Why are Sales Credits and Expenses Debits

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:23AM in AAT student discussion
Hi<BR><BR>Please could someone explain why Sales/Income are classified as Credits and Expenses are classified as Debits as logically it should be the other way round.<BR><BR>Thank you

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Why are Sales Credits and Expenses Debits

    Hi,<BR><BR>Think of it as credit is money coming in and debit is money going out.<BR><BR>Sales and income are money coming in and therefore added (credited) to the company account<BR><BR>Expenses are outgoings from the account and therefore deducted (debited) from the company account.<BR><BR><BR>
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Why are Sales Credits and Expenses Debits

    <BR>Firstly, you need an acronym to remember it - PEARLS or DEAD CLIC.<BR><BR>Think of the bank. Debit is money going in and Credit is money coming out. <BR><BR>Therefore, if you make a sale (ignoring debtors for the moment) you would debit the bank with the receipt so sales must be a credit to complete the double entry.<BR><BR>Creditors are a liability and therefore a credit. So, if you have credited creditors, you must have to debit the relevant expense to balance the entry.<BR><BR>Hope that helps!

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