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Journal Entries: Debits and Credits

Brian Krogol
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All right now let's talk about transactions and the system of debits and credits. So transactions these are things that are happening all the time right? Every time something happens in the company there is a transaction so you give something up and you receive something in return. Alright. So if you buy some land right? If you buy land you give up cash for the land and you get land right? If you sell something right? You sell the product, you give up whatever inventory you had and you get revenue for selling that, right? So let's talk about how this works. So every transaction is going to affect at least two accounts. And when I talk about accounts that was like cash accounts, receivable accounts, payable, the investment account, retained earnings, whatever it is, there's gonna be two accounts that we're gonna affect. At least when we do a transaction. Okay. And we're gonna use this system of debits and credits. That's what they're called to account for these transactions. So we're gonna have some debits on the transaction and some credits. And what we're gonna see is that every transaction must have an equal amount of debits and credits. Okay. So when we record a transaction, we're gonna record some debits in that transaction and we record some credits in that transaction and they have to equal each other. Alright. So it's still kind of high level. You're gonna see some examples down below. But here I want to show you how these accounts are going to work. We're gonna see that asset accounts and expense accounts they're gonna increase with debits. Okay? So if you wanted to account for, if you receive some cash and you wanted to account for that, you would debit the cash account for that amount. Okay. So that would be how we would increase the asset account. So you can imagine we could decrease an acid or an expense with a credit. Right? So if we had to pay cash for something, we would credit the cash account in that amount. Alright, so it's the opposite with liabilities, Equity and revenue accounts. These accounts are increased with credits. Okay. So this isn't so much to memorize but it is something worth just having having it memorized and eventually it's just gonna be second nature for you. But for now it's really important to know that we're gonna increase our our assets and our expenses with debits and we're gonna increase our liabilities our equity and our revenue with credits. Okay. So that's how it's gonna work. Let's pause here and I'm gonna show you an example. We're gonna we're gonna do a transaction and see how this works. Alright. Let's do that below