After determining the accounts that are affected by the financial transaction and determining its type, the third step of the analysis steps, namely, determining the debit and credit account, so that the transaction will next be recorded in the accounting books according to the generally-accepted accounting principles (GAAP).
This method supposes that each financial transaction involves two parties; one of which is debit and the other is credit, so the total value of debit must be equal to the total value of the credit.
The financial transaction is documented in the form of entries, so that the debit is assigned the symbol (Debit A/C) and the credit is assigned the symbol (To Credit A/C), as (A/C) is the abbreviation of the word Account. Thus, the entry is written as follows:
| Credit | Debit | Description |
|---|---|---|
| xxx | Debit A/C | |
| xxx | To Credit A/C |
There are two of methods to analyze the financial transaction according to the double entry theory and to identify the debit and credit side in each transaction, namely:
This method supposes that the debit account is the (Receiver), while the credit account is the (giver).
| Credit | Debit | Description |
|---|---|---|
| xxx | Debit A/C (Receiver) | |
| xxx | To credit A/C (Giver) |
This is a group of financial transactions carried out by the Al-Salam Enterprise during the month of March. It is required to analyze the financial transaction, identify the debit account and the credit account, and to write down the entry of each transaction according to the double-entry theory using the receiver and giver Method:
1 On 03/01, the company withdrew the amount of USD 2,000 from the bank and deposited it into the company's cash account.
Answer:
First: Analyzing the financial transaction.
The account that received is the cash account, so the cash account would become debit with the amount of USD 2,000
The account that gave is the bank, so the bank account is credit with the amount of USD 2,000
Second: Method of writing down the entry:
| Credit | Debit | Description |
|---|---|---|
| 2000 | Cash A/C | |
| 2000 | To Bank A/C |
2 On 03/02, the company purchased furniture for USD 1,000 through a check drawn on the bank.
Answer:
First: Analyzing the financial transaction:
The account that received is the furniture account, so the furniture account is debit with the amount of USD 1,000
The account that gave is the bank, so the bank account is credit with the amount of USD 1,000
Second: Method of writing down the entry:
| Credit | Debit | Description |
|---|---|---|
| 1000 | Furniture A/C | |
| 1000 | To Bank A/C |
3 On 03/03, the company paid the telephone invoice (expense) of USD 50 in cash.
Answer:
First: Analyzing the financial transaction:
The account that received is the telephone expenses account, so the telephone expenses account is debit with the amount of USD 50
The account that gave is the cash account, so the cash account is credit with the amount of USD 50.
Second: Method of writing down the entry:
| Credit | Debit | Description |
|---|---|---|
| 50 | Telephone expenses A/C | |
| 50 | To Cash A/C |
4 On 03/15 the company paid part of its accrued account to Al-Iman Enterprise (accounts payable) amounting to USD 1,000 in cash.
Answer:
First: Analyzing the financial transaction:
The account that received is Al-Iman company, so Al-Iman company is debit with the amount of USD 1,000.
The account that gave is the cash account, so the cash account is credit with the amount of USD 1,000.
Second: Method of writing down the entry:
| Credit | Debit | Description |
|---|---|---|
| 1000 | Al-Iman Enterprise A/C | |
| 1000 | To Cash A/C |
5 On 03/20, the company received the amount of USD 500 for revenue received in cash.
Answer:
First: Analyzing the financial transaction:
The account that received is the cash account, so the cash account is debit with the amount of USD 500.
The account that gave is the revenue account, so the revenue account is credit with the amount of USD 500.
Second: Method of writing down the entry:
| Credit | Debit | Description |
|---|---|---|
| 500 | Cash A/C | |
| 500 | To Revenue A/C |
The second method to determine the debit and credit side is by identifying the nature of the account (Normal account balance), so if you go back to the previous lesson, you will find that the balance sheet equation in its final form was as follows:
| Assets | = | Liabilities + (capital – owner withdrawals + revenue – expenses) |
We can re-formulate the equation to become as follows:
| Assets + Owner withdrawals + Expenses | = | Liabilities + Capital + Revenue |
The left-hand side of the equation represents the accounts of a debit nature, so that when their value increases, they become debit, and when that value decreases, they become credit. The right-hand side of the equation represents accounts of a credit nature, so that when their value increases, they become credit, and when that value decreases, they become debit.
They include:
These accounts recorded on the debit side in the event of an increase, and recorded on the credit side in the event of a decrease, and their balance is mostly debit.
They include:
These accounts recorded on the credit side in the event of an increase, and recorded on the debit side in the event of a decrease, and their balance is mostly credit.
This is a completion of the transactions carried out by Al-Salam Enterprise during the month of March. It is required to analyze the financial transactions and to write down the entry according to the double-entry theory through the method of identifying the nature of the account:
1 On 21/03, the company withdrew $ 2000 from the cash account and deposited it into the bank account.
Answer:
First: Analyzing the financial transaction:
The bank account is an asset account - the bank account has increased by $ 2,000 - so that the bank account will be recorded on the debit side.
The cash account is an asset account - the cash account has decreased by $ 2,000 - so that the cash account will be recorded in the credit side.
Second: method of writing down the entry:
| Credit | Debit | Description |
|---|---|---|
| 2000 | the bank A/C | |
| 2000 | To the cash A/C |
2 On 25/03, the company purchased a vehicle from Al-Amal Enterprise against $ 10,000 on account.
Answer:
First: Analyzing the financial transaction
The vehicle account is an asset account - the vehicle account has increased by $ 10,000 - so that the vehicle will be recorded on the debit column.
Al-Amal Enterprise account is a liability account - Al-Amal Enterprise account has increased by $ 10,000 - so that Al-Amal Enterprise account will be recorded on the credit side.
Second: Method of writing down the entry:
| Credit | Debit | Description |
|---|---|---|
| 10000 | the vehicle A/C | |
| 10000 | To Al-Amal Enterprise A/C |
3 On 31/03, the company made a payment on account to Al-Amal Enterprise amounting to $ 5,000 paid in cash.
Answer:
First: Analyzing the financial transaction
The Al-Amal Enterprise account is a liability accounts - Al-Amal Enterprise account Has decreased by $ 5,000 - so that Al-Amal Enterprise account will be recorded in the debit side.
The cash account is an asset account - the cash account has decreased by $ 5,000 - so that the cash account will be recorded in the credit side.
Second: method of writing down the entry:
| Credit | Debit | Description |
|---|---|---|
| 5000 | Al-Amal Enterprise A/C | |
| 5000 | To the Cash A/C |