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T accounts and confusion goes hand in hand I find!

IkklewabbitIkklewabbit Settling In NicelyRegistered Posts: 16
Hi everyone

I need some help please guys as I cannot figure out a simple way of working these out. I get a complete mind block. Why does this not click with me?

I understand this:-

Money IN - Debit
Money OUT - Credit

So on a T account if I took £30 from the bank to buy petrol it would be:-

Bank - CR - Petrol £30.00
Petrol - DR - Bank £30.00

(I really hope that's right or I'm going to look a complete idiot)

Now if I purchase goods but pay by invoice firstly, does it go on the Debtors or Creditors Control account and secondly on the DR or CR. I just cannot get this right at all. I have even tried to write it down and cannot work it out.

From a very brain dead and tormented Ikklewabbit :confused1:

Comments

  • Chris023Chris023 Feels At Home Registered Posts: 93
    Hi Ikklewabbit

    Hopefully I will clear some of your confusion

    Money taken out of the bank account is a credit and money paid in is a debit

    Think of the bank side first and the other entry should be the opposite so in the case of buying petrol with cash you would credit the bank account with £30.00 and debit the Petrol account with £30.00

    The Petrol account is an expense account and all expense accounts are debits

    If you purchase goods on credit – where you receive an invoice and pay at a later date. you would:

    Credit the creditors control account with the full amount of the invoice (as this is a liability)
    Debit the VAT account with the VAT (if any – as this would be an asset – we can claim this VAT back)
    Debit the purchases account (as this is an expenses account)

    You would also credit the full amount of the invoice to the subsidiary ledger (purchase ledger) although this is not part of the double entry so please don't get confused. The susidiary ledger just shows each individual creditor's balance so that we know how much we owe them

    Then when you pay the invoice you would:

    Debit the creditors control account with the full amount of the invoice (as this is reducing a liability)
    Credit the bank with the full amount of the invoice (as I explained earlier)

    And then debit the full amount to the subsidiary ledger

    A debtors control account would be used when you are making a sale on credit

    There are lots of useful posts in this forum suggesting ways of remembering debits and credits which are really helpful and worked for me – have a browse through. Debits & credits are quite daunting at first to remember but persevere and soon they will click. It took me a while to understand them
  • IkklewabbitIkklewabbit Settling In Nicely Registered Posts: 16
    Thanks Chris, that really does help.

    You say about searching through for tips on how to remember debit/credits but I have gone back to 2007 and haven't been able to find any. Can anyone help me with this please?

    Your help really is appreciated.

    Thanks
  • sloshedsloshed Well-Known Registered Posts: 100
    Hi

    It has been a few years since I done my first intermediate exam but the phrase I seem to remember was very helpful is DEADCLIC

    Debit
    Expenses
    Assets
    Debtors

    Credit
    Liabilities
    Income
    Creditors

    Hope this is off some use
  • mikesmikes Trusted Regular Registered Posts: 254
    There is one which I was taught, that is DEAD CLIC.

    This stands for

    Debits Credits
    Expenses Liabilities
    Assets Income
    Drawings Capital

    These indicate where the main entries are to go to on their accounts.
  • speegsspeegs Experienced Mentor Registered Posts: 854
    Another way of remember debits and credits is:

    DIALL CILLA

    Debits Increase Assets and Lessen Liabilities.

    Credits Increase Liabilities and Lesssen Assets.

    This is just another way, but I found DEAD CLIC the best. It depends on what you find works for you.

    Shout if you need anymore help.

    Speegs:thumbup1:
  • Eagle Edu support tutorEagle Edu support tutor New Member Registered Posts: 13
    Debits and credits

    Hi there,

    It's a very common area of confusion and it does take quite a bit of work before it clic s :lol:. DEADCLIC is used in the AAT elearning presentations covering basic double-entry. There are four and they summarise the main learning points. Have a go as most people find these really helpful and enjoyable to use...

    http://www.aat.org.uk/elearning/introduction_to_debk/

    Sonya
  • potsandclockspotsandclocks New Member Registered Posts: 15
    potsandclocks

    hi I was a having a nightmare with it to I have done the e learning (unit31) on AAt and this goes through it for you it really helps :lol:
  • Raging PineapplesRaging Pineapples Well-Known Registered Posts: 110
    Some things I found helpful:

    As mentioned above, work from the Bank Account. If you know how it affects the bank, you can usually find the other entry simply because it's gotta be on the opposite side to the bank :)

    Remember too that Sales and Purchase ledgers are just other kinds of bank account. For instance:

    Client buys £200 of plastic bath ducks on CREDIT
    DR £200 Sales Ledger - Because he will pay us, this guy is an asset
    CR £200 Revenue - This is profit owed by the business to the owners/shareholders. So it's actually a kind of liability (it'll eventually either get dividended out or sucked into capital at year end).

    HOWEVER, compare that to if the same client...
    ...Buys in CASH
    DR £200 Bank Account - Because the money is already in our hands, an asset
    CR £200 Revenue - Same as above, this is actually owed to shareholders.

    OR, the client...
    ...Buys in PETTY CASH
    DR £200 Petty Cash Account - Still an asset
    CR £200 Revenue - An eventual liability to pay owners


    No matter how the sale is made, the double entry is the same. The only difference is where the money is coming from, which account you put it against. So petty cash, bank account, even debtors and creditors ledgers are just different kinds of bank account, and are treated exactly the same. :)

    Also, did you notice the thing about how Revenue/Sales Account is technically a liability? This neatly explains why, even though it's money coming in, it's still a credit.

    And following on from that, when you next buy plastic to manufacture more ducks, the expense is a debit. Because it's reducing the amount you will owe to the owners of the business (a negative liability to pay). This is why all the sales - all the expenses = the final profit to be given to shareholders.

    Revenue is just profit before it's been put against business expenses :)


    So on the one hand, you can look at it with the whole PEARLS rule thing (Purchases, Expenses, Assets (all debit) - Revenue, Liabilities, Source of funding (all credit)), but THIS reflects what the debits and credits are actually doing under the hood :)

    Hope I'm makin sense, lol :confused1:
  • miskysbabemiskysbabe Settling In Nicely Registered Posts: 25
    Pearls

    This has helped me, although it is not everything it helps start you off.
    Split PEARLS :001_smile:

    DR
    P Purchases
    E Expenses
    A Assets

    CR
    R Revenue/Income
    L Liabilities
    S Sales

    When it comes to Sales Ledger Control Accounts - They are Debtors-DR

    When it comes to Purchase Ledger Control Accounts - They are Creditors-CR

    :thumbup:
  • laura23laura23 Just Joined Registered Posts: 1
    pearls

    i find pearls really helps aswell, :001_smile:
  • lizab8422lizab8422 Just Joined Registered Posts: 3
    confused and feelimg silly

    Hi could someone please help me if the owner of a company puts money into an accout it is classed as capital so you would cerdit the capital account and debit the bank but if the owner was to put say a further 500 pound into the bussiness a couple of weks later would you do the same again dr bank cr capitol or would it be different i know this may seem a silly question to ask but im really confused about a few things i should say that im talking about t accounts many thanks to anyone who replys
  • vishavisha Well-Known Registered Posts: 218
    yes!
    You'd do the same again
  • lizab8422lizab8422 Just Joined Registered Posts: 3
    thanks was just confused and am feeling a bit silly for asking:confused1:
  • lauradlaurad Feels At Home Registered Posts: 49
    i find pearls the best way to remember too
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