Accounting & Bookkeeping & Small Business Forum

[s93s]

It says in my book for credit transactions with expenses and gains to

Expenses
Debit to record an increase in the value of an expense. (If the debit side is money coming in then why would I debit an increase in the expense)

Credit to record a reduction in the value of an expense. (If the credit side is money going out then why would I credit a reduction. Isn't a reduction on expenses a good thing and should I not debit it?)

Gains
Debit to record a reduction in the value of a gain. ( If i was receiving rent then why would I debit a reduction in the rent I receive)

Credit to record an increase in the value of a gain. ( Why would I credit an increase in what I am gaining?)

Please could someone explain my questions that are in the brackets.................. I'm totally lost!

[Dominic Bradish]

I understand the confusion that you are experiencing. You are trying to apply a general understanding to all accounts according to where they are placed in the accounting equation. Understand that an increase in expense is a decrease in owners equity and that an increased loss is also a decrease in owners equity. What we are calling an increase, then, is in the overall picture a decrease. An increase in expense is really a decrease in wealth and that is why it is a debit.

Also, remember, that in accrual based accounting, we are not so much talking about money coming in or going out, but instead we are talking about our rights to collect money in the future and our obligations to pay. Cash flows are different than what is shown in income statements and balance sheets. I hope this helps

[dp1903]

This may or may not be of help.

Quote: It says in my book for credit transactions with expenses and gains to

Expenses
Debit to record an increase in the value of an expense. (If the debit side is money coming in then why would I debit an increase in the expense)

Credit to record a reduction in the value of an expense. (If the credit side is money going out then why would I credit a reduction. Isn't a reduction on expenses a good thing and should I not debit it?)

Gains
Debit to record a reduction in the value of a gain. ( If i was receiving rent then why would I debit a reduction in the rent I receive)

Credit to record an increase in the value of a gain. ( Why would I credit an increase in what I am gaining?)

Please could someone explain my questions that are in the brackets.................. I'm totally lost!

Each transaction must have a offsetting debits and credits.

The reason you debit expense is because you are purchasing something with cash. As you say, the debit side is for money coming in, the credit side is for money going out, which is the case here. So, debit expense, credit cash in this transaction.

As you say, the credit side is money going out. If you are crediting an expense then money is not going out, you are getting back money which was used for the expense, debit cash or accounts receivable and credit the expense. Example: You initially spend $100 on office supplies. Debit office supply expense, credit cash. The store overcharged you for the supplies and sends you a check in the mail for $20. This reduces your expense and increases your bank account. Debit bank account and credit office supply expense for $20.

Gains:
Let's say you have a rent house and are renting it for $800 a month. When you receive the rent you will debit cash for $800 and credit rent revenue for $800. If you have to refund any of the amount then you would debit rent revenue and credit cash, just the reverse.

Again, you must have a debit or debits which equal the credit or credits for every transaction.

ASSETS have normal debit balances
Liabilites have normal credit balances
Equity has normal credit balances

Revenues have normal credit balances
expenses have normal debit balances.