Debits and Credits

flowerflower Well-KnownRegistered Posts: 160
Just when I thought I had got to grips with Credits and Debits. Seems rules do not apply when referring to Purchase Ledger and Sales Ledger.
Can anyone give simple explanation on how to remember debits and credits for these. Are they just opposite to what you would do in Main Ledger.
I know PEARLS AND DEAD CLIC but this does not apply to these subsidiaries.
So confused::confused1:

Comments

  • DonnaDDonnaD New Member Registered Posts: 6
    The way I remembered it was that it would always be the opposite to the sales or purchase ledger, for example in the sales ledger all sales are a credit and in the sales ledger control account the sales are always a debit, another way to remember it is that the sales ledgaer control account is on the same side as your actual debtors accounts and the figures are the same, i.e inclusive of VAT.
  • CJCCJC Font Of All Knowledge Registered Posts: 1,657
    Rather than just trying to memorise things it may help to think about what's happening with the subsidiary ledgers and you'll see that exactly the same rules apply - i.e.
    • increase in assets and decrease in liabilities are debits
    • decrease in assets and increase in liabilities are credits

    For example and ignoring VAT: our company has a customer MadeUpCustomer Ltd, when they buy something from us
    1. Our assets decrease - we have less stock. There is a credit entry in the main ledger Sales a/c.
    2. Our assets increase as MadeUpCustomer Ltd now owe us money. There is a debit entry in their sales ledger account.

    When they pay for the goods
    1. Our cash assets increase so there's a debit entry in the cash book/bank.
    2. Our assets decrease as MadeUpCustomer Ltd no longer owe us money so there's a credit in their sales ledger account.

    The converse is the case when we make a purchase from MadeUpSupplier Ltd
    1. Our assets increase - we have more stock. There is a debit entry in the main ledger Purchases a/c.
    2. Our liabilities increase as we owe MadeUpSupplier Ltd for the purchases. There is a credit entry in their purchase ledger account.

    When we pay for the goods
    1. Our (cash) assets decrease so there's a credit entry in the cash book/bank.
    2. Our liabilities decrease as we owe MadeUpSupplier Ltd less money so there's a debit in their sales ledger account.

    Other purchase/sales ledger entries such as discounts and carriage are treated similarly.

    Hope that helps
  • flowerflower Well-Known Registered Posts: 160
    Yes that seems to make more sense. Our tutor doesnt seem to explain quite as well as that.

    You should be taking our class.

    Thanks:001_smile:
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