Tweet

Debits and Credits in Accounting

Guest post by: Shirley Coop

Article Overview: In double entry accounting, we use two columns for each account and enter only positive numbers. Two accounts are always affected by each transaction, one must be a debit and the other must be a credit of equal amount. Sometimes more than two are affected when multiple entries are made against one credit/debit. This double entry accounting system provides a method of checks and balances. By adding up all of the debits and adding up all of the credits and comparing the two you can notice errors or correct many common types of bookkeeping mistakes.

Debits and Credits in Accounting

In accounting terms "credits" and "debits" have a different meaning from everyday language use. In everyday language you think of a "credit" as adding to an amount. However, in accounting terms, if a transaction causes a company's checking account to be credited, its balance decreases.

Whether a debit or a credit; increase or decrease, an account balance depends on the type of account if the account is on the balance sheet as an asset, liability or equity or on the income statement as an income, cost of sale or expense account.Assets, such as bank accounts and expense accounts, are increased on the debit side (R). Liability, equity and revenue accounts are increased on the credit side (L).

Debit is always entered on the Left Credit is always entered on the Right

Shirley Coop

Related Articles
  Exploring the Ins and Outs of Double Entry Accounting
  Accounting for Non Accountants : Debit, Credits and Financial Statements
  Why your bank account may not reflect the sales that you have made
  Accounting made simple? I don't think so.
  Understanding the Bottom Line
  The TwelveStep Program for Financial Stressaholics
  Small Business Accounting Services and Double Entry Bookkeeping
  The Accounting Model: Accounting's Rosetta Stone
  3 Advantages while you Outsource General Ledger Reconciliation Services
  The General Journal: Your Most Versatile Accounting Tool
  Film Tax Credits Canada – Creative Finance That Is Real And Works!
  Independent Film Financing via a Film Tax Credit Finance Strategy
  Understanding Double Entry Accounting
  Accounting: Chart of Accounts
  Looking For Canadian Tax Credits For Film Financing?
  Financing Independent Movies Via Tax Credits For Indie Film financing
  Why You Should Use Canadian Film Tax Credits For Your Film Production Financing
  Film Finances Canada – Monetizing Your Film Tax Credits in Canada Today Via our Secret Strategy!
  Film , Television, and Animation Tax Credit Financing Canada
  Striking Gold With Film Tax Credits – Finance Ontario and BC Film Production Incentives

Article Tags: bookkeeping, checks and balances, debits and credits in accounting, double entry accounting, Peachtree accounting, Peachtree software



Related Forum Posts
Research & Development Tax Credits - If anyone is involved in any sort of R&D I have a contact that can submit an application for you to the Government of Canada to get back upto 80% of expenses you may have incurred. Best of all - all this at no cost to you. She's worked with companies of all sizes and part of her services, which are included is how to structure yourself in the future to continue to receive these Government Tax Credits. She can even go back to the last three years in your books to get Tax Credits refunds as well. Email me and I can share her details with you.
Seek Venture Capital & Funding - Hello, Greetings from India. I am Seeking Venture Capital for Offshore Software Company Start-up. Need advise along with Business Model Sample. I have a basic outline for an offshore company. 1. Technology - like Microsoft Dot Net, Java, LAMP 2. Talent Team - Found Good Technology Developers. 3. Where I can get the leads/potential customers - Leads have been identified who are willing to move forward offshore projects. 4. I do not have resources like funding. It is a very critical factor to me Industries: Manufacturing, Real Estate, Retail, Insurance, Distribution & Logistics, Healthcare, Industry Associations and Software Product Development, Agricultural Industries and Etc. Services: Offshore Software Development Company. Offices to be located: Hyderabad, Andhra Pradesh, India and USA. Products/Services/Applications in areas like POS & Billing, Sales & Distribution, Production Planning, Material Management, Inventory Control, Plant Maintenance, Purchasing, Accounting and Logistics. Dynamic Web Programming with Database Driven Content Management Systems, Online Stores for E-Commerce, B2B Solutions, Community Portals, Website Redesign and Development, Custom ERP with Enterprise Wide Functional Modules such as Marketing, CRM, Accounting, Inventory Control, Sales & Distribution, Production Planning, Purchase & Stores, Logistics and Supply Chain. Seek your further questions and help. Thank you, Best Regards, Jayapratap.
Wearing different hats in Business - I have a business that produces beautiful custom rugs for home and business environments. Different hats that I'm wearing... Rug Fabrication - 10 [i:21cr28m8](partially outsourced to an outfit here in the US)[/i:21cr28m8] Customer Service / Sales - 8-10 Bookkeeping - 1 Marketing - 6 Website development - 5 [i:21cr28m8](mainly outsourced)[/i:21cr28m8] SEO, SEM - 6-8 Accounting - [i:21cr28m8](outsourced)[/i:21cr28m8]
Kevin's Case Study #5 - Different "hats" you wear - To help all entrepreneurs (especially aspiring new ones), I'd like to ask: 1.) What is your small business? 2.) Then list the numerous "hats" you're required to wear in order to succeed. Moreover, go on to rate each job function on a scale of "1 = generalist" to "10 = expert" and even which tasks you outsource. Perhaps this post will act as a decisive factor on whether a person should pursue a specific business idea or not. [i:exdr7mc8]For example, if I owned my own bakery, I'd create my list as follows: 1.) Professional Baker 2.) Different hats I'm required to wear: -Dessert making (8-10) -Customer service/Sales (7) - Job function is outsourced -Accounting (5) - Job function is outsourced -Marketing (4) - Job function is outsourced -etc...[/i:exdr7mc8]
the BDC - Hi Renee, the BDC is a great lender to many Canadian businesses. I've heard many horror stories from businesses that have had problems with the BDC, but I think it all depends on which account manager you deal with (that's the case with most lenders). Anyways, I have a great relationship with the BDC Toronto office, and was successful earlier this year in getting two service based companies loans under the BDC Innovation financing program ($100,000 and $150,000, both for marketing and growth initiatives). Here's an article I wrote about the BDC late last year for an Accounting Firm's newsletter: The Business Development Bank of Canada is a financial institution belonging to the Government of Canada, with the mandate: “to encourage innovation and stimulate the growth of small and medium-size Canadian companies.” The BDC usually looks for companies with a sound management team that possess solid growth potential. The BDC can provide working capital solutions to complement traditional bank financing. The BDC’s lending practices are somewhat different from the traditional chartered banks. With the BDC, borrowers receive a guaranteed term, meaning that financing cannot be recalled without due cause. As opposed to the chartered banks, where facilities are typically demand loans and can be recalled at any time. The BDC has very flexible repayment terms, including deferring principal payments, amortizing loans for up to an 8 year term, or offering seasonal and/or progressive payment options. This allows businesses to structure their cash flow accordingly. The BDC is willing to lend to companies that are more leveraged than traditional banks would consider. As well the BDC is willing to finance higher loan-to-value ratios than the chartered banks max out on. The BDC also offers subordinated debt, where they will postpone their claim to a chartered bank. Sub-debt can be very advantageous to many companies, because the BDC ties the repayment terms to the company’s cash flow projections. The pricing model can be setup as normal interest payments, royalties on sales, bonus interest based on milestones, warrants or some combination of these items. The BDC lends sub-debt to businesses based on historical cash flow, management and growth potential. The innovation financing program provides small businesses with funds to carry out marketing and/or growth plans, increase inventory, and/or develop new products. The BDC funds all types of businesses including start-ups, however will not fund any business that earns 50% or more of their profits from alcohol sales or gambling. The cost of borrowing from the BDC is generally higher than the chartered banks. The BDC’s base rate generally starts at two points above regular bank prime, and then the risk premium is applied to these rates based on each project's potential and the amount of risk involved. The BDC may not be ideal for all businesses, but as an alternative and/or complement to traditional bank financing, the BDC could be a very attractive solution.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Fear Factors in Small Business: Sales & Marketing

The Biggest Domain Name Myth

What Is The Foundation for Your Vision?

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.