Debits and Credits

We have received a number of questions regarding debits, credits and how to use them. The guide below will help you with the general rules for debits and credits

Profit & Loss Accounts -

To increase an income account you credit it.
To decrease an income account you debit it.
To increase an expense account you debit it.
To decrease an expense account you credit it.

For example, to record a bank fee for the month, DR bank fee expense, CR bank account.

Balance Sheet Accounts

Asset accounts - to increase you debit, to decrease you credit.
Liability accounts - to increase you credit, to decrease you debit.

For example, to record depreciation for the month, DR depreciation expense in the profit and loss accounts, CR accumulated depreciation in the balance sheet.

Balance Forward / Opening Balances

Thanks to Jackie for this question!

Opening balances are used when you change over from one system to another. For example when you first set up a computerised system and change over from a manual system.

If you are starting a new computerised system, it is always best to start at end of financial year when the profit and loss accounts are all zero.

There will be balances in the balance sheet accounts but these can be brought in by either a journal entry or if the software allows, they have an opening balances field.

TIP - Remember if you are in the position of needing to load opening balances you will also need to load the individual debtors and creditors into the subsidiary ledger! The balance in the debtors and creditors accounts on the balance sheet will be brought in, but the individual transactions which make up the debtors and creditors subsidiary ledger will not be there.

Remember any specific questions, just email us at bookkeepingtutorial@gmail.com