A credit is a term used with accounting reflecting one side of a dual entry. In journals, the credit is one part of the equation with a debit as the offset. When posted to the ledgers for the respective accounts, they are clearly posted in the credit column in the ledger and tagged with an identifier for the source journal.
Contra information is always reported in parenthesis. Other financial information is also reported using parenthesis with the two primary financial statements. This lesson explains parenthesis in balance sheet accounts.
Contra accounts are utilized to help present clearer information to readers of financial reports. They are used to improve the decision model. This lesson provides several different methods to exercise the advantages of this accounting ledger.
To properly create a set of ledgers there must be a list of accounts. This list is referred to as the ‘Chart of Accounts’ or for shorthand – COA.
The equity section of the balance sheet identifies the approximate dollar value of net worth accrued to the owners/investors. Equity accounts can have both credit and debit balances. By far the most preferred is a credit value. Debit values does not mean that something is wrong, actually it can be a great sign of a good operation.
The financial statement reports illustrate changes in the businesses’ financial condition over time. Just as man has evolved, a business grows over time. Naturally, most small businesses want to be highly successful and the reports are issued to evaluate change.
Expense types of accounts are the easiest to understand in bookkeeping. In general only debits are entered in expense types of accounts.
The Purchases Journal keeps track of the entries related to the cost of sales (cost of goods sold) accounts. As with all journals, the entries are in chronological order by date and identify both the debit and credit sides of the equation. In this case, cost of sales is customarily recorded via debits.
Revenue accounts are the most fun to watch as a bookkeeper. Revenue is the lifeblood for success. Without revenue, the company is doomed to go bankrupt. After all, you are in business to sell your services or products and the revenue accounts are where we get to see the results of activity.
To truly be successful in business you will need others. For most businesses this refers to employees and suppliers. Whenever a business commits to purchase time or product and that employee delivers their time or the supplier delivers the product, you owe them money. This is a liability.
Debits and credits are two words that are the most recognized terms synonymous to bookkeeping and accounting. I have read over 30 different articles as to how other authors define debits and credits with bookkeeping. Several authors try to get the reader to visualize the terms as the left side and the right side of the ‘T’-Account (I also describe this in Lesson 2).
