1 – Debits & Credits, the Foundation of Accounting

Numbers are the language of business, and accountants have been keeping track of organization’s financial records for centuries. Over time, as economies have grown more complex and the needs of investors for more information have expanded, a number of rules and regulations have arisen that govern specific financial transactions. However, the basics of recording accounting transactions have remained the same for a long time.

Simply, the foundation of an accounting entry, also referred to as a journal entry, is the concept of debits and credits.

The article above provides a concise list of uses for the most common business transactions involving debits and credits, included below:

• Sale for cash: Debit the cash account | Credit the revenue account
• Sale on credit: Debit the accounts receivable account | Credit the revenue account
• Receive cash in payment of an account receivable: Debit the cash account | Credit the accounts receivable account
• Purchase supplies from supplier for cash: Debit the supplies expense account | Credit the cash account
• Purchase supplies from supplier on credit: Debit the supplies expense account | Credit the accounts payable account
• Purchase inventory from supplier for cash: Debit the inventory account | Credit the cash account
• Purchase inventory from supplier on credit: Debit the inventory account | Credit the accounts payable account
• Pay employees: Debit the wages expense and payroll tax accounts | Credit the cash account
• Take out a loan: Debit cash account | Credit loans payable account
• Repay a loan: Debit loans payable account | Credit cash account