The most basic term in accounting is DEBIT and CREDIT. This is based on the principle that for everything received there is something partaken with. In this accounting tips article we would try to make it a bit easier for everyone to understand this accounting concept.
When it is said to be a debit it is an entry which either increases an asset or expense account, or decreases a liability or equity account. This accounting entry is positioned to the left. A credit on the other hand either increases a liability or equity account, or decreases an asset or expense account.
Quick accounting tips on debit and credit
- Expense accounts are most of the time debited except when there is a correction.
- Income or revenue accounts are most of the time credited except when there is a capital withdrawal from the owner.
- Whenever you issue a check for your company you should credit the asset account Cash.
- Whenever you receive money, you should debit Cash.
- Every transaction required at least one debit account and one credit account.
- The debit and credit side should always be balanced.
Let us make examples to better understand our accounting tips above:
- A grocery store receives cash for payment of goods bought at the store amounting to P15,000.
- The entry to record this transaction would be Debit to Cash of P15,000 and Credit to Sales of P15,000.
- Let us use the same problem. A grocery store receives P15,000 cash for payment of goods bought at the store. The total goods purchases amounts to P25,000. The owner gives a special treatment to the buyer since he is a regular customer and would require him to pay the balance within 30 days.
- The entry to record this transaction would be Debit to Cash of P15,000, Debit to Accounts Receivable of P10,000 and Credit to Sales of P25,000.
Notice that in each example both Debit and Credit are of the same amount. We hope that the above accounting tips will help you better understand the accounting process.
These principles are also the basic guidelines for our accounting solutions. If you want accounting assistance and demo of our accounting systems just contact us or call +63(2)8535-SEED / 63(2)8535-7333.