DEAD CLIC Explanation needed

StudentLvl2

I'm currently studying Lvl 2 and i'm currently on the double entry bookkeeping section of the transactions unit.

For DEAD CLIC, I totally understand the whole Debits and credits and if something classes as increasing an asset then it's a debit, if it decreases an asset then credit etc. I totally get that and ace that bit (I think haha..)

My issue is with what actually classifies as Assets and Income sometimes.

Like when you send out an invoice i get that the debit is an asset increasing and the credit is the income increasing. But see when a client pays that invoice how would that be recorded? I've read somewhere that it decreases an asset or something?

I might be totally wrong but i'm just pretty confused on it. I would really appreciate someone explaining this to me.

Thanks,

crispy

Hello,

When issuing the Invoice for a credit sale you are correct an asset and income are increasing, the journal would be:

Dr Debtors Control (increasing asset)
Cr Sales (increasing income)

When the customer pays you are both increasing one asset and decreasing another, journal is:

Dr Bank (increasing asset)
Cr Debtors (decreasing asset)

Hope this helps

StudentLvl2

crispy said:

Hello,

When issuing the Invoice for a credit sale you are correct an asset and income are increasing, the journal would be:

Dr Debtors Control (increasing asset)
Cr Sales (increasing income)

When the customer pays you are both increasing one asset and decreasing another, journal is:

Dr Bank (increasing asset)
Cr Debtors (decreasing asset)

Hope this helps

Yes that's perfect thank you! I knew it had something to do with a decreasing asset!

if you don't mind me asking - why does the asset decrease? Just confused on how it all works!

Ellis

Hello!

The asset decreases (in this case - Debtors) because the debtors is a control account, which is there largely to keep track of how much money is owed to you at any one time. Therefore, when the Bank increases (because the customer has paid into it), the debtors decreases by the same amount because the customer no longer owes that money, and therefore it's no longer an asset in that sense.

However, according to the balance sheet you wouldn't notice a difference in the value of the assets total, as it simply increased one and decreased another.

Hope this helps!

Ellis