Debit and Credit

Double Entry – Debit and Credit:

This method supposes that each financial transaction involves two parties; one of which is debit and the other is credit, so the total value of debit must be equal to the total value of the credit.

The financial transaction is documented in the form of entries, so that the debit is assigned the symbol (Debit A/C) and the credit is assigned the symbol (To Credit A/C), as (A/C) is the abbreviation of the word Account. Thus, the entry is written as follows:

There are two of methods to analyze the financial transaction according to the double entry theory and to identify the debit and credit side in each transaction, namely:

• Receiver and Giver Method.
• Method of determining the nature of the account (Normal account balance).

Receiver and Giver Method

This method supposes that the debit account is the (Receiver), while the credit account is the (giver).

Answer:

First: Analyzing the financial transaction.

The account that received is the cash account, so the cash account would become debit with the amount of USD 2,000

The account that gave is the bank, so the bank account is credit with the amount of USD 2,000

Second: Method of writing down the entry:

2 On 03/02, the company purchased furniture for USD 1,000 through a check drawn on the bank.

Answer:

First: Analyzing the financial transaction:

The account that received is the furniture account, so the furniture account is debit with the amount of USD 1,000

The account that gave is the bank, so the bank account is credit with the amount of USD 1,000

Second: Method of writing down the entry:

3 On 03/03, the company paid the telephone invoice (expense) of USD 50 in cash.

Answer:

First: Analyzing the financial transaction:

The account that received is the telephone expenses account, so the telephone expenses account is debit with the amount of USD 50

The account that gave is the cash account, so the cash account is credit with the amount of USD 50.

Second: Method of writing down the entry:
 

4 On 03/15 the company paid part of its accrued account to Al-Iman Enterprise (accounts payable) amounting to USD 1,000 in cash.

Answer:

First: Analyzing the financial transaction:

The account that received is Al-Iman company, so Al-Iman company is debit with the amount of USD 1,000.

The account that gave is the cash account, so the cash account is credit with the amount of USD 1,000.

Second: Method of writing down the entry:

5 On 03/20, the company received the amount of USD 500 for revenue received in cash.

Answer:

First: Analyzing the financial transaction:

The account that received is the cash account, so the cash account is debit with the amount of USD 500.

The account that gave is the revenue account, so the revenue account is credit with the amount of USD 500.

Second: Method of writing down the entry:

Method of Identifying the nature of the account (Normal Account Balance)

The second method to determine the debit and credit side is by identifying the nature of the account (Normal account balance), so if you go back to the previous lesson, you will find that the balance sheet equation in its final form was as follows:

We can re-formulate the equation to become as follows:

The left-hand side of the equation represents the accounts of a debit nature, so that when their value increases, they become debit, and when that value decreases, they become credit. The right-hand side of the equation represents accounts of a credit nature, so that when their value increases, they become credit, and when that value decreases, they become debit.

Accounts of a debit nature:

They include:

1. The asset accounts.
2. Owner withdrawals account.
3. Expenses account.

These accounts recorded on the debit side in the event of an increase, and recorded on the credit side in the event of a decrease, and their balance is mostly debit.

Accounts of a credit nature:

They include:

1. The liability accounts.
2. Capital account.
3. Revenue account.

These accounts recorded on the credit side in the event of an increase, and recorded on the debit side in the event of a decrease, and their balance is mostly credit.

1 On 21/03, the company withdrew $ 2000 from the cash account and deposited it into the bank account.

Answer:

First: Analyzing the financial transaction:

The bank account is an asset account - the bank account has increased by $ 2,000 - so that the bank account will be recorded on the debit side.

The cash account is an asset account - the cash account has decreased by $ 2,000 - so that the cash account will be recorded in the credit side.

Second: method of writing down the entry:

2 On 25/03, the company purchased a vehicle from Al-Amal Enterprise against $ 10,000 on account.

Answer:

First: Analyzing the financial transaction

The vehicle account is an asset account - the vehicle account has increased by $ 10,000 - so that the vehicle will be recorded on the debit column.

Al-Amal Enterprise account is a liability account - Al-Amal Enterprise account has increased by $ 10,000 - so that Al-Amal Enterprise account will be recorded on the credit side.

Second: Method of writing down the entry:

3 On 31/03, the company made a payment on account to Al-Amal Enterprise amounting to $ 5,000 paid in cash.

Answer:

First: Analyzing the financial transaction

The Al-Amal Enterprise account is a liability accounts - Al-Amal Enterprise account Has decreased by $ 5,000 - so that Al-Amal Enterprise account will be recorded in the debit side.

The cash account is an asset account - the cash account has decreased by $ 5,000 - so that the cash account will be recorded in the credit side.

Second: method of writing down the entry: