Question

how do i know when an account is decreasing or increasing ? how does knowing that help me when journalizing transactions?

Answer 1

Before joumalize any entry you must classify the type of accounts first and then apply increase or decrease concept. For example, following are the type of accounts: Classification Decrease Credit entry Debit entry Assets Liabilities Expense Revenue Equity | Increase Debit entry Credit entry Debit entry Credit entry Credit entry Debit entry Illustrative entries: 1. Vinyl started business with cash $10.000 2. Purchase inventory $25,000 and paid $20,000 in cash and remaining on account. 3. Sold goods $40,000 and received $20.000 in cash and remaining on account. 4. Paid rent $1000. Journal entries as follows:

Credit Debit $10,000 Tmn. Account Titles 1 Cash Vinyl capital (Cash is an asset which increase leads to debit entry) (capital is an equity which also increase leads to credit entry) $10,000 $25,000 $20,000 $5,000 2 Inventory Cash Accounts payable (Inventory is an asset which increase leads to debit entry.) (Cash is an asset which decrease leads to credit entry.) (Accounts payable is a liability which increase leads to credit entry) $20,000 $20,000 $40,000 3 Cash Accouts receivable Sales (Cash is an asset which increase leads to debit entry.) (Accounts receivable is an asset which increase leads to debit entry.), (Sales is a revenue which increase leads to credit entry) 41Rent expense $1,000 $1.000 Cash (Rent paid is an expense which increase leads to debit entry) (Cash is an asset which decrease leads to credit entry.)