Some of the students have a myth that both assets and liabilities must involve in the part of debit and credit. Because we are making the journal entries of transaction and transaction may be increasing or decreasing assets and increasing and decreasing of liabilities as per accounting equation. But it is not true.
First of all, you know, assets are two one is long term or fixed assets and second is current assets and liabilities are two types, one is long term or fixed liabilities and second current liabilities.
1. In the Journal Entries both Fixed Assets in its Debit and Credit
If one fixed asset will increase, it will debit and if other fixed asset will decrease it will credit. The Rule will apply, increase in asset will debit and decrease in asset will credit. Accounting equation assets and liabilities will equal with this.
Transaction Example
Mr. A has grinding machine which needs Mr. B for business. Mr. B has the furniture which needs Mr. A for business.
Mr. A went to Mr. B and offer to give him his grinding machine for getting his furniture. Mr. B is ready and done for this because both think its value is Rs. 20,000
In the books of Mr. A
Furniture Account Debit 20,000
Grinding Machine Account Credit 20000
In above journal entry, furniture has bee debited which is fixed asset. grinding machine account credit which is fixed asset. Furniture has increased in the business of Mr. A and grinding machine has decreased in the business of Mr. A
2. In the Journal Entries both Current Assets in its Debit and Credit
If one Current asset will increase, it will debit and if another Current asset will decrease it will credit. Rule will apply, increase in asset will debit and decrease in asset will credit. Accounting equation assets and liabilities will equal with this.
Transaction Example
Mr. A has stock of Rs. 10000 which needs Mr. B for business as raw material. Mr. B has the stock of Rs. 20000 which needs Mr. A for business as raw material.
Mr. A went to Mr. B and offer to give his stock for getting his stock and balance pay in cash. Mr. B is ready and done
In the books of Mr. A
Purchase the Stock of B Account Debit 20,000
Cash Account Credit 10000
Sale Account 10000
In above journal entry, stock of b has debited which is current asset. cash account and sale of stock of a account credit which is also current asset. stock of B has increased in the business of Mr. A and cash and own stock of A has decreased in the business of Mr. A
3. In the Journal Entries both Fixed Liabilities in its Debit and Credit
If one fixed liability will increase, it will credit and if other fixed liability will decrease it will debit. Rule will apply, increase in liability will credit and decrease in liability will debit. Accounting equation assets and liabilities will equal with this.
Transaction Example
Mr. A has taken long-term loan from B Bank Rs. 5,00,000. Mr. B has taken long term-loan from B Bank of Rs. 10,0000. Both did not gave the money to B bank on maturity. B bank taken cash from C bank and transfer his asset to B bank. Now, both Mr A and Mr has to pay to C bank
In the books of Mr. A
A bank's Loan Account Debit
C bank's loan account Credit
In above journal entry, A bank's loan account has been debited which is decrease in fixed asset. C bank's loan account has been credited because it is increased of fixed loan of c bank.
4. In the Journal Entries both Current liabilities in its Debit and Credit
If one side of current liability will increase and other side current liability decrease, this situation will happen.
Suppose, I have to taken A bank overdraft and I paid through B bank overdraft. Now, I just changed one current liability into other current liability because solving my maturity issue of Rs. 10000
A's bank overdraft 10000
B's bank overdraft 10000
even this entry can write different way but final effect is above one current liability has increased and other current liability has decreased.
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