Debit and Credit Theory. Do not be confused by the cards you have in your wallets and purses. In accounting, Debit refers to the LEFT side of an account.

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Presentation transcript:

Debit and Credit Theory

Do not be confused by the cards you have in your wallets and purses. In accounting, Debit refers to the LEFT side of an account and Credit refers to the Right side. Every account is described this way.

Debit and Credit Theory Debit comes from debere in Latin. It means to owe. Credit comes from credere which means to trust or believe. These lead to words like “debt” and “in debt,” which sound bad and words like “credible” and “credentials” which sound good. So, asset accounts have the values on the left (debit) side and liability accounts have the values on the right (credit) side. Therefore, asset accounts have debit values, liability accounts have credit values.

The Rules of Debit and Credit

Applying the Rules of Debit and Credit Transaction 1 – The company purchases $200 worth of supplies from Packham Products, to be paid for later. Step 1: Names of affected accounts.

Applying the Rules of Debit and Credit Step 2: What kind of account? Step 3: Increase or decrease?

Applying the Rules of Debit and Credit Step 4: Debited or credited? Step 5: Value of change?

Applying the Rules of Debit and Credit The last step completes the Accounting Entry for that transaction. The Accounting Entry can be defined as all of the changes in the accounts caused by one business transaction. We write in terms of debits and credits.