A debit is an increase in an asset, or a reduction in a liability A credit is an increase in a liability, or a reduction in an asset
So if you're accruing rent income: Debit the balance sheet (Rent Receivable or similar) - You have increased your assets by the amount you are owed Credit turnover (Rent Received/Receivable or similar) - You have rented out whatever it is your renting, so you no longer have that asset available to rent
When you get paid: Debit the bank: You have the asset of more money in your bank account* Credit the balance sheet (Rent Receivable) - You no longer have the asset of being owed money (because it's now in your bank account)
*Ignore debits and credits on bank statements. They're backwards, as it's the bank's statement of their account with you, so their credit (bad thing 'cos they owe you money) is your debit (good thing 'cos it's money you have to spend).
Accrued phone bill: Debit Telephone with £1,000 - You have the asset of the ability to make, or have made, phone calls Credit Accruals with £1,000 - You have the liability of paying the phone company when they send you an invoice (as you have done)
When the bill comes in: Post the invoice (forget the accrual for a moment and post it as if the accrual doesn't exist): Debit Telephone with £600 - You have the asset of the ability to make, or have made, phone calls Credit Accruals with £600 - You have the liability of paying the phone company
Then: Reverse the accrual, dating your journal in the same month as the date of the invoice: Debit Accruals with £1,000 - Cancel the liability to pay when you get an invoice, because you now have the invoice on your Purchase Ledger Credit Telephone with £1,000 - Cancel the original "asset" of use of the phone because you've replaced it with the correct amount
As I said earlier, ignore debits and credits on bank statements. If you want to work out which way to post something, think of the effect it would have on your bank account.
If you make a sale it ultimately results in a Debit (asset of money) to the bank, so the opposite entry must be a Credit. If you buy something it ultimately results in a Credit (loss of the asset of having money) to the bank.
Sales are Credits - Because you no longer have the thing you have sold, or the time available to provide a service to someone else Purchases are Debits - Because you have acquired something you can make use of Money in the bank or cash are Debits - Because the have the asset of being able to spend it Owing money to the bank is a Credit - Because you have a liability to pay the bank money Sales Ledger, Current Assets, Fixed Assets and Stock are Debits - Because you have the asset of being owed money, or having stuff you can use or sell Purchase Ledger, Loans and Current Liabilities are Credits - Because they are liabilities to pay someone else
If you're still confused, learn about T Accounts. They're the good olde fashioned way of writing up manual double-entry books. Start off with the entries where you're certain whether it's a Debit or a Credit, then work out which side the other entries go to make it balance.
-- Edited by EPF_Solutions on Sunday 27th of July 2014 05:51:09 PM
A debit is an increase in an asset, or a reduction in a liability A credit is an increase in a liability, or a reduction in an asset
So if you're accruing rent income: Debit the balance sheet (Rnt Liabilities are Credits - Because they are liabilities to pay someone else
If you're still confused, learn about T Accounts. They're the good olde fashioned way of writing up manual double-entry books. Start off with the entries where you're certain whether it's a Debit or a Credit, then work out which side the other entries go to make it balance.
-- Edited by EPF_Solutions on Sunday 27th of July 2014 05:51:09 PM
Thank you very much for taking your time and helping me! :) I will read this fully and ask questions if i need to.
