Debit and Credit

In this article

Double-Entry Accounting in Practice

We present the main rules to learn how to manage the Double-entry accounting

The 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.

Debit and Credit

The rule of Debit and Credit is a fixed point on which the Double-entry Accounting is based.

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

The Instruments of the Double-entry Accounting

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

The Chart of 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.

The 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.

The 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.

The Profit & Loss Statement

It is a summary of all costs and revenues. The balance represents the result for the year (profit or loss).

 

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