Accounting & Bookkeeping & Small Business Forum

LaneG · Posted: Thu Feb 09, 2006 11:11 am Post subject: Debits & Credits Dilemma

I’d like to hear from some UAC graduates who are working with clients on a regular basis.

I've just finished Module 3 and am getting worried. I'm having a heck of a time with the debit/credit thing, .i.e. what goes where and when. In fact, after module 2 I even restarted the course thinking that it would help sink it into my thick skull. I've managed so far having cheated by looking at the answers in the back of the books once in a while. But I know that I won't be able to do that when working for a client. My question is: do I really need to learn this super well? I've heard that Quickbooks doesn't even use debits and credit terminology. Do I just keep plugging along and eventually it will sink in?

:?: Or... Have any of you found something that could help me?

I thank you so very much for your input
Lane

Jennifer T · Posted: Thu Feb 09, 2006 12:47 pm Post subject:

Unfortunately, to be an effective bookkeeper, you really need to understand Debits and Credits.

It's true that for the most part QB doesn't use Debit and Credit terminology; but you still need to understand the underlying principles that make QB function (Debits and Credits!). Otherwise, when problems arise, and they will arise, you really won't know how to diagnose them.

Could you explain the difficulty you are having? I'd be happy to try to explain things to you. I'm sure others here feel the same.

LaneG · Posted: Thu Feb 09, 2006 1:22 pm Post subject:

Jennifer

Thanks for your answer. I enjoy reading your posts on these forums.

It’s hard to explain. I understand simple things like when a business receives cash that it’s a debit to the bank account. And that when a check is written that it’s a credit to the same bank account.

But with some accounts a credit is a plus to the account and to others it’s a minus. In other words a credit isn’t always a credit and a debit isn’t always a debit. I’m so confused! I thought I was onto a new career and now I’ve hit a brick wall and feeling very very stymied. Time to start over again?

Jennifer T · Posted: Thu Feb 09, 2006 4:55 pm Post subject:

LaneG wrote: But with some accounts a credit is a plus to the account and to others it’s a minus. In other words a credit isn’t always a credit and a debit isn’t always a debit. I’m so confused! I thought I was onto a new career and now I’ve hit a brick wall and feeling very very stymied. Time to start over again?

Forgive me if I'm repeating what the course says. Having taken the course so long ago I don't remember exactly how it's presented.

I'd like to suggest that you memorize which accounts are debit accounts, and which accounts are credit accounts. Have you committed this to memory yet? It is important. It's part of the foundation of double entry bookkeeping.

Then, commit to memory that a debit to a debit account always increases it's balance. A credit to a credit account always increases it's balance. The opposite is also true: a credit to a debit account decreases it's balance, and a debit to a credit account decreases it's balance. Let's illustrate with a simple and common example:

The company makes a sale:
DR Accounts Receivable
CR Sales

A customer has paid their invoice:
DR Bank
CR Accounts Receivable

In this example, the first debit records a increase in the Accounts Receivable (amounts owed to the company), which is a debit account. The balance in that account has increased--more money is owed to the company than previously.

The first credit shows an increase in Sales (Revenue earned by the company), a credit account. The company sold goods, performed services, or somehow earned revenue. The balance in this account has also increased.

The second debit is a deposit to the bank account, a debit account. The balance in this account has increased.

The second credit has decreased the amount owed to the company. A customer has paid their bill and owes the company less money than previously. Since Accounts Receivable is a debit account, a credit to it has lowered it's balance.

Clear as mud?? How's this working for you? Talk to me Goose! (I watched Top Gun on TV a few days ago and just had to say it!)

Roger · Joined: 05 Aug 2005 Posts: 146

By what I'm about to say I want to make a point but not be misunderstood. LanG started with:

Quote: I've managed so far having cheated by looking at the answers in the back of the books once in a while. But I know that I won't be able to do that when working for a client. My question is: do I really need to learn this super well?

Yes you need to know something about Debits and Credits BUT just like a lawyer, doctor etc. the client is not bothered to see the expert verifying their work by referencing themselves to manuals and books. Go to the office of any doctor or lawyer and you will find the materials that they use to do their job.

To be good at most anything you need to know something but not always everything. Often it is more important to know where to get the answer than it is to know ALL of the answers.

Just like the doctors and lawyers, the manuals from your studies in the Professional Bookkeeper Program are there for you to be able to refer to them. The Forum is here for your help. Your coaches are here to support and assist you.

Remember this, "You want to be in business for yourself but not by yourself to get paid the money you are worth"

I say this not to oversimplify knowing debits and credits but to show that you don't need to know everything to move forward.

Roger
Debits and Credit Difference

LaneG · Posted: Fri Feb 10, 2006 11:42 am Post subject:

Thank you Jennifer and Roger for your input and offer of help. I'll keep going in the coursework as I'm sure the more I do the better I'll get at remembering what goes where.

RKoehler · Joined: 30 May 2006 Posts: 11

One little thing that has helped me tremendously is the "Encyclopedia of Journal Entries". Anytime I get stuck I pull out that book. It has kazillions of entries. I bought mine through AIPB but I'm sure you can get it elsewhere too.

Richard Noot · Joined: 20 Aug 2005 Posts: 912 Location: Minnesota

It’s hard to explain. I understand simple things like when a business But with some accounts a credit is a plus to the account and to others it’s a minus. In other words a credit isn’t always a credit and a debit isn’t always a debit. I’m so confused! I thought I was onto a new career and now I’ve hit a brick wall and feeling very very stymied. Time to start over again?[/quote]

Do not feel bad you are doing the same thing th I seen done by students when I was getting my degree. You are trying to give the terms debits and credits some type of a value definition> (ie debit is good because I think of cash increasing because I made a deposit or credit is bad because my account payable debt is growing.) MY PROFESSOR SIMPLY PUT IT THIS WAY. FORGET ABOUT WHAT YOU FEEL IS GOOD BAD OR WHATEVEVER WHEN WORKING WITH DEBITS AND CREDSITS. DEBITS SIMPLY MEANS A LEFT SIDED ENTRY. CREDIT MEANS A RIGHT SIDED ENTRY.

TO INCREASE A ASSET OR EXPENSE YOU DEBIT(LEFT SIDE) TO DECREASE YOU CREDIT (RIGHT SIDE)

TO INCREASE A LIABILITY OR REVENUE YOU CREDIT (RIGHT SIDE TO
DECREASE YOU DEBIT (LEFT SIDE)

THEN DETERMINE WHAT TYPE OF ACCOUNT YOU ARE USING ASSET LIABILITYETC

THEN DECIDE IF YOU WANT TO INCREASE IT OR DECREASE IT

FINALLY IF YOU ARE STILL CONFUSED, EMAIL JENNIFER T

Jennifer T · Posted: Tue May 30, 2006 4:21 pm Post subject:

Richard Noot wrote: FINALLY IF YOU ARE STILL CONFUSED, EMAIL JENNIFER T

:lol: :lol: Whoa there! I think they should email you!

Besides, your answer was way better than mine.

sdodson · Joined: 01 Jun 2006 Posts: 4

I would remember the debits and credits this way.

Assets = Liabilities + Equity

Assets (debit accounts) are increased by debits.
Liabilities and Equity are increased by credits.
Hence an increase in cash (debit) will result in an increase (credit) of sales (generally), and vice versa.

If you use that, then everything else falls into place. The easiest thing to do is get one side of the AJE. Once you get that, everything else falls into place.

davidruby · Joined: 14 Jul 2006 Posts: 1

---------------------------------------
Debit l Credit
l
Assets l Liabilities
Drawing l Owners Equity
Expenses l Revenue
l
l
l
l

If you look at the T account I made, the debit is always on the left and the credit is always on the right. assets, drawing, and expenses have a debit natural balance, and liabilities, Owners Equity, and Revenue have a credit natural balance. so for example; if you have a checking account with $1000.00 in it the bal. would be a debit. and if you wrote a check it would go on the credit side to reduce the bal. Then you would debit a liabilites account. So to summarize, Just remember ADE on left (debit) and LOR on right (Credit) and that will tell you what is the natural bal. is...
Hope this helps you...

Monica · Joined: 17 Aug 2005 Posts: 188 Location: Texas

Hello Lane,

All of our peers are right. Although, your head may be spinning. It happens to the best of us, just when you think you will never GET IT, all of a sudden you do. Roger said it best.

Follow your coursework instruction, it WILL sink in. If you are this concerned about succeeding at this new career, stop worrying about it. It will happen. By sheer determination, it will happen. Lane, don't stress. Take it from someone who knows what you are going through. You will make it, don't let anyone stand in your way, and persevere.

Good luck.

Monica

sinsabit · Joined: 25 Sep 2006 Posts: 5

I was taught this:

a Debit and Credit is....

GOOD-BAD (balance sheet)
BAD-GOOD (Income statement)

b comes before i so you can assemble it in your head. good bad bad good

then all you need to do is carry this picture of the 2 T accounts (Bal Sheet and Inc Stat) and any single transaction in existance will be in there somewhere. ( and you will find the place to fit it)

Once you get used to using this T account method (which sounds old fashioned but separates the soso thinkers from the excellent), then you will be able to apply it to even the most complex book-keeping concepts like minority interests in consolidations

Keep at it, it will pay off.

Monica · Joined: 17 Aug 2005 Posts: 188 Location: Texas

sinsabit wrote: I was taught this:

a Debit and Credit is....

GOOD-BAD (balance sheet)
BAD-GOOD (Income statement)

b comes before i so you can assemble it in your head. good bad bad good

then all you need to do is carry this picture of the 2 T accounts (Bal Sheet and Inc Stat) and any single transaction in existance will be in there somewhere. ( and you will find the place to fit it)

Once you get used to using this T account method (which sounds old fashioned but separates the soso thinkers from the excellent), then you will be able to apply it to even the most complex book-keeping concepts like minority interests in consolidations

Keep at it, it will pay off.

How depressing! Beat it to death why don't you?! Minority interests in consolidations...??? I don't think we need to bring that into the mix just yet. Good luck, Lane.

Monica