Transcript Debit and Credits - University of Minnesota

Debit and Credits
Origin & Use
Origins of Accounting
• Luca Pacioli-father of accounting
• Double entry accounting suggested
• Using “ increases” and “decreases” for
accounts doesn’t go far enough
• Need to incorporate debit and credit
• “Debit”(debitum-debito) means “what is
due”
• “Credit”(creditum-credito) means”
something entrusted to another-i.e.a loan”
Another rule
• Debits must equal credits
• Each account has two columns-one for
increases and one for decreases. Debit is
the left column in a T-account, Credit is the
right column. The net balance of an
account is listed in a Trial Balance.
More on debit and credit
• Stickman diagram- george
• He has no pocket, cannot store anything
• He can receive money only with his right
hand and can pass money along only with
his left hand. Whoever pays George will
be his “creditors(Coming from), those who
receive money from him will be his
“debtors”(Going to)
Debit and Credit
• Creditors include Edward, Lynn and
Renee. Edward does not expect the
money he paid to George to be repaid for
a long time(stockholders); Lynn expects
George to pay her in a short time(debt
holders); Renee does not expect George
to repay money she gives him(revenues)
Debit and Credit
• Debtors include Alan and Ellen. Allen
repays George the money that he receives
from him(assets). Ellen never repays the
money that George pays her(expenses).
• Since George does not have a future
obligation to Renee(profit) or expect
anything from Ellen(Loss), any difference
in amount belongs to George
Debits and Credits
• Remember that George still owes Edward
and Lynn, while Alan owes him.
• Now substituting accounting terms for
people, we find that :
assets-expenses= equities-liabilitiesrevenue /or assets-loss=equities+
liabilities or / assets= equities
+liabilities+profit
An example
• Purchase of inventory
• An asset(inventory) is increased; another
account(person) must pay the company
because George cannot keep cash, so the
debit is to inventory and the credit is to
cash(another asset account)- or it could be
a credit to a liability account(accounts
payable)-Lynn in the above example
An Introduction to Quickbooks and
the Accounting Cycle
• One of the first task is to set up the
company including its chart of accounts
• Accounts will be different for different
businesses.
• You will be setting up your own company
on Quickbooks for the Web
Key menu items for Quickbooks
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Company
Customers
Vendors
Employees
Banking
Reports
Setup for Quickbooks
• You will be entering Intuit main site. Find :
• Www. quickbooks.com
• To do the 30 day trial, you need to click on
the icon and supply some information
including a business name, description
and email.
Quickbooks
• Quickbooks will start you with a sample chart of
accounts, you will need to add or modify
accounts
• Use Banking for transactions. Make journal
entries. Use this for your sample transactions in
lab.
• Use Reports to print any of the financial
statements.
• Quickbooks for the Web does not have a payroll
module