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Okay. I'm taking Intro to Financial Accounting at a local community college for my Business Administration degree. First of all, we're on chapter 5. Second, I don't understand basically the whole thing. How do you know if it's a debit or credit? How can you determine which account to put things under? Those are the two questions I REALLY need answered soon! I have a take home exam due tomorrow and I need help!! Thanks a bunch!! :o
Debit money taken directly from a checking account, usually, funds that a person has.
Credit is basically a promise to pay. It's using your credit card. I'll use my credit card since I don't have the cash on hand or in my account right now, then pay my credit card company back later by paying the bill, which will include the money you spent and also interest, the profit of the credit card company.
See, one of my problems is this:
On November 1, sold season tickets for admission to the racetrack. The racing season is year-round with 25 racing days each month. Season ticket sales totaled $900,000.
I have to write a ledger by using these accounts listed. I'm thinking that its admission revenue, but I'm not sure what else I can put it under. Maybe Accounts Recievable? I'm not sure. But I can't get a sense of what is debit and credit with the accounts.
Oh well in this case I would assume that credit means money credited (profit) and that it's money they made.
Okay... I'll try this. Thanks for the help!
Hope I helped! Good luck!
A debit is the left hand side and credit is the right hand sideQuote:
Originally Posted by Brwnidgirl07
To your question concerning your race track tickets, The first thing that has to be known is if the tickets are sold with cash or not. It looks like they are bought on credit where it states that it was a season ticket. So we'll go with credit. Next to increase the accounts receivabe account(to show the outstanding $ owed to the racetrack) it is an asset account and it is on the right side of the equation, so a debit (the right) will increase. Secondly, according to revenue recognition principle, you have to record revenue when it is earned. These tickets are unearned, they did provide a service yet, just gave the tickets. With that being said, unearned revenue is a liability account, which is on the left side of the equation, which is a left side increase. Over time when the tickets are used the unearned rev will move to rev and increase rev, and decrease unearned rev.
Quote:
Originally Posted by Brwnidgirl07
The Journal Entry (JE) in this case would be:
Debit (Dr.) Accounts Receivable or Cash 900,000
Credit (Cr.) Unearned Revenue 900,000
General Accounting Overview.
On the balance sheet, you have assets, liabilities and equity.
Remember the equation, Assets = Liabilities + Equity
Assets….are things like Cash, Accounts Receivable, Land, Building, Inventory, Equipment.
To increase an asset, you DEBIT it, to decrease it, you CREIDT it.
Liabilities and Equity work the other way. CREDIT increases it, DEBIT decreases it.
Examples of Liabilities are, Accounts Payable, Unearned Revenue, Mortgage Payable, Wages Payable
Equity:
If we are talking about a non incorporated company, it is Owner's Equity.
It we are taking about a corporation, it is Shareholder's Equity
Examples of Owner's Equity are: Capital and Drawings accounts.
Examples of Shareholder's Equity are: Retained Earnings, Common Shares, Dividends
Income Statement
To calculate your Net Income (or sometimes a net loss)…..
Sales
Less Cost of Goods Sold
Equals Gross Profit
Less Other Expenses
Equals Net Income (or Net Loss)
The Sales (or revenue accounts) act like liabilities and equity do, in that to increase them, you CREDIT them, to decrease them you DEBIT them.
Expenses operate like assets, in that to increase them, you debit them, to decrease them you credit them.
Example. You paid weekly wages to your employees of $400.
Dr. Wages expense (you incurred an expense to your business, so you must increase your expense account)
Cr. Cash 400 (because you paid out cash, so you need to decrease cash, which is an assert)
Summary:
1) Assets = Liabilities + Equity
2) EVERY JE MUST BALANCE, no matter what
3) Assets and Expenses = debit to INCREAE, credit to DECREASE
4) Liabilities, Equity and Revenue = credit to INCREAE, debit to DECREASE
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