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debits and credits
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You are currently reading a thread in /biz/ - Business & Finance

Thread replies: 70
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Hey /biz/
I'm in a first year acounting course at school, basically just trying to figure out if it's the right major for me.
I'm literally only 3 classes in, but I feel discouraged because the concept of debits and credits makes no sense to me.
Now, we haven't even had the lecture yet, the way it works is we read the chapter first so we're not lost in class I guess.
Also, our text is weird. Its called accounting principles, 12th edition
Debits and credits are actually not introduced until chapter two, hence why we're not reviewing this until the fourth lecture. Even my professor noted that this was unusual. The first chapter, which was basically an introduction to accounting and the financial statements and account names as transactions, was something I felt I grasped easilly.
I'm reading the second chapter and all it tells me about debits and credits is that debits are to the left and credits are to the right.. But if what? I'm very lost and I hope I'm just missing something basic because of the weird layout of the textbook. Can anyone explain?
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>>1079857
Oh bother,
as well as transactions*
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>>1079857
...but of* what?
This is why you don't post on phones with broken screens
>>
it will all make sense, with time my friend, with time.

https://www.youtube.com/watch?v=j71Kmxv7smk
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>>1079857
How the fuck does debit and credit not make sense to you?

Does "plus" and "minus" make sense?

Great - now you understand debits and credits.
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>>1079881
it just seems like that's not a definition. Because they go on to just say that this is a debit and that is a credit without saying why
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>>1079925

Yeah.

Just try and understand it intuitively. That textbook really sounds to me like it's over complicating things.


If you have $1,000 cash and dr it with $100 then you have $1,100 cash. If you cr it then you have $900.

If you have $1,000 debt and dr it with $100 then you have a $900 debt. If you cr it then you have a $1,100 debt.

Make sense?
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>>1079925
Stop thinking of it in terms of your bank account, and start to think of it in the accounting sense. Might help.

Wiki actually has a pretty straightforward explanation:
https://en.wikipedia.org/wiki/Debits_and_credits
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>>1079857
I have a BBA in accounting.

Credit and Debit is arbitrary. It literally just means left and right has to balance in a journalized double entry transaction. It depends what the "normal balance" of the account is, in the chart of accounts. The chart of accounts must conform to the accounting equation.

You'll learn all this stuff procedurally by doing a million journal entries. It doesn't really mean anything per say because it depends on what account you are debiting or crediting if it's an "increase" or "decrease."

Just practice.
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>>1079937
>>1079948
yea that makes sense but I still don't understand how to tell which account is being increased or decreased. There can't literally be no reason at all
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>>1079956
You need to explain this question more
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>>1079956
https://en.wikipedia.org/wiki/Double-entry_bookkeeping_system#Approaches
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Assets increase on the debit side, decrease on credit side.

Liabilities decrease on debut side, increase on credit side.

Expenses and revenue is opposite for some fucking reason.

So just remember that OP that's it.
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>>1079956
It depends where the account is in the chart of accounts, which is just an explanation of the accounting equation.

For example if you are debiting cash and crediting revenue.

Cash is an "asset" in the accounting equation. So if one side of the equation goes up, the other side must increase equally.
So you need a credit somewhere in either liabilities or stockholder's equity. The Revenue account is in stockholder's equity with a normal Credit Balance. Therefore you credit revenue for an equal amount.

Now you have a balanced transaction. Equal debit, equal credit. Equal Asset, equal liabilities + stockholder's equity.
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>>1079963
sorry I'm really tired
but first
I don't understand, to the left or right of what?
Do they mean these columns?
also
I don't get the reason that, for example, a credit increases for liabilities and equity. I can memorize that easily but I don't understand why
>>1079966
i'll read into this stuff in a minute I have a lot of other videos and tabs open still
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What exactly affects Owners Equity?

I can't get my stupid trial balance to be equal. Please help
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>>1079968
Ah, wait.
So have they just fucked me by using the words increases and decreases in the first chapter?

In other words, what you're saying is that if I've purchased $7000 in equipment, I'd debit $7000 to cash and credit $7000 in equipment? or no not even close?
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>>1079975
Correct

Even I know that and I'm retarded. I can't get fucking trial balance to be equal. I think I'm fucking up owners capital or whatever

Help someone what effects it? Is it revenue?
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>>1079975
I mean, wait.
That was a dumb example it was wrong anyway but I should have asked about something on like opposite sides. So If instead, I bought supplies on credit for the same 7000.
The way the classwork has been so far(without the terms debit or credit) all I'd say would be, there was a $7000 decrease in the cash account, and a $7000 increase in accounts payable. Now, is THIS like saying a cr in cash, and a dr in A/P?
If not I'm way more lost than I thought
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>>1079975
You have it backwards.

If you are purchasing equipment, you are going to decrease Cash.
Because Cash has a normal "Debit" balance, the way to decrease Cash is to Credit it.
Then you would therefore need to Debit your Equipment account to make it balance.
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>>1079981
I know sorry
>>1079980
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>>1079980
Yes.

So let's say you buy $5000 worth of equipment with cash.

Cash decreases by $5000 and equipment increases by $5000. As in cash is credited 5000 and equipment debited

>>1079981
Please help me
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>>1079967

>>1079963
>>1079963

WHAT IS THE REASON THERE HAS GOT TO BE A REASON I'LL FORGET AND WON'T BE ABLE TO FIGURE IT OUT ON LIKE A RANDOM TEST ONE DAY THAT'S HOW MY BRAIN WORKS
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>>1079985
Bro.

Just remember:
Assets - Increase on Left side, Decrease on right

Liabilities - Decrease on left side. Increase on right.

Left is debit, right is credit. All u need SENPAI

Just wait till your fucking ledger messes up your trial balance for some reason and you can't figure out like me.
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>>1079857
Assets + Expenses = Revenue + Liabilities + Owners Equity

This is the Trial Balance.

Assets & Expenses are usually DR, Revenue, Liabilities and owners Equity are normally CR.

Thus if you were to buy equipment, The equipment (asset) would go up thus DR, and the bank (also a asset) would then go down thus CR.
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>>1079986
No offense but you said I had something correct when I didn't. And I don't think anyone knows exactly what you're talking about. Why don't you post it or something
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OP debit & credit LITERALLY means left & right in Latin. Accounting fags liked it so they started using it when they started using the double entry accounting system.

Source: guy who studied finance because he hated accounting, and didn't want to study any other cuck-tier major
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>>1079990
I misread what you wrote by accident

What I just posted is the correct thing, look it up or something senpai.
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>>1079980
If you are purchasing supplies on credit, then you would increase both supplies and accounts payable. You wouldn't touch cash yet, until it came time to pay off your A/P.

The thing is, when you increase a liability (accounts payable), then you know from the accounting equation that you'll need to increase either an asset (supplies) or decrease equity.

But you have to know that supplies has a normal debit balance and accounts payable has a normal credit balance to make your journal entry balance.

It's all about the equation. Every account fits into the equation, and all the debits and credits just fit to that.

Over Simplification:
Assets = Normal Debit Balance
Liabilities or SHE = Normal Credit Balance
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>>1079994
>debit & credit LITERALLY means left & right in Latin
No it doesn't. Debit comes from debere (owe/have) and credere (entrust/believe).

Left and right in Latin is sinister and dexter.
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Assets = Liabilities + Equity
Debits = Credits
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>>1079996
Please help me.

Why the won't isn't my trial balance correct? I can't figure it out, should I take picture of my Ledger and trial balance and post it because i seriously cannot figure this stuff out.
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>>1080000

I see them
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>>1079996
I can't believe I messed it up a second time but I did mean to say, increase in supplies, increase in accounts payable. Both assets and liabilities go up 7000, the equation balances.

But please, can you tell me not why but how I know that an asset like supplies would have a normal debit balance, and a liability like a/p would have a normal credit balance. I think thats the question I've been trying to ask but its so complicated and I'm so tired..
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>>1080012
How could it be any different?

The equation has to balance.
Debits and credits has to balance.

Let's rearrange the accounting equation for instruction.

Equity = Assets - Liabilities

Meaning the value of the company is only its assets minus any liabilities.

For clarity sake, they move it around so that Debits are on the left (Assets) and Credits are on the right (Liabilities or Equity)
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>>1080018
stop ignoring me please reply

What exactly affects owner's equity?
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>>1080018
You could say Debit just means the left side of the accounting equation and Credits means the right side.
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>>1080020
It is any equity (capital / funds / money) that the owners put in or take out of the business.
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>>1080029
But doesn't Expense/Revenue affect Owner's equity?

Like if there's an expense but it's not matched with an equal Revenue it decreases the equity, right?
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>>1080018
why don't people just say increase and decrease?
I already knew those words.
I mean the book says, because its not that simple, but everybody here says it kind of is
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>>1080029
>>1080034
Because I filled out my ledger properly for sure for transactions but I'm messing something up because my trial balance is wrong.

The most likely culprit is probably owner's equity so what could I be overlooking here? What are the common mistakes?
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>>1080022
well god thank you for answering that part
I was so off, for some reason I was starting to think that each account now has like two parts or something like that
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>>1080039
b-but senpai I told you that earlier... w-why didn't you believe me...
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>>1080035
They it doesn't really work.

To increase cash, you debit it.
To increase A/P, you credit it.
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>>1080044
NIG PLEASE ANSWER

HELP ME PLEASE

i know you can see this post, why are you ignoring me? Why can't you reply
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>>1080044
lol but couldn't you just say, to increase A/P, you increase it?
I mean you guys must think I'm absolutely retarded but I still don't get it completely
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>>1080036
It could be anything. You probably chose a wrong account for a particular journal entry and ended up with an unbalanced equation.
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>>1080034
An expense will not match a revenue, generally and expense or revenue will match off against a asset or liability.

It sounds like you need to brush up on the accounting equation.

If you did accounting at high school this is pretty much all you learn.

If you are starting accounting straight at college, then I can appreciate you could get lost with DR and CRs if you don't have a sound understanding of how a trial balance works.
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>>1080047
like if you purchased something on account.. your accounts payable goes up, it increases
but its actually credited which means that it goes down what?
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>>1080049
>>1080052
No I definitely went through every transaction extensively and made sure I was debiting/crediting the proper accounts(subtracting cash and adding equipment for purchases for example).

I just think I'm messing up owner's equity which I don't quite understand.

So let's say Nigger invests $10,000 into the business...

I added $10,000 to cash but also $10,000 onto the credit side for Owner's Equity? What else affects owner's equity?
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>>1080035
Because a debit or credit will increase or decrease depending on which account you're looking at. So you just have to memorize which is which.
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>>1080056
I refuse to accept that
I know there is a reason that it will increase or decrease, I'm trying to figure it out
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>>1080049
>>1080052
>>1080054
Essentially is there anything else i have to adjust?

In my case there's only assets and liabilities and then a couple expenses so after I fill in the entries properly on the accounts do I need to do anything with the Owner's Capital account?

I don't get the purpose of that one, does revenue/expenses do soemthing to it
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>>1080054
Drawings
Funds Introduced
Dividends Paid
Capital Gain / Loss
Retained Earnings
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>>1080059
The net profit earned transfers to owners equity.
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>>1080061
Do assets like cash effect it?

I don't have any of the stuff you mentioned except a couple drawings. So this SHOULD be very simple but yet it's not and I simply cannot figure it out after going through it numerous times.
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>>1080063
Okkkkk.

So the Cash account for example:
Added up: on the left side it's 17 000, on the right it's 11 000.

Which means that it has a closing balance of 6 000.

DOES this go into Owner's Equity, y/n?
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>>1080068
Say you sold 10K of goods, spent 5K making the goods.

Bank DR 10K
Revenue CR 10K

Expenses DR 5K
Bank (Asset) CR 5K

The balance sheet would then show:

Bank (Asset) DR 5K
Owners Equity CR 5K

(As the business owns the business owner 5K)

Get it?
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>>1080056
>>1080057

does anyone here actually know? does anyone in the world actually know?? I'm going to lose my mind
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>>1080075
https://www.quora.com/In-accounting-why-do-we-debit-expenses-and-credit-revenues
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>>1080072
Why did Bank become 5k CR after? Or do you mean that it decreased?

Basically Revenue/Expenses affect Owners Equity only? What about the profit from assets, like my cash example?

Because in one of my homework questions there aren't even any revenue or expense accounts. It's just Assets and Liabilities and Owner's Equity but when I add it all up the trial balance is off by a lot.

Specifically There's:
- Cash
- Accounts Receivable
- Supplies
- Land
- Building
- Equipment
- Accounts Payable
- Mortgage payable
- Owner's Capital

Which of these affect "owner's capital"??

Pic related is me right now

>>1080075
>does anyone here actually know? does anyone in the world actually know?? I'm going to lose my mind

Accounting claims another one :^)
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>>1080077
So debit just means increase because it does (circular logic)
and when you debit a liability or an equity, it means the opposite because (of no logic)
Do I have it down now?
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>>1080082
Yes correct senpai.

Just accept it
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>>1080075
Yeah, it was already answered with reference to the accounting equation.

Here's an exercise for you:

Try to prove the opposite.

Try to make it work with the accounting equation by doing it differently. It just won't work.

It mathematically can't work any other way.

Aaaaaand... I'm out.
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>>1080072
>>1080081
Please reply I'm about to jump
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>>1080081
If the owner put his own money into the business, then that would affect cash and owners equity.

Without knowing what the question is, I would think it is unlikely that any other of those accounts would affect owners equity.
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>>1080101
Then what the hell is going wrong?

I've calculated all the accounts and yet my trial balance is incorrect.

Based on those accounts, what woudl you say is the likely thing I'm doing wrong?

Just to be clear, if there is excess cash does it go into Owners Equity since it's "profit"? Isn't that what you said earlier?
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>>1080108
its the current year.
just post a photo of the question.
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>>1080109
There is no "question'. I just need to make fill in the accounts on the ledger and then make a trial balance and then an income statement.
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>>1080109
good bye I'm going to sleep. I can't figure this shit out.

WHY ISN'T THE EXCESS CASH A "REVENUE" THAT AFFECTS OWNERS EQUITY?

I'M DONE WITH ACCOUNTING, GOOD BYE EVERYONE.
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