KaustcVantasLike, imagine you have a wallet with $10, then let someone borrow $2.
Assuming nothing else at all happens,
Your wallet value is still worth $10.
The $2 technically sitting in their pocket still counts as $2 of your assets.
With that, you debit the Accounts Receivable account $2 to record where that value went to.
But the $2 debit to the Accounts Receivable has to have come from somewhere.
To keep the balance of your Total Assets, another account somewhere has to credit that $2.
We have a lot of different accounts to consider where that $2 came from.
We could say, "credit the Cash On Hand account the $2!" And that's that.
$8 in your wallet, and $2 in their pocket. Your assets are a balanced $10.
What if $2 value you gave them was just $2 worth in paperclips? We'll credit the Paperclips account $2 of its value on the journal entry.
(the journal entry form is a record of debits and credits from all accounts,
balancing the credits and debits)
What if the borrowed $2 was paying for a $2 drink on a credit card? Then we'll credit the credit card, with an extra step to balance the Accounting Equation
Since Assets = Liabilities + Equity
Debits will decrease the value on the Liabilities & Equity side, and credits will increase it.
An edit for the Wafrn records: an in-line pic! woohoo
ALT TEXT: pictured is a T-diagram, with the equation "Assets = Liabilities + Owners' Equity" above the T. The bottom left under Assets includes two smaller T-diagrams, one for each Asset account, "Cash" and "Accounts Receivable." In the smaller T-diagrams is written "Debit +" on the right & "Credit -" on the left. This means Debits increase the balances of the "Cash" and "A.R" accounts, and Credits decrease them. Referring back to the major T-diagram, the bottom right under "Liabilities + Owners' Equity" are four smaller T-diagrams, one for each Liability/Equity account, "Accounts Payable," "Retained Earnings," "Expenses," and "Revenue." The "Expenses" T-diagram shows that Debits increase its balance, and Credits decrease its balance. The other T-diagrams for "Accounts Payable," "Retained Earnings," and "Revenue" show that Debits decrease their balances, and Credits increase their balances.
END ALT TEXT?
Link to article source of this pic. It's basically everything I've had to learn this week.
The Assets side gets a +$2 by debiting the Accounts Receivable accounts, and on the other side of the equation, Liabilities gets a +$2 by crediting the credit card.
Once they pay you back, Accounts Receivable gets credited $2, and the debit must have a destination, whether it's as a debit to increase another asset, or a debit to a liability or equity (and decrease the absolute value of said liability or equity).
But what if we planned to just owe that someone $2 less the next time we borrow money from them? Then there's more steps
Accounts Payable, a Liability, gets -$2 on its side of the equation. We basically gave them $2, and now we owe them $2 less in our debt to them.
Debit transactions lower the balance of Liabilities/Equity,
So we'll record a $2 debit to Accounts Payable
On the Assets side of the equation, there must also be a minus $2 happening. Some asset account (Cash On Hand for example) must record a $2 credit
The end result for this shenanigans will look like:
Liabilities went down $2 in value, but also Assets went down $2 in value
#LONG-STORY-IS #MY-BOYFRIEND-TRIGGERED-ME #AND-I-WROTE-ALL-THIS #IN-ONE-FUCKING-TEXT #but-I-also-know-he's-a-sweetie-pie-and-means-well #also-I-realized-one-hour-in-(out-of-two-hours-composing) #that-seNDING-HIM-A-FUCKING-LONG-ASS-AND-NARROW-ESSAY-OF-A-TEXT-IS-TRIGGERING-TOO #IT'S-BORDERLINE-A-DECLARATION-OF-WAR #A-WAR-OF-TWO-TRIGGERED-BABIES #anyway-all-I-said-that-started-this-was #I'm-still-studying'-I-know-it's-late'-debit-and-credit-mean-something-else-in-accounting #AND-HE-REPLIED #'Ohhh?-Debit-increases-assets;-credit-decreases-assets' #AND-I-CAN'T-REPLY-RIGHT-AWAY #I-CAN'T-EVEN #BECAUSE-I'M-BUSY-TRYING-TO-CONSTRUCT-THE-ACCOUNTING-TOWWR-OF-BABEL-LOGIC-PUZZLE-IN-MY-BRAIN-PLACE-HERE #AT-THE-SAME-TIME-WRITING-THIS-TEXT(S)-TO-EXPLAIN-WHAT-I'M-LEARNING #WHICH-Is-thankfully-just-another-good-way-to-study-anyway #AND-HE-ADDS-SCREENSHOTS-OF-HIS-SPREADSHEETS-FROM-TRANSCRIBING-ONE-OF-HIS-BANK-STATEMENTS #MY-BROTHER-IN-CHRIST-I-DIDNT-FUCKING-ASK-FOR-YOU-TO-BOMBARD-ME-WITH-HOW-EASY-ACCOUNTING-IS #THERE-ARE-STEPS #IT'S-NOT-JUST-TWO-STEPS #ALSO-UR-DEBITS-IN-UR-SCREENSHPT-ARE-SUBTRACTIONS-FROM-THAT-CHECKING-ACCOUNT #THIS-ISN'T-THE-SAME #I-CANNOT #I-I-CANNOT-EVEN #so-I'm-doing-the-also-not-mature-thing-and-venting-to-a-public-secluded-space-on-the-internet-uwu #also-if-you-know-accounting-and-saw-that-I-totally-misunderstood-something-given-the-way-I-explained-my-above-accounting-examples #PLEASE-TELL-ME-I-BEG-YOU #accounting-is-a-handful-more-than-I-expected-it-to-be #be-assured-that-I'm-responsible-enough-to-cross-reference #sources-are-cool #sorry-I-don't-have-any-sources-for-terms-and-ideas-'-just-pics-I'm-gonna-try-to-link-to #scrapbooking #edits-made-to-enhance-post-for-accessibility-and-spice
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