Debit Credit Confused!

System

Hey!!!

Just doing Unit 1 and can somebody please explain to me (as I think I am being a bit of a doofus) why when you sell something on credit to a customer it goes under Dr and when you receive payment it goes under Cr - I just can't get my head around it!!!

thanks

Nic.

System

Re:Debit Credit Confused!

Hi Nikkala.

When you sell goods on credit to a customer they are a debtor.

Debtors are an asset, as you are going to receive the money.

When a debtor makes a payment they are reducing the value of the asset, hence it's a credit.

Scott.

System

Re:Debit Credit Confused!

yello

or u can think of it like this

Cash sale

Dr Bank
Cr Sales

Credit sale

Dr Debtor...........cos u havn't received any money
Cr Sales.............but still cr sales

when the debtor does pay u

Dr Bank..........have now received money
Cr Debtors......has paid off his debt

hope this helps

tom

System

Re:Debit Credit Confused!

... or you can think of it like this (very helpful, really...)

always:
DEBIT the receiver
CREDIT the giver

In your case (sales on credit), the customer receives our goods (he gets something without paying for that) and the company stays without those goods - "gives" (and does not get any money for that!)
Next step for sales on credit comes when the customer is ready to pay - "gives" their money to us, so, his account is credited this time. The company receives the money, so, bank account (or cash account) is debited.

System

Re:Debit Credit Confused!

ok the easiest way i have ever rememberd what side to post things to is using P E A R L S

P = Purchases
E = Expenses
A = Assets
R = Returns
L = Liabiliites
S = Sales

Now draw a line down the R and anything to the left is DR and to the right is CR and obviously with sales or purchase returns it is the opposite principle hope this helps

Claire