Credit / Debit Confusion!!

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hi,

Ive just started Foundation AAT and thought i was getting the hang off credit /debit entries until i went and had a look at a past paper (June 06 one!) my debit / credit entries seemed to be the opposite of the answers they gave!! For example why is a loan from the bank a credit i thought this was a debit?! Im sooooo confused and think im never going to get the hang of this!! Our college sit the exam in December so im getting worried now!!Ive tried looking in books and on the net but got nowhere so thought i'd try this to see what fellow students think!!

Thanks

Julie x

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Credit / Debit Confusion!!

    Think of the bank as a creditor - i.e. you owe them money - and that the loan is a liability of the business, and this may help you.

    The entries for say, a £5,000 bank loan will be debit bank account (you may know this as CBR or cash book received) £5,000, credit bank loan account with £5,000.

    A £500 monthly payment would be credit the bank account (or CBP - cash book payments) with £500 and debit the bank loan account with £500. When balanced off you will see that the bank loan account will have reduced by the £500 payment and now show £4,500 outstanding.

    There's plenty of time until December and you will get the hang of it, so don't worry, just don't forget to use these forums for help!

    Robert
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Credit / Debit Confusion!!

    Hi Julz1982

    Your not alone as I have the same problem! but I am just trying to concentrate on learning one thing at a time, even if it is the basics like debits and credits - or debtors and creditors!!

    What I find is helping me, is going through my Bpp course companion book, and highlighting the bits that I need to get my head around the most!!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Credit / Debit Confusion!!

    Thanks! That seems to make sense, if i need anymore help i'll know where to come!!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Credit / Debit Confusion!!

    I know youve probably seen these a thousand times before but they really do help:

    PEARLS

    Purchases: debit
    Expenses: debir
    Assets: debit
    Revenue: credit
    Liabilities: credit
    Sales: credit

    DEADCLIC

    DEBIT
    Expenses
    Assets
    Drawings
    CREDIT
    Libailities
    Income
    Capital

    I hope these help

    Gem
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Credit / Debit Confusion!!

    Debit and Credit is a confusing issue! It might help if you consider your own bank statement - where you see that an overdrawn balance is a Debit and a Healthy Balance is a Credit - this is where the confusion begins for most people as this is what we all understand Credit/Debits' to be but the truth of it is that the Debit and the Credit are not ours they are the BANKS!!!!!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Credit / Debit Confusion!!

    DEAD CLIC is a good way to remember your debits and credits and someone has already mentioned this way. But there is also DIALL CILLA.

    DIALL
    Debits
    Increase
    Assets and
    Lessen
    Liabilities

    CILLA
    Credits
    Increase
    Liabilities and
    Lessen
    Assets

    Personally, I used to use dead clic, but now the DR and CR are second nature. Don't worry it will come. :)
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Credit / Debit Confusion!!

    Ooh I like diall cilla! :lol: That's a good one!!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Credit / Debit Confusion!!

    Thats the best one ive heard!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Credit / Debit Confusion!!

    I would like to say that I came up with DIALL CILLA but I did not. I was taught this by a BPP tutor called Theo. So Theo, if you're out there. Thanks, and see you on Tuesday at college :), I've been studying hard in your absence. :) Swat!

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