Video Transcript: The Accounts - Debits and Credits

Hey, hello and welcome back today. Today, we're going to talk about the account itself, the debits and credits of that account. Okay, an account represents an  individual accounting record with increases and decreases within the assets,  liabilities and the owner's equity. The account has three parts. You have the title  a left or a debit side and or a right and credit side. The format of the account  looks like a letter T as referred to the T account. So here's the basic Okay, so  you have the title of account should be cash equipment. You have your owner's  equity, your accounts receivable, accounts payable, like we had in our last  demonstration. So each each side has a left side, or which is called the debit  side, and the right side is called the credit side of that particular account. The left side of the account is referred to the debit, like I said, and the right side is  referred to the credit. We usually abbreviate these by just Dr period, which  obviously represents debit, and then the CR period would represent the credit.  They do not necessarily represent an increase or decrease. Okay, the terms  debit and credit are used in the recording process to determine where the  entries are placed within the account. The term debiting is referred to when an  amount is entered on the on the left side and crediting on on the right side.  Excuse me, an account will show a debit balance if the debit balance exceeds  the credit balance, and the account will have a credit balance if the Credit  Balance exceeds the debit balance. Okay, for instance, okay. So when we in the last demonstration, we had a lot of transactions, and we recorded them on what  looked like a worksheet. Okay, you can also do it the tabular summary, and then  you also have the account form. Okay, so the first one is where we invested  $15,000 cash. So, as you can see it there in the red, 15,000 but now on this on  the cash side, each account has your assets will carry a debit balance, and your your liabilities will carry a credit balance or a credit balance. Okay, so this, this  account here is a cash account which is an asset, so its normal balance is going to be on the left side as a debit so you invested 15,000 and then the next  transaction was a 7000 that you spent for, I believe, equipment it was so you're  taking away from cash, sure You're going to put on the credit side and minus out the 7000 and for each one of these transactions, for each transaction, you're  going to do the same, whether it be a debit or whether it be a credit, are you  spending money or are you receiving money? Okay, the positive figures on the  tabular summary that you just seen represents an addition to the cash account.  All of the negative figures represent the deduction from the cash account,  recording the increases on one side and the decreases on the other side will  help in reducing errors. Okay, so instead of having a listing of okay, 15,000 here  as a black balance, and then seven as a red balance and a tab Tabular. It's  easier to see when it's on the right side and the left side. Okay, it's easier to find  your errors. If there are any, the balance of the account will be determined by  netting the two sides together. The account had a debit balance of $8,050  indicating that the owner had more increases than decreases in his cash 

account. In order for the accounting equation to remain in balance, each  transaction must affect at least two or more accounts. The debits and credits of  each transaction must equal. This process represents the double entry system.  The system provides a method of recording transactions helps ensure the  accuracy of the recorded amounts and the detection of errors. So, for instance,  the debit increases assets and decreases liabilities. Credits decrease assets  and increase liabilities. Okay, the side of the account where there is an increase  is called the normal balance. Assets have a debit balance as their normal  balance, and liabilities have a credit balance as their normal balance. When an  owner makes an investment in their business, it is credited to the owner's  capital, like we had discussed earlier. Debits will increase the owner's capital,  and the Owner's Capital account has a credit as a normal balance when the  owner's make withdrawal, which is called the drawing account, like we had  discussed prior, whether it be cash or another type of asset, they are recorded in the owner's drawing account. The normal balance for this account is a debit  balance. Withdrawals can be made in this in the capital account. However, using the drawing account makes it easier to determine the number of totals  withdrawn at a certain period of time. So instead of just having your owner's  owner's account, owner's equity account, or the capital account, instead of  recording the money that you're going to put into and then the money that you're going to take out to and it kind of gets confusing and mixed in together, you're  going to create that drawing account, and that way it keeps it separate from the  money that you put in and the money that you take out of that account, revenue  that was another account that was included into the expanded accounting  equation is the income that the business earns from sales of goods or services.  And then you have expenses, which was another account on the expanded  equation, and these are the costs incurred by by a business. The effect that the  debits and credits have on the revenue account is the same as the effect it has  on the owner's capital accounts. Expense will have the opposite effect. The  revenue account carries a credit balance as its normal balance, and then the  expenses carry a debit balance as its normal balance. Below represents a  summary of the debit and credit rules and the effects on each of the type of  accounts. Okay, so again, you have your basic equation, which is the account  assets equal liabilities plus owner equity. And then you have your expanded  equation, which is your assets equals your liabilities, excuse me, plus your  owner's capital. And then the the expanded part is your owner's drawing your  revenue and your expenses, okay? And then each, each example here is going  to show you your assets have your debit as a normal side. Your liabilities have  credit as a normal side, which is your plus signs you see there, and then your  owner's capital. The normal balance is your credit side, revenue. The normal  balance is your credit side, and then your expenses. The normal balance is the  debit side,