bank accounts

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:24AM in AAT student discussion
so, in the main ledgers - money going out is a debit and money coming in is a credit?

Then, on a bank statement, is the same? DB money in and CR money out?

Where is it that the Money in is a DB?

Thanks!

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:bank accounts

    Hey there,

    Money coming in is a debit because it is an asset and money coming in increases the asset.

    Money going out is a credit as it reduces the asset.

    Take a cash sale for example. The double entry is:

    DR Bank - The bank a/c is an asset of cash.
    CR Sales

    Sales are a credit because the profit is owed to the business owner/s and is therefore a liability.

    Don't think of your own bank account for double entry from your point of view (where DR is money out) - think of it from the banks perspective:

    Your money is owed to you by them, therefore is a credit balance.

    When you owe them money, you are their debtor and therefore you have a debit balance.

    A handy way to remember DR's and CR's is DEAD CLIC:

    DEBIT
    Expenses
    Assets
    Drawings

    CREDIT
    Liabilities
    Income
    Capital

    If you have any more Q's, just ask. And don't worry - it will all sink in eventually!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:bank accounts

    Hi Phunkyphantom22

    Thanks for that, as soon as i start thinking im getting my head around it,i quickly realise I am not!

    So thinking of my DEAD CLIC the sales on the credit side is the same as Income?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:bank accounts

    Correct! Sales are income, therefore a credit - well done! :D

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