Sign In

For the sake of quality, our forum is currently "Restricted" to invitation-only. In case if you wish to join our forum, please send an email seeking an invitation to "[email protected]".

Forgot Password

Lost your password? Please enter your email address. You will receive a link and will create a new password via email.

Captcha Click on image to update the captcha.

You must login to ask question.

Discy Latest Questions

  1. This answer was edited.

    A ledger account consists of the financial transactions of a business. It is generally used by the accountants to record the summarized monetary transactions. It is also known as the principal book of accounts and books of final entry. As per my understanding, the 'Debit and Credit format' refers toRead more

    A ledger account consists of the financial transactions of a business. It is generally used by the accountants to record the summarized monetary transactions. It is also known as the principal book of accounts and books of final entry.

    As per my understanding, the ‘Debit and Credit format’ refers to a ‘Ledger account format’ which is as follows:

    (Image to be inserted here)

    Note:

    • The ledger account consists of two sides namely, debit and credit. The left-hand side represents the debit balance and the right-hand side represents the credit balance.
    • The posting into a ledger account is done from the journal entries of the company or the various subsidiary books.
    • Each Journal entry is moved into a separate ledger account.

    Example

    Considering the journal entries of ABC Ltd., post the same into ledger accounts.

    Cash a/c

    DATEPARTICULARSJ.FAMOUNTDATEPARTICULARSJ.FAMOUNT
     Jan1To Capital a/c75,000Jan1By Purchases a/c40,000
     Jan3To Sales a/c60,000Jan2By Machinery a/c25,000
     Jan4To Commission a/c5,000Jan6By Wages a/c10,000
    Jan6By Balance c/d65,000
    1,40,0001,40,000

    (The cash a/c has a debit balance as it is an asset.)

    Machinery a/c

    DATEPARTICULARSJ.FAMOUNTDATEPARTICULARSJ.FAMOUNT
    To cash a/c25,0000By Balance c/d25,000
    25,00025,000

    (The machinery a/c has a debit balance as it is an asset.)

    Hope this helps.

    See less
    • 0
  1. This answer was edited.

    Instead of straight away seeking an answer you should first analyze the below given example and then try interpreting the meaning of debit and credit. For an instance, You have decided to start a business of selling burgers and for this, you have induced an amount of 10,000 in your business. Now toRead more

    Instead of straight away seeking an answer you should first analyze the below given example and then try interpreting the meaning of debit and credit.

    For an instance,

    You have decided to start a business of selling burgers and for this, you have induced an amount of 10,000 in your business. Now to start this business, you will need raw materials i.e potato, peas, spices and buns you will also require a premise on rent, electricity and assets like oven and furniture.

    You have enough money to buy required materials like potato, buns etc. covering electricity charges and paying rent but you do not have enough cash flows to buy an oven and other furniture so you take a loan from your friend Anna.

    Now you have all the items and so you have started selling burgers in quarter 1 you have generated decent revenue. After 6 months, you have enough cash to pay off the loan.

    To understand the term debit and credit you need to first have a basic knowledge of Modern rules of accounting

    It says-

    ClassificationParticulars
    For AssetsIncrease in an asset is debited and a decrease in an asset is credited.
    For LiabilitiesIncrease in liability is credited and reduction of liability is debited
    For CapitalIncrease in the owner’s capital is debited and decrease is thereby debited.
    For IncomeIncrease in an income is credited and a decrease in an income is debited
    For ExpensesIncrease in an expense is debited and a decrease in an expense is credited.

     

    Assuming you have received at least an idea of modern rules of accounting moving ahead to answer your question-“Meaning of Debit and Credit”

    I will try to simplify these rules using the above scenario it will help you understand the meaning of debit and credit:

    • When you begin the business by inducing the capital the amount is received in the business and so the available cash for the business increases i.e additional cash is added to your business and so the asset balance increases and hence, we debit it.
    • When you bring in the cash it increases the owners capital and hence it is Credited
    • Now to buy furniture and oven, you do not have cash so what you do is you borrow from your friend so you add to your liability and so it is credited as there is an increase in a liability.
    • Now your business has been commenced and so revenue is generated so you add the amount received to your earnings and as per the above rules increase in an income is credited.
    • Now you do not have a property to carry on this business hence to have taken the property on rent and for that, you incur monthly rental expenses ultimately it adds up to your spending and so its debited.
    • Assuming your business is successful after a year and you want to buy a larger oven so you sell off the older one thus you will have to subtract it from your asset balance and add the new asset hence you will credit the asset account since the balance is reduced and debit it when you buy a new one.
    • Also now you have enough cash flows so you intend to repay the debt i.e you subtract from your loan liability since there is a decrease in liability, in this case, you will debit it.
    • You take party orders as well and one of your clients had become insolvent so your were unable to recover the money but turns out that client paid off that amount it’s a reduction of expense (Bad debts) so you will credit it.
    • After a year you are in an urgent need of cash so you withdraw a part of your capital in such a case such amount is subtracted from the capital and your capital reduces so it is debited.

     

    You should note that there is no specific definition for Debit and Credit in entire accountancy but still I have tried to explain it as simply as I can.

    I hope this helps.


    Aastha Mehta.

    See less
    • 0
  1. This answer was edited.

    Trial Balance Are you facing difficulty in understanding the crux of the trial balance? I would like to help you by providing the meaning followed by items to be included on either side of the trial balance. Meaning The term trial balance refers to as the total of all the general ledger balances. ItRead more

    Trial Balance

    Are you facing difficulty in understanding the crux of the trial balance? I would like to help you by providing the meaning followed by items to be included on either side of the trial balance.

    Meaning

    The term trial balance refers to as the total of all the general ledger balances. It is a statement prepared at a certain period to check the arithmetic accuracy of the accounts (i.e., whether they are mathematically correct and balanced). It contains a list of all the general ledger accounts.

    Trading account, Profit and Loss account and Balance Sheet are prepared according to the ledger balances as posted in the trial balance.

    Now its time to learn about the various items which are placed on either side of the trial balance.

    Items that appear on the debit side of trial balance

    Generally, assets and expenses have a positive balance so they are placed on the debit side of trial balance. An asset and expense increases when it is debited and visa versa

    Exclusive List of Items

    1. Land and Buildings
    2. Plant and Machinery
    3. Furniture and Fixtures
    4. Office Tools and Equipment
    5. Cash at Bank
    6. Cash in Hand
    7. Motor Van
    8. Loss from the sale of fixed assets
    9. Travelling charges
    10. Printing and postage expenses
    11. Legal expenses
    12. Selling and distribution expenses
    13. Sundry debtors
    14. Bills receivables
    15. Commission paid
    16. Rent paid
    17. Interest paid
    18. Discount allowed
    19. Opening stock
    20. Purchases
    21. Prepaid expenses
    22. Advertisement expenses
    23. Bad Debts
    24. Wages and salaries
    25. Bank charges

    Items that appear on the credit side of trial balance

    Generally capital, revenue and liabilities have credit balance so they are placed on the credit side of trial balance. The capital, revenue and liability increases when it is credited and visa versa.

    Exclusive List of Items

    1. Sundry Creditors
    2. Bank Overdraft/Loan
    3. Bills Payables
    4. Sales (Revenue)
    5. Purchase Returns
    6. Common stock
    7. Un-earned revenues
    8. Retained earnings
    9. Rent Received
    10. Interest Received
    11. Discount from Creditors
    12. Discount on Purchases
    13. Dividend Received
    14. Interest on Drawings
    15. Bad Debts recovered
    16. Provision on Bad Debts (Cr.)
    17. Apprentice premium
    18. Miscellaneous/Sundry income
    19. Commission received
    20. Bank interest received
    21. Compensation received
    22. Outstanding income
    23. Income from investments
    24. Bonds payable
    25. Other incomes

     

    See less
    • 0