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8/4/2019 Debits & Credits 1
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DEBITS & CREDITS
Explanation
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ACCOUNTING EQUATION
ASSETS = LIABILITIES
DEBITS AND CREDITS EQUATION IS A VARIATION OFTHE FULLY EXPANDED EQUATION.
ASSETS + DRAWING +EXPENSES=LIABILITIES+OWNERS EQUITY+REVENUE.
Therefore DEBITS = CREDITS.
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What is Debit?
A debit in accounting language is anentry made on the left side of the of ajournal or ledger that increases anasset, drawing or expense or an entrythat decreases a liability , ownersequity or revenue.
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What is Credit?
A credit in accounting language is anentry made on the right side of journalor ledger that increases a liability,owners equity or revenue or an entrythat decreases an asset , draw or anexpense.
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Debit/Credit Equation
Assets + Drawing + Expense =Liabilities +Owners Equity
+Revenue. All accounts that normally have a debit
balance are on the left side of theequation.
All accounts that normally have acredit balance are on the right side ofhe equation.
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Summarised Debit/Credit RuleTable
ACCOUNT TYPE DEBIT CREDIT NORMAL
ASSETS INCREASE DECREASE DEBIT
BALANCE
LIABILITIES DECREASE INCREASE CREDITBALANCE
OWNERS
EQUITY
DECREASE INCREASE CREDIT
BALANCE
REVENUE DECREASE INCREASE CREDIT
BALANCE
EXPENSE INCREASE DECREASE DEBIT
BALANCE
DRAWING INCREASE DECREASE DEBIT
BALANCE
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Normal Account Balances
Debit Balances:
Asset : Normally a debit balance.
Drawings :Normally a debit balance Expense : Normally a debit balance.
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Contd
Credit Balances :
Liabilities : Normally a credit balance
Owners Equity: Normally a creditbalance.
Revenue : Normally a credit balance.
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A debit increases an asset while acredit decreases an asset.
A debit decreases a liability while acredit increases a liability.
A debit decreases owners equity whilea credit increases owners equity.
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A debit decreases revenue while creditincreases revenue.
A debit increases an expense while acredit decreases an expense.
A debit increases a drawing while acredit decreases a drawing.
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All accounts that normally have a debitbalance are increased with a debit anddecreased with a credit.
All accounts that normally have acredit balance are increased with a
credit and decreased with a debit.
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Example 1
My business has an advertisementexpense of Rs.20,000.
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Conclusion
Dont worry if you have not fullygrasped the concept of Debits &Credits yet.
Keep in mind the old saying Out ofconfusion comes knowledge
Practice makes Perfect.