $3,500. --> Decrease in AssetsSalaries Expense account balance increases by $3,500. --> Increase in Expenses


The company paid $1,500 rent.


1Increase in Expenses (Rent Expense) by $1,500Debit

2Decreasein Assets (Cash) by $1,500Credit


Rent Expense1,500

Cash1,500

Description of Journal EntryPaid $1,500 rent.

Results of Journal EntryCash balance decreases by $1,500. --> Decrease in AssetsRent Expense account balance increases by $1,500. --> Increase in Expenses

ACCOUNT STATEMENTSummary of above Journal Entries

No.Journal EntriesDebitCredit

(1)Cash10,000

(1)Owner's Equity10,000

Owner invested $10,000 in the company.

(2)Cash20,000

(2)Borrowings20,000

Borrowed $20,000.

(3)Equipment12,000

(3)Cash12,000

Purchased $12,000 equipment in cash.

(4)Merchandise6,000

(4)Accounts Payable6,000

Purchased $6,000 merchandise on credit.

(5)-1Cash9,000

(5)-1Accounts Receivable2,000

(5)-1Sales11,000

Sold merchandise at $11,000 price and received $9,000 in cash.

(5)-2Cost of Goods Sold5,000

(5)-2Merchandise5,000

To record the cost of goods sold ($5,000 merchandise).

(6)Salaries Expense2,500

(6)Cash3,500

Paid $2,500 salaries.

(7)Rent Expense1,500

(7)Cash1,500

Paid $1,500 rent.

Calculating Accounting Balances

Cash

DebitCredit

(1)10,000(3)12,000

(2)20,000(6)2,500

(5)-19,000(7)1,500

Balance23,000

Accounts Receivable

DebitCredit

(5)-12,000

Balance2,000

Merchandise

DebitCredit

(4)6,000(5)-25,000

Balance1,000

Equipment

DebitCredit

(3)12,000

Balance12,000

Accounts Payable

DebitCredit

(4)6,000

Balance6,000

Sales

DebitCredit

(5)-111,000

Balance11,000

Cost of Goods Sold

DebitCredit

(5)-25,000

Balance5,000

Salaries Expense

DebitCredit

(6)2,500

Balance2,500

Rent Expense

DebitCredit

(7)1,500

Balance1,500

some general rules about debiting and crediting the accounts

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