HOW TO LEARN THE BASIC RULES OF DEBITS - CREDITS IN NEW WAY?
WHAT IS BOOK KEEPING ??
The use of debits and credits in double entry bookkeeping can be traced back many centuries. Some of the terminology used in bookkeeping includes the following:
debit an amount entered on the left side of an account; will increase the account balances of assets, expenses, losses; will decrease the account balances of liabilities, stockholders’ equity, revenues.
credit an amount entered on the right side of an account; will cause the account balances of revenues, liabilities, stockholders’ (owner’s) equity, and gains to increase; will cause the balances of assets and expenses to decrease.
double entry each bookkeeping or accounting entry will involve at least two accounts: at least one account will be debited, one account will be credited.
account a record in the general ledger to which amounts are posted; typical accounts include Cash, Accounts Receivable, Accounts Payable, Sales, Wages Expense, and so on.
chart of accounts a list of all of the accounts that are available in the general ledger.
journal book of original entry, used to record accounting/bookkeeping entries in order by date.
posting entering amounts in the general ledger.
general ledger contains all of the balance sheet and income statement accounts.
trial balance a listing of the balances of the accounts in the general ledger to prove that the total amount of debit balances is equal to the total amount of credit balances.
balance sheet accounts real or permanent accounts; asset, liability, and equity accounts.
income statement accounts temporary accounts; revenue, expense, gain, and loss accounts.
contra account an account with a balance that is opposite of the normal balance; e.g. Accumulated Depreciation is a contra asset account because its credit balance is the opposite of the normal debit balance for an asset account.
control account an account in the general ledger with summary information. The supporting details are contained in a subsidiary ledger.
subsidiary ledger a record containing the detail for a control account in the general ledger.
closing entries entries to transfer the balances from the temporary accounts to the owner’s (stockholders’) equity account.
temporary accounts accounts that are closed at the end of the accounting year so that they begin the new year with a zero balance; e.g. income statement accounts and the owner’s drawing account.
permanent accounts accounts whose balances carry forward to the next accounting year; e.g. balance sheet accounts
| Golden rules: | ||
| Account heads | Debit | Credit |
| Personal a/c | Who is the receiver | Who is the giver |
| Real a/c | What comes in | What goes out |
| Nominal a/c | All expenses and losses | All incomes and gains |
If you’re not interested in learning this method there is a
shortcut which is given below :-
Just learn two words ‘LEAD’ and ‘CLIP’.
L – Loss E – Expenses A –
Assets D – Debit
C – Credit L – Liability I – Income P - Profits
C – Credit L – Liability I – Income P - Profits
This
is used to identify Debit and Credit in the given transaction.
WHAT IS BOOK KEEPING ??
The use of debits and credits in double entry bookkeeping can be traced back many centuries. Some of the terminology used in bookkeeping includes the following:
debit an amount entered on the left side of an account; will increase the account balances of assets, expenses, losses; will decrease the account balances of liabilities, stockholders’ equity, revenues.
credit an amount entered on the right side of an account; will cause the account balances of revenues, liabilities, stockholders’ (owner’s) equity, and gains to increase; will cause the balances of assets and expenses to decrease.
double entry each bookkeeping or accounting entry will involve at least two accounts: at least one account will be debited, one account will be credited.
account a record in the general ledger to which amounts are posted; typical accounts include Cash, Accounts Receivable, Accounts Payable, Sales, Wages Expense, and so on.
chart of accounts a list of all of the accounts that are available in the general ledger.
journal book of original entry, used to record accounting/bookkeeping entries in order by date.
posting entering amounts in the general ledger.
general ledger contains all of the balance sheet and income statement accounts.
trial balance a listing of the balances of the accounts in the general ledger to prove that the total amount of debit balances is equal to the total amount of credit balances.
balance sheet accounts real or permanent accounts; asset, liability, and equity accounts.
income statement accounts temporary accounts; revenue, expense, gain, and loss accounts.
contra account an account with a balance that is opposite of the normal balance; e.g. Accumulated Depreciation is a contra asset account because its credit balance is the opposite of the normal debit balance for an asset account.
control account an account in the general ledger with summary information. The supporting details are contained in a subsidiary ledger.
subsidiary ledger a record containing the detail for a control account in the general ledger.
closing entries entries to transfer the balances from the temporary accounts to the owner’s (stockholders’) equity account.
temporary accounts accounts that are closed at the end of the accounting year so that they begin the new year with a zero balance; e.g. income statement accounts and the owner’s drawing account.
permanent accounts accounts whose balances carry forward to the next accounting year; e.g. balance sheet accounts
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