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Debits and Credits

Debits and Credits. Source: http://www.soopertutorials.com/business/financial-accounting-business/2657-debits-credits.html. Agenda. Debits and Credits Rules of Debits and Credits Financial Accounting Components Illustration: 1 Illustration: 2 Illustration: 3 Illustration: 4.

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Debits and Credits

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  1. Debits and Credits Source: http://www.soopertutorials.com/business/financial-accounting-business/2657-debits-credits.html

  2. Agenda • Debits and Credits • Rules of Debits and Credits • Financial Accounting Components • Illustration: 1 • Illustration: 2 • Illustration: 3 • Illustration: 4

  3. Debits and Credits • Debits and credits are the accounting terminologies which are used to describe the increase or decrease in the financial components. • Any movement in these components can be specified by using the term debits and credits. • In T-accounts, left column represents debits while right column represents credits.

  4. Rules of Debits and Credits There are five components of financial statements • Asset • Liability • Capital • Expense • Revenue

  5. Rules of Debits and Credits • Each Component has its own criteria for debits and credits. Sometimes students may face a general problem in specifying when to use debit or credit terminology so to tackle these problems there is a general rule. See the Table A below

  6. Illustration: 1 • John bought a car of 3000$ from Dj motors on credit. • The above transaction is hitting two heads i.e. asset, “a car and liability, Dj motors. • In john books of accounts, his assets and liabilities both are increasing so for assets he has to debit a car and for liability he has to credit Dj motors. Following journal entry will appear in his books:

  7. Illustration: 2 • John paid electricity charges amounting to 50$ so hence john is increasing his expenses (debit) while his asset i.e. cash is decreasing (credit). Therefore entry in his books will be

  8. Illustration:3 • During the year john received a dividend of 120$ from his investments in stock market. Here revenue (dividend) & asset (cash), both are increasing so the journal entry would be as follows

  9. Illustration: 4 • John withdraws 500$ from his business for his personal use. In this situation his capital is decreasing (debit) in form of drawings and his cash is also decreasing (credit).

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