Answered Essay: How to distinguish clearly between credit and debit in some examples?

How to distinguish clearly between credit and debit in some examples?

Expert Answer


Answer: In general mean, we debit what comes in and credit what goes out. In accounting and we debit all expenses and credit all revenues while recording the transactions. All liabilities are credited when they arise and all assets are debited when comes in.

Let’s take some examples:;

(1) Businessmen purchased some office equipments for his business for $500 –> Then he will debit the equipments for $500 as it come in and credit the cash for $500 as it goes out.

(2) A person paid cash for insurance expense –> then he will debit insurance expense because it’s an expense and credit cash as its goes out.

(3) A salesmen sold its inventories for $200 –> Then for recording sale, sales account will be credited as it is a revenue and cash will be debited as it comes in and for recording of costs ‘Cost of goods sold’ will be debited as it’s an expense and inventories will be credited as it’s goes out

(4) A business did not paid wages due to lack of cash –> Then wages expense will be debited as expense is accrued and ‘wages payable’ will be credited as liability for payment of wages is arised

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