Could you tell me why INCREASES to cash are debits, and DECREASES are credits? Could you give me a little chart to explain, for the four main accts, which are increases and which are decreases?
Also, is this correct:
Cash Cr Dr
----------------------------------------------------------- Paycheck 475.00 Loan Bill 35.84 Sprint PCS 40.00
Thanks!!!!!!!
An increase in an ASSET is a DEBIT A decrease in an ASSET is a CREDIT
An increase in a LIABILITY is a CREDIT A decrease in a LIABILITY is an DEBIT
Cash is an ASSET so INCREASES are DEBITS.
This seems odd to first time accounting students because if they have money in the bank their account is in CREDIT. That's because the account balance is viewed from the bank's point of view. It is your money not theirs - they owe it to you - so it is a LIABILITY in their books, hence they say your account is in CREDIT.
I can't comment on your journal entry example without some explanation of what you tare trying to record. I can say it doesn't balance :-(
Cheers, Rusty
Trying to record my finances. And here's the other side
Accts. Receivable Cr Dr
------------------------------------------------------------------------- Paycheck 475.00 Loan Bill 35.84
Accts. Payable Cr Dr
---------------------------------------------------------------- Sprint PCS 40.00
Now does it balance? And, what's a contra-liability account used for? I know that a contra-asset account is used for depreciation. And, if the value of an asset changes, do I update it? Like I bought a 1oz. gold biscut for $400, and it's now worth $475, do I change it's recorded value? Does gold depreciate? Thanks!!!!
Total credits must equal total debits and vice versa. Your example is incomplete. The way to check your books is to do a trial balance. Mind you, this doesn't pick up all mistakes. Always remember this main point: Total credits must equal total debits - this is the main rule of double entry book keeping. See why it is double entry!
Define an increase in owner's equity to be a credit, and require adjustments to two accounts for every transaction and that debits should equal credits.
If you get some cash, your equity increases. Your cash account also increases. It's a credit to equity, so a ______ to your cash account.
One arbitrary choice was made. But once made, all others follow.
A contra-liability account is an account used to offset a liability to bring it to actual. Where this is commonly used is to reclass the current portion of long term debt. Because a portion of a loan will be due within the upcoming year, it is often desirable to reclass that portion to an account called "current portion of long term debt". Using a contra account allows us to not touch the principal of the loan and to more easily track it's value to corroborating documents.
Whether you adjust your books for the increases or decreases in value of assets depends entirely on the purpose of holding that asset and what standards you are obligated to follow. Generally speaking, the value of that lump of gold will be adjusted because it is a liquid asset (can be sold easily). As well because it is more of an investment, it would be desirable to recognize the change in value so you can see what your investment income over the reporting period has been.
About the gold depreciating quetion - think about it a little. Does the gold fall apart or need to be fixed over time? Or is it still gold in 5 years time? Answer being of course no it does not depreciate - it can lose value but not depreciate.
Anita
Ah. OK, let's say I OWN a $2500 revolving loan at 20% interest; minimum payment of 25% of the outstanding balance. Is this correct?:
Cash Dr Cr Bal.
---------------------------------------------------------- Start 0.00 Loan 2500.00 (2500.00) Payment 750.00 (1750.00)
Assets Dr Cr Bal.
----------------------------------------------------------- Start 0.00 Loan 2500.00 2500.00
Accts. Recievable Dr Cr Bal.
------------------------------------------------------------------- Start 0.00 Payment 750.00 750.00
Where do I put the interest accrued? And, how do I make a contra asset account for the loan, to show me it's value. It should be currently at $2250.
I think you need to take an introductory accounting class.
S.
DarkProtoman wrote:
You don't OWN a loan, you OWE it.
You have liability account called Interest Payable, you have an expense account called Interest Expense. When you pay your loan payment it is made up of principal and interest. You credit the bank the amount of the loan payment and debit the Loan Payable account the amount of the PRINCIPAL paid, and debit the Interest Payable account the amount of the INTEREST paid.
For the rest, take Accounting 101 at your local college.
No, I do OWN it; I LENT $2500 out to someone.
You did not specify that it was a loan owed to you. You said you "owned" a loan. I often see the most educated persons confuse "owe" and "own". There is a difference.
As a point of syntax and grammar, you still do not own a libability or asset like a loan, receivable or payable. You "owe" it or are "owed" it. It is intangible. You can only "own" a tangible asset, since to "own" is to possess. You do not possess the loan, you possess the right to collect on it.
To "owe" or be "owed" is to have an obligation to pay, or a right to collect. You have the "right" to collect the money "owed" to you, but you cannot "own" the loan itself.
Stephanie
DarkProtoman wrote:
Of course you can; banks list their loans on their long term asset account. I'll use whatever terminology I damn please, as long as it's clear.
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