1.1 How can you tell the difference between the debits and the credits in this statement? 1.2. List Shirley's debits and credits for the month. 1.3 In the first line of this statement, Shirley receives a salary of R 24 000. Look at the balance to work out what she had in the account before her salary was paid in (2) 1.4 Shirley receives some birthday money as well as her salary this month. Identify this (2) transaction (3) 1.5 How much money would she have been left with, if she hadn't received money for her birthday? (3) 1.6 Shirley wants to save 15% of her remaining money this month. How much can she save? [18.
Answers
Answer:
- The double entry accounting system is based on the concept of debits and credits. This is an area where many new accounting students get confused. Often people think debits mean additions while credits mean subtractions.
Step-by-step explanation:
- When you pay a bill or make a purchase, one account decreases in value (value is withdrawn, which is a debit), and another account increases in value (value is received which is a credit). The table below can help you decide whether to debit or credit a certain type of account.
Table 1
Increase Decrease
Assets Debit Credit
Liabilities Credit Debit
Shareholder's Equity Credit Debit
Revenue Credit Debit
Expenses Debit Credit
Chart of Accounts
Table 2
Date Account Name Debit Credit
May 1 Utility Expense $550
Accounts Payable $550
For Journal Entries
- Each T-account is simply each account written as the visual representation of a "T. " For that account, each transaction is recorded as debit or credit. This information can then be transferred to the accounting journal from the T-account.3 The T-accounts for the example of the electric utility payment in Table 2 would look like this:
Utility Expense (expense account)
Debit Credit
Increases an expense account Decreases an expense account
Received $550 Paid
A business owner can always refer to the Chart of Accounts to determine how to treat an expense account.
To complete this transaction, here is the T-account for the other side:
Accounts Payable (a liability account)
Debit Credit
Decreases a liability Increases a liability
Pays a bill Bill Due $550
Now you make the accounting journal entry illustrated in Table 2.
Asset Accounts
- Assets consist of items owned by a company, such as inventory, accounts receivable, fixed assets like plant and equipment, and any other account under either current assets or fixed assets on the balance sheet.
Example of an Accounting Journal Entry
Date Account Name Debit Credit
May 1 Inventory $10,000
Cash $10,000
Asset Account
- Inventory is an asset account. It has increased so it's debited and cash decreased so it is credited.
- Here is a tip about how to handle the cash account:
- When cash is received, the cash account is debited. When cash is paid out, the cash account is credited.
Example of an Accounting Journal Entry
Date Account Name Debit Credit
May 1 Cash $250,000
Fixed Assets $250,000
Cash Account
- Cash, an asset, increased so it would be debited. Fixed assets would be credited because they decreased.
Liability Accounts
- Liabilities are what the company owes to other parties. They can be current liabilities, like accounts payable and accruals, or long-term liabilities, like bonds payable or mortgages payable.
- Here's the rule for liability and equity accounts. Increases are debits and decreases are credits.
Example of an Accounting Journal Entry
Date Account Name Debit Credit
May 1 Notes Payable $5,000
Cash $5,000
Liability Account
- You would debit notes payable because the company made a payment on the loan, so the account decreases. Cash is credited because cash is an asset account that decreased because cash was used to pay the bill.
Owner's Equity Accounts
- The owner's equity accounts are also on the right side of the balance sheet like the liability accounts. Examples are common stock and retained earnings. They are treated exactly the same as liability accounts when it comes to accounting journal entries.
Example of an Accounting Journal Entry
Date Account Name Debit Credit
May 1 Cash $50,000
Common Stock $50,000
Expense Accounts
- Expense accounts are items on an income statement that cannot be tied to the sale of an individual product. Of all the accounts in your chart of accounts, your list of expense accounts will likely be the longest.
- Expense accounts run the gamut from advertising expenses to payroll taxes to office supplies. It's imperative that you learn how to record correct journal entries for them because you'll have so many.
Example of an Accounting Journal Entry
Date Account Name Debit Credit
May 1 Office Supplies Expense $750
Cash $750
Office Supplies Expense Account
- Office supplies is an expense account on the income statement, so you would debit it for $750. Cash is an asset account. You credit an asset account, in this case, cash, when you use it to purchase something.
Revenue or Income Accounts
- Revenue accounts are on a company's income statement. A company's revenue usually includes income from both cash and credit sales.
Example of an Accounting Journal Entry
Date Account Name Debit Credit
May 1 Cash $5,000
Sales Revenue $5,000
Cash Sales
- Sales revenue is posted as a credit. Increases in revenue accounts are recorded as credits as indicated in Table 1. Cash, an asset account, is debited for the same amount. An asset account is debited when there is an increase.
Learn more about the information of debits and credits
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