Video Transcript: The Account and the Rules of Debit and Credit

Hello and welcome back. Now we're going to talk about the account and the  rules of debits and credits. Okay for credit, a firm posts and information to  accounts in the ledger to see from exhibit five that after you prepare the journal  entry, you post to the accounts in the ledger. However, before you can record  the journal entry, you must understand the rules of debit and credit. To teach you these rules, we begin by studying the nature of an account. Fortunately, most  business transactions are repetitive or repetitive. This makes the task of  accountants somewhat easier, because they can classify the transactions into  groups having common characteristics. For example, a company may have  1000s of receipts or payments of cash during a year. As a result, a part of every  cash transaction can be recorded and summarized in a single place called an  account. An account is a part of the accounting system used to classify and  summarize the increases, decreases and balances of each account, which is an asset, liability, stockholders, equity, item, dividend, revenue and expense. Firms  set up accounts for each different business element, such as cash, accounts  receivable, accounts payable. Every business has a cash account and its  accounting system because knowledge of the amount of cash on hand is useful  information. Accountants may differ on the account title or the name of the  account they give to an item. For example, an accountant might name an  account payable as a note payable, or maybe called a loans payable. Both  account titles refer to the amount borrowed by the company. The Account title  should be logical to help the accountant group similar transactions into the same account. Once you give an account a title, you must use that same title  throughout the accounting records. The number of accounts in an accounting  company's accounting system depends on the information needs, the  information needs of those interested in the business. The main requirement is  that each account provides information useful in making decisions. Thus, one  account may be set up for all cash, rather than having a separate account for  each form of cash. For example, coins on hand, currency on hand, or deposits  in the bank, the amount of cash is useful information the form of cash, however,  often is not okay. So this is your setup. You have an account. Again, we're back  to the T account. You have the title of your account, okay? So again, you're just  going to enter the business transaction. The company transaction is evidenced  by a source document. Okay, you should have a bill. If you have, if you receive a bill from a creditor, you bought something on credit. Okay, you're going to  receive a bill, so therefore it goes into your accounts payable. Okay, the source  document serves as a basis for preparing that journal entry. Okay, the journal  entry is posted to the accounts ledger. Accountants use the term debit instead of saying place an entry on the left side of the T account, they use the term credit  for place an entry on the right side of the T account. Debit, again, is abbreviation Dr simply means left side, okay, and then the credit means the right side. After  recognizing a business event as a business transaction, we analyze it to 

determine the increase or decrease effects on the asset, the liability, the equity  or the dividends, the revenues or the expenses of the business. Then we  translate these increases or decreases effects into debits and credits. In each  business transaction, we record the total dollar amount of debits must equal the  total amount of credits. Again, when we debit one account per 100, we must  credit another account for that same amount the accounting requirement that  each transaction be recorded by an entry that has equal debits and credits is  called double entry procedure. This double entry procedure keeps the  accounting equation in balance. The dual recording process produces two sets  of accounts, those with debits and those with credits. The totals of these two  groups of accounts must be equal, then some assurance exists that the  arithmetic part of the transaction recording process has been properly carried  out. Now let's use actually record business transactions and T accounts using  debits and credits.