Debit Credit Confused!

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:23AM in AAT student discussion
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.

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    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
    System Posts: 100,534 🤖 Admin 🤖
    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
    System Posts: 100,534 🤖 Admin 🤖
    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
    System Posts: 100,534 🤖 Admin 🤖
    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

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