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Now, I am connecting above para of content with my topic. Everything is free here for learning journal entries but still, there is something, I did not mentioned. For example, Still, I did not talk on "Analyzing Transaction into Debit and Credit Parts." If you have bought my paid product, it will right to know all the topics which still did not mentioned. But I know about this.
There are two reasons.
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Ok, come and understand about "Analyzing Transaction into Debit and Credit Parts"
There are billions of dollars transactions in this world everyday. Billions of journal entries passed in this world for recording this. There are billions of account which is made in billions of ledger books. How can accountant analyze the transaction into debit and credit parts? It is important question.
Accountant uses only accounting equation for this.
1. Asset Balance Always Debit Side
Left Side of accounting equation is asset side. So, if the balance of asset, it is in left side and left side is also debit side.
2. Liability Balance is Always Credit Side
Right side of accounting equation is liability side. If there is liability balance, it will be credit side because right side is credit side.
3. Increase in Asset is Debit Side
Because balance of left side of accounting equation will increase.
4. Decrease in Asset is Credit Side
Yes, decrease in asset will decrease the balance of asset. Because balance of asset is in the left side of accounting equation, so, it will credit side of same account.
5. Increase in Liability is Credit Side
Because balance of liability in right side or credit side of accounting equation. All increase in liability will also add same credit side of account
6. Decrease in Liability is Debit Side
All decrease in liability will be debit side because balance and increase in liability in credit side of accounting equation. So, when we make the account of same liability, we will show debit side all the decrease in liability for counting balance of liability which will show credit balance of liability.
Related
- Objectives of Accounting Equation
- Creative Ways to Teach Accounting Equation
- Balance Sheet Equation Examples
