09 Sep 591 Wk2 Db1 Res1
Define debits and credits and explain how they are used to record business transactions. Your answer should illustrate understanding of debits and credits and how they are used to record business transactions
Debit indicates the left side of an account and credit indicates the right side. They are not used for increase or decrease but for where entries are made in accounts. They are just a list of transactions made that are calculated in their own like terms. Debits are added together on one side while credits are added together on the other side of a statement. They are listed this way so that a person reading a statement will know how many credits or debits they have and the amount of each debit or credit. They are separated so that the reader of the statement will not be confused.
Is it true that debits always increase and credits always decrease? Why or why not?
Both debit and credit can mean increase or decrease. Increase on debit or credit is determined by the assets and liabilities. In an asset account debits exceed credits which mean the debit increase and the credit decrease. In a liability account, debit should decrease and credit should increase. In common stock debits decrease and credits increase. Debits decrease retained earnings while credits increase retained earnings. In dividends, debit increase while credit decrease. In expenses, debit increase while credit decrease. In revenues, debit decrease while credit increases.
Respond to…
According to the text, the term debit “indicated the left side of the account” and the term credit “indicates the right side” (Kimmel, et all, 2019). A better way of describing these terms, with a little help from Dr. Google, is that debit would be money that is already owned by a person that is taken out of their account before/or at the time that they receive a good or service whereas credit is essentially a loan on obtaining a good or service before payment in trust that payments will be made until the good or service is paid off in full.
Debits and credits are used to record any and all entries that are made within bank accounts. This could be crucial in a business transaction so that there will always be a paper trail to back up a company and their decisions to keep everyone honest about the deals the make in the eyes of the government.
In my understanding, it is not true that debits always increase and credits always decrease. From a common sense, credit has to be established somehow so at one point it will have to increase while a liability may be decreasing and vise versa when an accounts debit increases, the assets decrease.
A helpful website article I found stated that “For example, if you debit a cash (Links to an external site.) account, then this means that the amount of cash on hand increases. However, if you debit an accounts payable (Links to an external site.) account, this means that the amount of accounts payable liability decreases. These differences arise because debits and credits have different impacts across several broad types of accounts” (Bragg, 2019). This article helped to make this more understandable to me.
Bragg, S. (2019, August 17). Debits and credits. Retrieved from https://www.accountingtools.com/articles/2017/5/17/debits-and-credits
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