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How to debit and credit

There are five types of accounts: Assets, Expenses/Loses, Liabilities, Incomes/Gains and Capital

We debit an Account when there is:
  1. Increase in Assets for example increasing in debtors, goods, notes receivable, Building, machinery etc
  2. Increase in Expenses for example increase in rent, salaries, depreciation expenses etc
  3. Decrease in Liabilities for example decrease in Creditor, bills payable, bank loan, bonds payable etc
  4. Decrease in Incomes for example decrease in sales, commission, dividend, discount received etc
  5. Decrease in Capital for example decrease in owner equity, share capital etc

We Credit an Account when there is:
  1. Increase in Assets for example increasing in debtors, goods, notes receivable, Building, machinery etc
  2. Increase in Expenses for example increase in rent, salaries, depreciation expenses etc
  3. Decrease in Liabilities for example decrease in Creditor, bills payable, bank loan, bonds payable etc
  4. Decrease in Incomes for example decrease in sales, commission, dividend, discount received etc
  5. Decrease in Capital for example decrease in owner equity, share capital etc
If you are still wondering how to debit and credit, check out our topic Debit and Credit


EXAMPLE No.1 Simple Double entries




   December 3.Paid rent for factory building $50,0000 
   December 5.Paid cash to Mr.Z and Co. $200 for goods purchased on credit   
   December 7.Paid cash $500 for telephone bills
   December 20.Commission $1000 received for selling goods of G man





  DATE  DESCRIPTION FOLIO DEBIT CREDIT





   Dec. 3

   Rent expenses

                    Cash

   $50,000

   
   

   $50,000





   Dec. 5

   Creditor (Mr. Z an Co.)

                    Cash

   $200

   
   

   $200





   Dec. 7

   Telephone expenses

                    Cash

   $500

   
   

   $500





   Dec. 20

   Cash

                    Commisssion income

   $1000

   
   

   $1000




Explanation              (It is not the part of Journal or double entries)

Paid rent for factory building $50,0000
Since Business has incurred Rent expense or we can say that there is an increase in expenses and for that business is now paying cash or there is a decrease in business's cash and therefore we debited rent expense and credited cash

Paid cash to Mr.Z and Co. $200 for goods purchased on credit
Firm had purchased goods on credit or increased its liabilities and it's business responsibility to repay the creditor which the firm did on the 5th December. As a result there is a decrease in cash (Asset) and decrease in creditor (liability). Therefore, creditor is debited and cash is credited.

Paid cash $500 for telephone bills
Because the firm is paying its telephone bills and as we know telephone bills is  a expense. Therefore, there is an increase in expenses and a decrease in cash as a result bills expenses are debited and cash is credited.

Commission $1000 received for selling goods of G man
The firm is getting or recognizing commission  (Income) or there is an increase in income which is always credited and firm is getting commission in the form cash. So, there is an increase in cash which is debited