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Bookkeeping 102 - Understanding and Using Debits and Credits

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How to Record Debits and Credits for Asset Accounts
record debits and credits for an asset account
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Assets are items owned by the company such as inventory, fixed assets (plant and equipment), accounts receivables, and any other account under either current assets or fixed assets on the balance sheet. How are debits and credits recorded for the asset accounts? Remember that debits are recorded on the left side of the t-account and credits are recorded on the right side. Debits are increases in asset accounts. Credits are decreases in asset accounts.

Here's the rule for assets. Increases in assets are recorded as debits. That means that are recorded on the left side of the ledger. Decreases in assets are recorded as credits and are recorded on the right side of the ledger.

Here is an example. Let's say that a company wants to buy inventory to gear up for holiday sales. Inventory is a current asset. That company is going to pay for the inventory with cash. The amount of inventory to be purchased is $10,000. The journal entry would look like this:

Inventory $10,000

Cash $10,000

Since inventory has increased, it is a debit and cash is a credit since it decreased.

If this company decided to sell a building for $250,000 and received cash for it, the journal entry would look like this:

Cash $250,000

Fixed Assets $250,000

Since cash, an asset, increased, it would be debited and fixed assets, also an asset, would be credited since they decreased.

Next step: How to record debits and credits for liability accounts

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