Debits & Credits The Language of Accounting I have put together and used a mnemonic device for years

to teach the most confusing and basic language of Accounting- Debits and Credits. Before I explain these terms, I want you to: Not to relate it to the debits and credits in your checkbook Debit has nothing to do with the word Debt (owing money). Word Debit is abbreviated is Dr. and Credit is abbreviated is Cr. Meaning of the word Dr. and Cr. could be a +/- depending on the account

Listed below are six account categories that you need to learn about: Assets Liabilities Common stock Dividends Revenue Expenses After Eating Dinner Lets Read Comics First letter of each of these words in the mnemonic is the first letter of the account category. So: After = Assets Eating = Expenses Dinner = Dividends Lets = Liabilities Read = Revenue Comics = Common Stock

After Eating Dinner on the Dr. side means that Assets, Expenses and Dividends have a normal Dr. balances, which also means that they increase on the Dr. side and also that they decrease on the Cr. side (opposite side ) Lets Read Comics on the Cr. side means that Liabilities, Revenue and Common Stock have a normal Cr. balances, which also means that they increase on the Cr. side and also that they decrease on the Dr. side (opposite side). Below is a T account. Left side of the T account is the Dr. and right side is Cr. T Account Debit side After Eating Dinner Assets Expenses Dividends Increased with debits Normal balance is Debit Credit side Lets Read Comics Liabilities Revenue Common stock Increased with credits Normal balance is Credit

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ACCOUNTING CYCLE

Chart of Accounts is a list of accounts that the business uses and sits on the side to be referred for account titles to be used. Account numbers do not matter, as long as you understand that every category starts with the same digit or start with digits within a certain range. Following is the flowchart showing the accounting cycle process. Source Document (receipts, invoices, bills, check stubs etc)

General Journal (aka Book of original entry) Daily

General Ledger (formal T accounts that keep track on acct balances) Daily

Trial Balance-(shows balances of accounts) End of month/acctg period

Adjusting entries (worksheet optional)

Financial Statements-(Income Statement,Retained Earnings,Balance Sheet,Cash Flow) End of month/acctg period.

Closing Entries

Post closing trial balance

Following are some of the tips that you can use to journalize transactions:

Learn Dr./Cr. by account category not individual accts. E.g. Assets have normal Dr. balance. There is no to memorize by each asset account. Re'd cash/$=Cash Dr. because Cash is increasing Paid $ =Cash Cr. because it is decreasing Paid on account=Cash Cr. because it is decreasing but A/P Dr.because it is decreasing too. Bought on account=A/P increase, cr. Re'd $ on account=A/R Payables are liabilities. Liabilities almost always have a word PAYABLE except the Unearned Revenue. Expense and Dividends will always be debited for the time being. Revenue and Common Stock will always be credited for the time being. Journal entries should always list the account/accounts to be debited first.