Accounting & auditingLesson 2 of 5 in the course Double-entry bookkeeping

Debits and Credits: Account Rules, Transactions, and Reporting

5 flashcards · 5 quiz questions · 5 match pairs · 3 fill-in sentences · English

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Summary

Debits and credits are the two sides used to record changes in value in double-entry bookkeeping. This lesson introduces their basic meaning, explains why they are not simply synonyms for increase and decrease, and gives a brief look at their history.

A debit is an entry on the left side of an account, and a credit is an entry on the right side. In a transaction, value is transferred from credited accounts to debited accounts. Every transaction in double-entry bookkeeping includes at least one debit and one credit.

All flashcards

What is a debit?
An entry recorded on the left side of an account; its effect depends on the account type.
What is a credit?
An entry recorded on the right side of an account; its effect depends on the account type.
What is posting in accounting?
Transferring journal information into the relevant ledger accounts.
What is a chart of accounts?
An organized list of the accounts a business uses.
What is a contra account?
An account with an opposite normal balance that offsets a related account's reported amount.

Quiz questions

  1. For a transaction recorded using double-entry bookkeeping, what must be true of the total entries?Answer: Total debits must equal total credits.
  2. What does a trial balance check directly?Answer: Whether total ledger debits equal total ledger credits.
  3. A customer deposits money into a bank account. From the bank's perspective, how is the increased amount owed to the customer recorded?Answer: As a credit to a liability account.
  4. A business has sales revenue and a sales returns contra-revenue balance. How are net sales calculated?Answer: By subtracting the contra-revenue balance from sales.
  5. What is the main difference between a journal and a ledger?Answer: A journal lists transactions chronologically; a ledger groups them by account.

Based on the Wikipedia article Debits and credits, licensed CC BY-SA 4.0. Adapted into a summary, flashcards and quizzes.

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