etb

jkc
jkc Registered Posts: 166 ? ? ?
i just cant get my head round can any one help!

Comments

  • Paul24
    Paul24 Registered Posts: 578
    Which bits in particular are you struggling with, it covers many aspects.
  • jkc
    jkc Registered Posts: 166 ? ? ?
    the debits and credits in P&L and balance sheets
    why is provision for depreciation a credit in the bal sheet?
    things like that.
  • Paul24
    Paul24 Registered Posts: 578
    P&L Debits - Expenses
    P&L Credits - Income

    Bal Sht debits - Assets
    Bal Sht Credits - Liabilities

    A provision is making an allowance in the accounts for not receiveing the bad debts in this case, and therefore is classified as a liability. Therefore a credit to increase this provision will result in a debit (as each credit has to have an opposite entry as does each debit) being taken to the P&L. If you think about it logically, the cost of the increased provision has to go to the P&L, as it represents money you are probably not going to receive, therefore it has to be reflected in the P&L effectively decreasing the profit figure.
  • jkc
    jkc Registered Posts: 166 ? ? ?
    hi
    that makes it easier,
    thankyou for your help.
  • Gem7321
    Gem7321 MAAT, AAT Licensed Accountant Posts: 1,438
    Have you heard of PEARLS and DEADCLIC before?

    Purchases, Expenses, Assets = debit
    Revenue, Liabilities, Sales = credit

    or

    DEBIT
    Expenses
    Assets
    Drawings
    CREDIT
    Liabilities
    Income
    Capital

    Depreciation is normally classified as an expense, we know expenses are debits so debit P&L depn and credit BS. Or, depreciation decreases the value of an asset in the BS, we know assets are debits, so we must have to credit depreciation BS and debit depreciation P&L.

    Hope this helps

    Gem
  • jkc
    jkc Registered Posts: 166 ? ? ?
    hi
    thanks Gem, that makes it a bit clearer.
    good luck to all those doing unit 5 sims
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