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Debits And Credits


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Financial accounting credits and debits concept

Published in: Business, Economy & Finance

Debits And Credits

  1. 1. Debits and Credits Source:
  2. 2. Agenda <ul><li>Debits and Credits </li></ul><ul><li>Rules of Debits and Credits </li></ul><ul><li>Financial Accounting Components </li></ul><ul><li>Illustration: 1 </li></ul><ul><li>Illustration: 2 </li></ul><ul><li>Illustration: 3 </li></ul><ul><li>Illustration: 4 </li></ul>
  3. 3. Debits and Credits <ul><li>Debits and credits are the accounting terminologies which are used to describe the increase or decrease in the financial components. </li></ul><ul><li>Any movement in these components can be specified by using the term debits and credits. </li></ul><ul><li>In T-accounts, left column represents debits while right column represents credits. </li></ul>
  4. 4. Rules of Debits and Credits <ul><li>There are five components of financial statements </li></ul><ul><li>Asset </li></ul><ul><li>Liability </li></ul><ul><li>Capital </li></ul><ul><li>Expense </li></ul><ul><li>Revenue </li></ul>
  5. 5. Rules of Debits and Credits <ul><li>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 </li></ul>
  6. 6. Illustration: 1 <ul><li>John bought a car of 3000$ from Dj motors on credit. </li></ul><ul><li>The above transaction is hitting two heads i.e. asset, “a car and liability, Dj motors. </li></ul><ul><li>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: </li></ul>
  7. 7. Illustration: 2 <ul><li>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 </li></ul>
  8. 8. Illustration:3 <ul><li>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 </li></ul>
  9. 9. Illustration: 4 <ul><li>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). </li></ul>
  10. 10. <ul><li>For more Tutorials and presentations Visit </li></ul><ul><li> </li></ul>