Question:
Golden rules of Accounting (Dr. what comes in etc.) vs The modern way of making accounting entries like Dr. Asset increase etc ?
Saim
2016-10-05 23:36:04 UTC
Golden rules of Accounting (Dr. what comes in etc.) vs The modern way of making accounting entries like Dr. Asset increase etc ?
Four answers:
?
2017-01-17 09:12:05 UTC
Modern Rules Of Accounting
Prof
2016-10-06 04:32:56 UTC
Not sure what your question is, but the following may be helpful:



First, you have to understand the debit and credit rules. Assets are increased by debits and decreased by credits, Liabilities and Capital are increased by credits and decreased by debits. That makes the accounting equation logical. Assets = Liabilities + Capital, or Assets - Liabilities = Capital. Given that equation, every transaction involves an equal amount of debits and credits.



Recording transactions is a simple matter of deciding what took place in an exchange. You record what you received and you record what you gave up. Usually the record is made in journal entries. It makes no sense to try to memorize journal entries. The idea is to analyze what was exchanged. You received or gave up assets and you use the debit and credit rules to record that. If you get cash, you debit the cash account, but you have to credit something else. For example, in exchange for the cash you performed a service, which means you earned revenue which is an increase in capital, recorded as a credit. If you paid cash in exchange for your room rent, the rent is an expense, which is a reduction of capital, so it is recorded with a debit, and cash decreased so it is recorded as a credit. If you pay cash for a computer, you are increasing one asset, the computer, and decreasing the other asset, cash. You just have to decide what was exchanged before you worry about what to debit or credit.



You incurred a liability (gave a promise to pay later) so a liability is credited, and you received merchandise, which is an asset that is debited. Or you got your promise back because you discharged the liability, so you debit the liability and credit the cash you paid.



Similarly with capital. You issued stock for cash so you received cash (a debit) and record a credit in owners’ equity representing the owner’s interest in the business assets. Or bought back stock giving up cash (a credit) and reducing the owner’s interest in the business (a debit in a capital account). You increase capital (credit revenue) by providing a service or product. You decreases capital (debit an expense) by using up assets or services. As long as you understand what was exchanged, you can decide what to debit and credit.



You have to understand that expenses are reduction in capital and revenues are increases in capital. That is why expenses are debits and revenues are credits. You could debit or credit the capital account directly when you have an expense or revenue, but then you would not be able to see the details of how capital changed. Expenses and revenues are just temporary subdivisions of capital that enable you to prepare an income statement and see why capital changed from operating a business.



With manual journal entries, debits are always recorded first, followed by credits, with the credit account indented, as follows:



dr. Cash . . . .200

cr. . . . . .Accounts receivable . . . .200

. . Collected Jones account.



A memorandum explains what took place or includes details such as check number, computation of interest, or other information to enable auditing the journal entry.
olliver
2016-10-06 06:56:52 UTC
The accounting equation is.

Assets = Liabilities + Equity



Debit means on the left hand side of the equation, credit means on the right side of the equation
SumDude
2016-10-06 00:11:36 UTC
Huh? Double entry bookkeeping (and accounting) have always had the same rules. [Anything can be a debit or a credit.] Formally learn what is what instead of relying on some "trick."


This content was originally posted on Y! Answers, a Q&A website that shut down in 2021.
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