Thread: T-Accounts & Cash v. Debit

Hello,

Commerce student here, doing a few of my accounting courses this semester. So far I think there is just something fundamental Im missing. I can’t seem to grasp why a cash investment by an owner, is recorded under “Debit” and not “Credit”.

For example: If Im an owner in Company XYZ and I took 16,000 and invested it my businesses Account, isn’t that a > “Credit” < in the account as opposed to a debit in the account?

Example 2: If I have to pay 12,000 to loans my Company XYZ owes, wouldn’t those be recorded as “Debits”, because the account balances are going down?

I guess Im just not understanding the concept, if Revenue and Owner investments are always recorded as Credit, how come on these T-Accounts, an owner-investment goes under the, “Debit” column and not the, “Credit” column.

Originally Posted by chompgator

Hello,

Commerce student here, doing a few of my accounting courses this semester. So far I think there is just something fundamental Im missing. I can’t seem to grasp why a cash investment by an owner, is recorded under “Debit” and not “Credit”.

For example: If Im an owner in Company XYZ and I took 16,000 and invested it my businesses Account, isn’t that a > “Credit” < in the account as opposed to a debit in the account?

Example 2: If I have to pay 12,000 to loans my Company XYZ owes, wouldn’t those be recorded as “Debits”, because the account balances are going down?

I guess Im just not understanding the concept, if Revenue and Owner investments are always recorded as Credit, how come on these T-Accounts, an owner-investment goes under the, “Debit” column and not the, “Credit” column.

OK Chompgator - first off - don't think of Debits and Credits as "things" - think of a Debit as an action that will increase an Asset or Decrease a liability and a Credit will increase a liability and decrease an Asset. OK?

So - your Business Account is an Asset and you put $16,000 into that asset - so you increased an asset and that part of the entry is a "$16,000 Debit to Business Account."

Now the loans that you company owes are Liabilities. So when you pay those loans you decrease the Liabilities and credits are what decrease liabilities so " $12,000 Credit to Loans Payable.

Hint: Take your accounting book and look at the example balance sheet and MEMORIZE what is listed as ASSETS and what is listed as LIABILITES and you are on your way!

Zyzzx,

Thanks again for this response as well. I also got the excat same response, just in different words - from a teacher earlier today.

I definitely think Im on my way and now that you both have commented its making allot more sense now.

I appreciate all your help, and thanks for taking the time to respond.

Regards,

Originally Posted by zyzzx

OK Chompgator - first off - don't think of Debits and Credits as "things" - think of a Debit as an action that will increase an Asset or Decrease a liability and a Credit will increase a liability and decrease an Asset. OK?

So - your Business Account is an Asset and you put $16,000 into that asset - so you increased an asset and that part of the entry is a "$16,000 Debit to Business Account."

Now the loans that you company owes are Liabilities. So when you pay those loans you decrease the Liabilities and credits are what decrease liabilities so " $12,000 Credit to Loans Payable.

Hint: Take your accounting book and look at the example balance sheet and MEMORIZE what is listed as ASSETS and what is listed as LIABILITES and you are on your way!

Another tip is to keep your entities straight. When you individually put money in or out of your company there are two entities. One being yourself and the other the company (business). Construct T accounts (entries) for both.

If you put 16K into the business then:

Individually: debit investment and credit cash

The Business: Debit cash and credit Equity

If the Business then pays the loan, the business entry is credit cash and debit loan.


If you directly payoff the loan then you really have two transactions that have been netted (you individually & the company) and you need to account for them separately.