Debit and Credit

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In this article

Double-Entry Accounting in Practice

Main rules to learn how to manage double-entry accounting Double-entry accounting is based on four main account categories:

ASSETS The accounts that represent the positive elements of the estate
LIABILITIES The accounts that represent the negative elements of the estate
COSTS The accounts that represent the costs (but not those related to the purchase of estate goods)
REVENUES The accounts that represent the earnings (not those obtained by the sale of estate goods)
  • The account is an entity that groups the amounts that belong to the same transaction category.
  • Every account must be registered as debit or credit depending on the type of accounting transaction.
  • Double-entry accounting uses debit and credit instead of income and expenses.

The General Rule

ASSETS

 → DEBIT

LIABILITIES

 → CREDIT

COSTS

 → DEBIT

REVENUES

 → CREDIT
  • The assets, liabilities, costs and revenues are subject to continuous variations: increases and decreases.

The increasing variations

INCREASE IN ASSETS

 →

DEBIT

INCREASE IN LIABILITIES

 →

CREDIT

INCREASE IN COSTS

 →

DEBIT

INCREASE IN REVENUES

 →

CREDIT

 

The decreasing variations

DECREASE IN ASSETS

 →

CREDIT

DECREASE IN LIABILITIES

 →

DEBIT

DECREASE IN COSTS

 →

CREDIT

DECREASE IN REVENUES

 →

DEBIT

Instruments in Double-entry Accounting

Double-entry accounting uses the following principal instruments: the Chart of Accounts, Journal, Balance Sheet and Profit and Loss Statement.

 

Chart /Accounts

This is the list of all the accounts that group the different transactions categories together (ex. cash book, bank, purchases, sales, etc.).

  • To use Banana Accounting, one must simply take an already predefined accounting plan, adapt it to the proper requirements and insert the transactions. The rest will be executed by the program.

Journal

This is the list of all the operations that influence the activity daily (withdrawals, deposits, purchases, sales, salaries, rent, etc.) It corresponds to that which the larger part of the small businesses already have even if it’s only on paper or Excel, to then give to the accountant.

Balance Sheet

This is a summary outline of the assets and liabilities. The difference between the assets and liabilities represents the net capital amount of the firm.

Profit and Loss Statement

This is a summary outline of all the costs and revenues. The balance represents the operational result (profit or loss).

Starting Accounting

Procedure to start accounting with Banana Accounting

 

1

 Take an existing accounting model with a predefined chart of accounts.

2

 Adapt the chart of accounts to the proper requirements.

3

 Insert the transactions in the journal.

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