The Main element of management accounting is double entry. The point is interrelated to the reflection of the same amount to a business transaction simultaneously in two offset accounts: credit and debit of one another.
Using only two accounts occurs in a simple journal entries. Double entry may affect a larger number of accounts, in this case the transaction is complicated. Debit and credit determination is reduced to the reflection of the essence of economic transactions in monetary terms and shows them the direction and the limits of these operations.
To make it easier to understand the definitions of debit and credit, you need to remember that “debit” comes from the Latin “he” and “credit” - “I”. The concept of debits and credits, determines all the essence of compiling financial accounts and transactions.
The account is a table with two columns. The debit is reflected in the left side of the accounting, credit, respectively, to the right.
Ledger accounts are divided into active and passive accounts. Active account reflects the investment of funds of the company or the Bank, and passive & ndash; raising funds. For active accounts debit means the parish, and for passive – expenditure of funds. Accordingly, the loan liability account means the flow of funds, and active – coming.
Active accounts move from credit to debit. And passive – on the contrary: from debit to credit.
Active accounts increase debit means an increase in the assets of the organization. On the other hand, on passive accounts the increase in debit indicates a decrease in the equity funds.
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Increase of the credit active accounts means a reduction in the value of the property of the company. If the loan increases on passive accounts, therefore, own funds increased.
Account is a fundamental concept of accounting language. Debit and credit definition acts key terms. Through accounts recorded all events of economic life of the enterprise. An entry is made in the form of transactions. The transaction – it is a reflection of business transactions or other economic fact on the offset accounts.
There are two ways to use the chart of accounts: income and expenditure. The arrival means that the amount of money passing through the posting is added to the account of the company. Consumption means that the amount is deducted from the account, that is deducted from the amount available on the account.
In the transactions there are two account. The use of double entry is required. Such recording is called double entry accounting.
To simplify accounting in action were introduced the concept of “debit” and “credit”. To define essence of concepts the debit and credit for dummies, consider the following facts.
Terms appeared about 500 years ago. They actually were designed to replace the rather conventional concept of “coming” and “consumption”, which, in fact, reflect a completely different direction, operations, passing through active and passive accounts. With the emergence of a “debit” and “loan”, it is easier to operate with concepts. In the language of accountants debit has come to signify an increase in asset and decrease in liability. Consequently, the loan represents the opposite operation: the decrease in asset and increase in liability.
Thus, in the transaction accounts are used with opposite values, one for debit, other-for credit. For this and need to know the debit and credit definition. It characterizes all types of accounts: active, passive, and active-passive.
Every business transaction leads to an increase in one indicator and, accordingly, the reduction of the other. For example, the receipt of money from the account in cash reflected in the transaction as an increase in money and the reduction in the current account by the same amount. Such transactions helps to control the use of economic resources and the correctness of the accounting records. Here you need to know the debit and credit determination and not to confuse them.
The Principle of double entry has no effect on the final outcome of balance and does not violate the equality of results of assets and liabilities.
To Be a double entry correctly to ensure the correct completion of the accounting cycle works.
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