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Credit and Debit - HSN forum

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Credit and Debit


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#1 Shaun

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Posted 18 November 2004 - 05:18 PM

For me to understand something, I have to approach it logically. I'm doing Higher Accounts (I did it at SG and got a 2, but I remember nothing from then, so you could say it's a crash Higher!).

What's confusing me is 'credit' and 'debit'.

Refering to company accounts, I need these terms explained, as, whilst doing the 2004 paper as homework, it simply says 'Discounts (net)' in the credit column. Obviously to do the question I need to understand if this is Discount Received or Discount Allowed.

I know that VAT in the credit column is VAT you owe, or have to pay. So going by this logic - I assumed Discounts in the credit column is Discounts you OWE, i.e. Discount Allowed - but my teacher say it is Discount Received? Why?

If Sales are credit for a company account , then how is VAT owing credit also? Sales are money you have coming in, and VAT owing is coming out - that doesn't make sense!

Going by this logic, debit is money you have going out and credit is money you have coming in. So, should debitors (people who owe you money) not be in the credit column, and creditors (people who you owe money) be in the debit column?

I'm all confused. I need to understand why something is a credit and why it is a debit. Thank you.

#2 Discogirl17

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Posted 18 November 2004 - 08:11 PM

Net Discounts= Discount Allowed-Discount Received
if a negative figure is produced then the figure of Discount Recieved is greater than the figure of discount allowed. As the figure is negative the item becomes credit, however as you have Discount Allowed- Discount Recieved as the formula then obviously because you have recieved more than you have allowed then this can not become a minus to u so it becomes a positive figure. So in summary the definition of Net Discounts is the difference between discount allowed and discounts recived or vice vera eg, this is what happens when u look at it the other way:

Net Discounts= Discounts Recieved- Discount Allowed
if a positive figure was produced you would expect it to stand in the debit column as the credit column is usually for expenses and the debit for assets etc. However, you are forgetting that the capital used in a business is also in a credit column. To add discounts recieved you add it after the GP therefore as part of the GP it can be classed as capital (in a way).

Well anyway thats my theory!

If sales are credit-they are capital generated by the business. If Vat is credit it is an expense.

In summary debit is assets, prepayments, people who owe you money (ie they are a liability to you at the moment however as debtors fall under current liabilities in the BS).
Credit is expenses and capital(in a manner of speaking, some exceptions though, I'd recommend reading your notes)
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#3 Shaun

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Posted 18 November 2004 - 08:35 PM

I'm a little confused. If sales are credit, that means you are receiving money, so how, possibly could VAT in the credit column mean you owe it?

Is it not as clear cut as 'things you owe are debit and money coming is is credit"?

Could you provide a brief description of what debit and credit mean? If debit contains things like Purchases and Expenses, then why is VAT owing not in the debit side?

#4 Discogirl17

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Posted 18 November 2004 - 08:50 PM

THINGS U OWE ARE CREDIT!
CAPITAL IS CREDIT! (Sales can also be called Credit Sales by the way!)
ASSETS AND MONEY COMING IN ARE DEBIT!
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#5 Shaun

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Posted 18 November 2004 - 09:03 PM

QUOTE
THINGS U OWE ARE CREDIT!
CAPITAL IS CREDIT! (Sales can also be called Credit Sales by the way!)
ASSETS AND MONEY COMING IN ARE DEBIT!


That does not make any sense.

If things that you owe are credit, then 'Office Expenses, 'Selling Expenses' etc, should all be credit then if you are saying credit is things you owe.

I'm sorry to annoy you, but there is no logic to it, and it's beginning to seem a bit 'airy-fairy'.

#6 NatzG

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Posted 18 November 2004 - 09:13 PM

Rite lets have a bash at this... i shud no this got an A in my higher and I wanna studyin accounts at uni so i'll try help you as much as possible.

When you observe a trial balance you should consider in your head where they are placed in the final accounts eg... trading profit & loss account or balance sheet and think about wot it actually means where it is being placed. For example you were querying about how to differentiate between discount allowed and discount received, if you remember discount allowed is expense you are giving to someone else and is therefore an expenditure, all other expenses are in the debit column of the trial balance so therefore this suggests that a discount in the debit column is discount allowed. Basically this rule of credit being something you owe and debit is something I tend not to think about when doing any exercies. As for the trading profit and loss as long as you can pick up the basics of where every item goes in the trading, profit and loss account and then relate to it in the trial balance you should be ok. For example you were querying about VAT... VAT in the credit column is a current liability as it is VAT you are owing to another company for say goods you have purchased but you intend to pay it within a certain period. VAT in the Debit column however is VAT you are waiting on paid to you very rarely will VAT occur in the debit column in the accounts question you will come across. You said you weren't understanding that VAT in the credit column is something you owe well if you look at creditors that is money that you are waiting to get from people who have purchased your goods and that is also in the Credit column and is also a current liability in the balance sheet.

I hope this helps... if you require any further help don't hesitate to contact me

#7 Shaun

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Posted 18 November 2004 - 09:37 PM

It helps a lot, thanks to everyone who helped.

#8 strosek911

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Posted 19 November 2004 - 09:33 PM

because DISCOUNT ALLOWED is an expense, it is debit
because you receive money DISCOUNT RECEIVED is a credit, just like sales and anything else owing - like creditors

really confusing stuff, been ages since i've dun it

#9 beware_genius

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Posted 20 November 2004 - 04:46 PM

My teacher explained it like this:

DEBIT BALANCES are ASSETS and EXPENSES, this means that anything that you own, eg purchases, cars etc, and also expenses (things you pay for but receive nothing in return) eg electricity.

CREDIT BALANCES are LIABILITIES and GAINS, this means all your liabilities, eg bank overdraft, and gains (things you recieve for nothing) eg discount received.

So Discount Allowed is an expense so is a DEBIT balance.

Discount Recieved is a gain so it is a CREDIT balance.

By the way, could someone please help me. I did SG Accounts last year, I got a 1 and my teacher told me I could get an A at higher easily. I didn't take accounts this year but do you think it would be worth taking it next year?

#10 Discogirl17

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Posted 21 November 2004 - 02:56 PM

Yep ur worthwhile taking it. Sorry I got the whole thoing mixed up a bit up there. The above post by the genius is right.
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#11 beware_genius

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Posted 23 November 2004 - 04:07 PM

Ye it was, thanks for the advice!!!!

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#12 Discogirl17

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Posted 11 February 2005 - 04:39 PM

I know how to do this and have done for a while just wrong explanation.
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#13 Moral Fabric

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Posted 16 May 2005 - 07:58 PM

we get the 5 T's anyone else get that?

#14 Discogirl17

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Posted 17 May 2005 - 08:46 PM

Whats the 5 Ts?
T- accounts? The old style
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#15 Moral Fabric

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Posted 18 May 2005 - 01:17 PM

QUOTE(Discogirl17 @ May 17 2005, 09:46 PM)
Whats the 5 Ts?
T- accounts? The old style

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nah its hard to explain cos its diagrams... its just an easy way to remember when to debit and credit... blink.gif

#16 Discogirl17

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Posted 18 May 2005 - 01:31 PM

Yeh well, no I wasnt taught them
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#17 Moral Fabric

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Posted 18 May 2005 - 07:29 PM

QUOTE(Discogirl17 @ May 18 2005, 02:31 PM)
Yeh well, no I wasnt taught them

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i know! its our teachers way!!!
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