Accounting 101, Lesson #17: The Rules of Debit and Credit

Hi guy's, what's up?

Hope everything's fine.

Last time we had a brief discussion regarding business transactions.(which you can see here)

This time however, we are going to discuss the rules of debit and credit.

So, without further ado, let the learning begin!

In our previous lesson I left you thinking about this journal entry which you can see below;

Cash                                100,000

Capital                                            100,000

Going back at the transaction of the above entry, Mr. Businessman invested $100,000 in a medium-scale retail type of business.

Now, how did I come up with such an entry?

Quite simple, you'll just need to thoroughly understand the rules of debit and credit.

Summing it up, debit means value received while credit means value given up.

Do you get me?

Debit = value received

Credit = value given up

Thus, in accordance with the fundamental accounting equation, every debit means an equal credit.

Therefore, "for every value received there is an equal value given up"

Now, going back at the transaction, looking at the entity's point of view, J.L. Enterprises received value in terms of cash (debit) at the same time J.L. Enterprises also gave up value in terms of capital/claim. (credit)

Understand? of course you do..

Let's have another one,

Transaction #2

J.L. Enterprises bought two (2) computer units worth $2,000 a piece,  to be use in the entity's record-keeping and data management systems. The transaction was paid on a cash basis.

The value received was...

The value given up was...

Now, you are learning... The value received was that of the two computer units (office equipment) and the value given up was cash.

The entry is as follows;

Office equipment                        4,000

Cash                                                        4,000

The entity gave up cash (credit) and in return, the entity acquired office equipment (debit)

As easy as that,

Next time we'll continue with journal entries and analysis of business transactions.

So with that, I bid adiue to you

Until then,