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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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The words debit and credit are used in two ways in accounting: “to debit an account” and “a debit balance.” Explain both usages of the terms debit and credit.

To determine

Account and Its basic component

To help recording the transaction in a systematic way, accounts are prepared. Accounts are prepared to record and categorize similar transactions at one place i.e. cash transactions are recorded at one place at cash account. There are two basic components of each Accounts i.e. Debit Side and Credit Side.

The usage of debit and credit in T-accounts.

Explanation

The Usage of terms like ‘Debit an account or credit on account’ is issued to increase or decrease in account balances of respective accounts based on normal account balance of those accounts. Accounts of assets and expenses are in the nature of debit balances. Therefore, the debit in their respective accounts means increase in balance and credit in these accounts means the decrease in the balances of these accounts.

However, revenues, liabilities and Equity accounts have credit balance as a normal accounts. Here, the debit in these accounts means the decrease in accounts balance and credit means increases in these respective accounts balances...

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