Debit or Credit
Increases an asset or expense account or decreases a liability or equity account.
What is a Debit?
Increases a liability or equity account or decreases an asset or expense account.
What is Credit?
This tool is used to visualize how debits and credits affect individual accounts.
You are a dairy farmer. During the year, you produced 50,000 liters of milk. At the end of the year, 10,000 liters remain unsold, with a market value of $2 per liter. The cost of producing the milk was $1.50 per liter. What is the journal entry to account for the unsold milk inventory at year-end?
You pay rent for your business building, the transaction debits or credits the cash account.
What is Credit
You pay $12,000 for a year’s worth of crop insurance. This account is debited and this account is credited.
What is Debit Prepaid Insurance $12,000, Credit Cash $12,000
This is a common error when reporting in the GL.
What is transposing numbers or omission of transactions.
You purchase a new tractor for your farm worth $50,000 using cash. This account is debited and this account is credited.
What is Debit Machinery $50,000, Credit Cash $50,000
You sell 1,000 pounds of hay to a neighboring farm for $2,000 on credit. This account is debited and this account is credited.
Debit Accounts Receivable $2,000, Credit Sales Revenue $2,000
This transaction is recorded on the left in the GL.
What is Debit
You pay $500 for electricity used in the barn. This account is debited and this account is credited.
What is Debit Utilities Expense $500, Credit Cash $500
You purchase 50 head of cattle for breeding purposes at $1,500 each, paying cash. This account is debited and this account is credited.
What is Debit Livestock $75,000, Credit Cash $75,000
This general ledger account shows the amounts the farm owes to its suppliers for goods or services purchased on credit.
What is Accounts Payable?
You sell a batch of livestock for $20,000 on credit. This account is debited and this account is credited.
What is Debit Accounts Receivable $20,000, Credit Sales Revenue $20,000
You harvested 1,000 bushels of wheat and recorded them as inventory, valued at $4 per bushel. This account is debited and this account is credited.
What is Debit Inventory $4,000, Credit Farm Revenue $4,000
These 5 categories are assigned different numbers in the GL.
What is Assets, Liabilities, Equity, Revenue, and Expenses.