I know many of you get a little confused with the whole Debit and Credit terminology in accounting. It doesn’t mean the same thing as it does to a bank. It is also referred to as Double-Entry Accounting. It’s the process of journal entries having two-sided. Every entry requires a corresponding opposite entry to a different account. This system has been around since the early 1400s. Example: If you deposit cash to your bank account, what’s the other side? You need to Debit Cash (increases your asset) and Credit – What? Sales, A/R, etc.
I have created a quick cheat sheet to help you understand when a general ledger account needs to be “debited” or “credited.” It just means “left” or “right.”
Common Accounts used in everyday business.
Description | Account Type | Financial Statement |
Cash | Asset | Balance Sheet |
Accounts Receivable | Asset | Balance Sheet |
Inventory | Asset | Balance Sheet |
Fixed Assets | Asset | Balance Sheet |
Accounts Payable | Liability | Balance Sheet |
Taxes Payable | Liability | Balance Sheet |
Short-Term or Long-Term Loans | Liability | Balance Sheet |
Owner’s Draw | Equity | Balance Sheet |
Owner’s Investment | Equity | Balance Sheet |
Common Stock | Equity | Balance Sheet |
Retaining Earnings | Equity | Balance Sheet |
Revenue | Revenue | Profit and Loss (P&L) |
Cost of Good Sold | Expense | Profit and Loss (P&L) |
Advertising Expense | Expense | Profit and Loss (P&L) |
Bank Fees | Expense | Profit and Loss (P&L) |
Office Supplies | Expense | Profit and Loss (P&L) |
Salaries | Expense | Profit and Loss (P&L) |
Employer taxes | Expense | Profit and Loss (P&L) |
Rent Expense | Expense | Profit and Loss (P&L) |
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