Poole Office: 01202 678555

Wimborne Office: 01202 849169

  • slider-1.jpg
  • slider-2.jpg
  • slider-3.jpg
  • slider-4.jpg

Request a Call Back

Please enter your name and phone number

Latest News

Changes to tax treatment of termination payments
29/07/2020 - More...
The government has published draft...

New redundancy protections for furloughed employees
29/07/2020 - More...
The government has unveiled an important...

How elastic is demand for your products?
28/07/2020 - More...
Many will remember the empty shelves in...

Search News

Newsletter

With our newsletter, you automatically receive our latest news by e-mail and get access to the archive including advanced search options!

»Sign up for the Newsletter
» Login

 


What are debits and credits?
29/06/2020

You may have come across the terms debit and credit and perhaps wondered exactly what do they mean?

Certainly, if you are a bookkeeper or accountant you will or should understand their significance.

The first book on the subject was written by Italian mathematicians in 1494.

Essentially, double entry means that every transaction that can be measured in monetary terms has two effects. For example, if you buy stationery for £25 you incur a stationery cost and reduce your cash in hand. In bookkeeping parlance, stationery costs are debited with £25, cash in hand is credited with £25.

Readers will appreciate that if all transactions can be classified in this way then the total of all debits must equal the total of all credits.

A Balance Sheet is proof that this is the case – total assets (debits) must equal liabilities plus business capital (credits).

So far so good, but why is this important?

Double entry was a useful tool when account’s ledgers were handwritten as it provided proof that all entries made had been considered from a debits and credits perspective. 

In some respects, accounting software takes care of the double entry for you. In the above example when you post a cash payment of £25 you will tell the software it is for stationery and when you click enter, the software will make the underlying double entries for you.

Which is unfortunate. Using account’s software does not require that you understand the debits/credits logic, but if you do understand the logic it is a priceless tool to appreciate the meaning and construction of the accounting reports produced.


Contact Us

Poole Office

Tower House, Parkstone Road
Poole, Dorset
BH15 2JH
Tel: 01202 678555

This email address is being protected from spambots. You need JavaScript enabled to view it.

Company Registration No: O7430971
VAT Registration No.107585703

Wimborne Office

Beaufort House, 2 Cornmarket Court
Wimborne
BH21 1JL
Tel: 01202 849169

Membership

ICAEW-White

Save