why are expenses and and assets considered to be debit especially when assets are supposed to generate income for the business?? and why are revenue and liabilities and capital considered to be credit???
if u know the accounting equation(assets=liabilities+equity) 1 side had to debit and the other side had to credit, for exaple when u have money in the bank and use it u say it a debit card, but when u borrow a card and it pays on behalf of u, u call it a credit card, so anything that is a borrowed thing is called a credit and what u own personally is called a debit, now lets get back to the accounting equation and expand it ( assets=liabilities+ capital+revenue-expenses-drawing),
we know that a company and the owners of a company have separate entities, so capital is some of money that the owners lends the company and hence a credit, anything that increases the owners equity is a credit for example revenue and anything which increases company’s thing is a debit for example cash, inventory et cetra, and anything that reduces owners interrest in the company is opposite to credit that is a debit for example drawing, and expences if u notice decreases the owners interesr as well that is why it is a debit, i hope it explains it,
and by now u should be able to figure out why liabilities are credit which i forgot to explain
If you buy any thing and not pay money that time its debit on your account. If you pay this money that time its credit on your account. All accounting systems are depend on credit and debit system.
Can I suggest that you watch the video (along with the Course Notes) on here
This is how I got my brain around it, although I don’t know how accurate my explanation is.
A company is owned by someone else (and an unincorporated business is accounted for the same way), and is accounted in such a way as assets belong to the company, and capital represents what the company owes to the owner (or owners).
Regarding revenue, this does not belong to the company, it is what is owed to the owners of the company. It increases capital. That’s why it appears as a credit entry, from the point of view of the company.
Regarding expenses, I’ll illustrate my thought process with an example. If you buy a bus fare, the money paid for it appears as a credit. However, you are receiving a bus journey, to the value of the fare. For this reason, the expense appears as as a debit.
The debit and credit system is simply a balancing act.
Assets and expenses are debits. Liabilities and equity are credits.
Obviously the converse will then also be true:
- a debit can reduce an asset; and
- a credit can reduce a liability.
If you pay 100 for something it is removed from your bank account. (reducing an asset: a credit). You then need to ask whether you have ‘wasted’ your money or not (do you have future value in what you have just bought or is it something that will not last):
- if you have ‘wasted’ your money, you debit an expense
- if there is future value in what you have bought, you debit an asset.
A very crude explanation but hope it helps.
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