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Basic Accounting

Debit is left and credit is right. On a T account, that is all you need to know. Depending on the account, this left and right means different things. Assets normally have debit balances, that means the debits should be larger than the credits. Cash, accounts receivable, prepaid expenses, inventory and fixed assets should all have debit balances. Liabilities should have credit balances: accounts payable, notes payable, bonds payable, and any deferred revenue or revenue where cash has already been received, but the work has yet to be performed. Equity also has a credit balance: common stock or owner's contributions. The accounting equation Assets = Liabilities + Equity is the same thing as saying that debits have to equal credits.

Key words:

received cash (always means debit cash)
purchased on account (always means credit accounts payable)
paid on account (always means debit or lower the balance of accounts payable)
billed customer (always means debit accounts receivable)
received cash from customer (always means debit cash and credit or lower the balance of accounts receivable)
paid on the first day of a period of time for insurance (means debit prepaid insurance and credit or lower the balance of cash)


Ronald L.

Thorough Tutoring in All Accounting Subjects

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