Difference between Debit and Credit terms in Journal entry?

[kothandaraman_nagarajan]

Dear all,

What is difference between Debit and Credit terms in journal entry?

Thanks & Regards,

Nagarajan

[Former Member · Accepted solution]

Hi Naga....

SAP Accounting has been defined on standard basic rule of Accounting.

And infact any accouting ERP is based on Standard Accounting rule.

So what comes in to our account is Debit and what goes/going out from our account is Credit.

System decides Debit and Credit depending on the type of Transactions.

For Ex. GRPO, Stock comes in so Dr. and Liability stands or money to be gone so Cr.

And for Deliver, Stock Cr. as it goes out to customer and Money coming to you against Delivery so Debtor Dr....

Hope this makes you aware about the concept of Dr. and Cr.

Regards,

Rahul

[kothandaraman_nagarajan · Accepted solution]

Hi Rahul,

Thanks for explanation on debit and credit terms.

Is turn over, cost of sales and operating cost are classified under liabilities?

Because as per standard accounting rule,

Asset = Liabilities + Stock

Thanks & Regards,

Nagarajan

[Former Member · Accepted solution]

Hi Naga....

I guess that should be into Expense Drawer.

I am not a Finance Consultant to tell exact accounts rule, but if you refer SAP's demo DB where standard charts of account has been defined with standard rule you can atleast learn the concept.

I personally experienced Accounting rules get changed person to person from accounts dept. which should never happen

Regards,

Rahul

[jitin_chawla · Accepted solution]

Hi,

To understand the concept of debit and credit properly you need to study atleast the basics of the Accounting. The debit and credit values are the movements of the values which are performed in the business which we record as a out transaction from one G\L Account (Source) and in transaction from other G\L Account (Destination). The debit and credit should balance to each other in order to have the correct and legitimate transaction/accounting.

All G\L Accounts will either be source or destination as per the transactions and the business activity.

Assets = Libilities + Stock is true but debit and credit are performed for the G\L Account defined and hence the affect is displayed in the Trial Balance.

Turnover, Cost of Sales and Operating Costs are Sales and Expenditure type accounts and hence the affected will be Profit and Loss account and not the Balance Sheet Account.

I would recommend you to study more on accounting and financial statements to get hold of the concept.

All the best.

Kind regards,

Jitin

SAP Business One Forum Team

[kothandaraman_nagarajan · Accepted solution]

Hi Jitin Chawla,

Thanks for explanation.

Started to refer basic financial terms. In any business process, the following accounts need to be established and double entry is followed,

1. Income statement (P/L statement)

2. Balance sheet - asset,liabilities

3. Cash flow.

But my problem is how to identify and related  the accounts to above statement and when it will be debited one account  and credited to another account.

Anyway thanks reply and your time.

Thanks & Regards,

Nagarajan

[kothandaraman_nagarajan · Accepted solution]

Hi Rahul,

Thanks for explanation.

Yes, understand that the accounting system varies from business to business, localizations etc...

But how we can easily related with journal entries...

Thanks for your time.

Thanks & Regards,

Nagarajan

[jitin_chawla · Accepted solution]

Hi,

We follow the three basic accounting rules which are as follows :

1. Debit to receiver

               Credit to giver

2. Debit what comes in

               Credit what goes out

3. Debit All Exp /Loss

              Credit Income/Gain

Based on this the postings are conducted. The G\L Accounts enteries are based on these accounting rules.

Kind Regards,

Jitin

SAP Business One Forum Team

[kothandaraman_nagarajan · Accepted solution]

Hi Jitin,

Thank for rules.

Please advice me each rule with each process. (Delivery, A/R & GRPO & AP)

Thanks & Regards,

Nagarajan

[jitin_chawla · Accepted solution]

Hi,

For the Delivery the recording is the movement of Goods, hence the Finished Goods --dr to Ram Material --cr.

When AR Invoice is booked based on such delivery then Sales Revenue account is credited and BP Code is debited.( because you have to get payment so debit BP Code to raise outstanding)

You need to have a look at the basic accounting. You can have an e-book from internet and can learn the basic concepts.

Kind Regards,

Jitin

SAP Business One Forum Team

[kothandaraman_nagarajan · Accepted solution]

Hi Jitin Chawla,

Thanks for reply.

I think it would be better to stop here asking to many question (As per forum rule)

As suggested, already I have to started to refer accounting basics through web.

Thanks for all for feedback.

I will keep this post as open for other expert inputs.....

Thanks & Regards,

Nagarajan

[Former Member]

Hi Nagarajan K,

Debit and Credit are Accounting terms in a Journal Entry.

One transaction includes at-least two accounts with equal debit and credit, just like a common balance.

Now the question arises, when to debit and when to credit.

In simple terms,

Assets Increase	Debit
Assets Decrease	Credit
Expenses Increase	Debit
Expenses Decrease	Credit
Revenue Increase	Credit
Revenue Decrease	Debit
Liabilities Increase	Credit
Liabilities Decrease	Debit

Now according to your example:

Delivery:

Raw materials

COGS

In case of Delivery, the "Raw Materials" is decreased, so that account is credited and  "COGS" account is expenses that is accounted during the time of sales .

For every revenue, the corresponding expense shall be accounted.

JO

[kothandaraman_nagarajan]

Hi,

Thanks for explanation.

Best regards,

Nagarajan

[Former Member]

Hello Nagrajan,

The words debit and credit are not used exclusively by accountants.

If I say that something is “to your credit,” what do I mean? Most of us will understand that I mean you have accomplished something worthwhile or honorable.

In common usage, a credit is desirable or good. We assume, then, that a debit must be undesirable or bad. Assigning these “values” to these two terms is what often causes learner problems. In accounting, debit and credit are not assumed to be good or bad; they are simply actions performed in the accounting records.

The accounting equation can be stated as:

Assets = Liabilities + Owner’s Equity.

Like all equations, the accounting equation must balance. The left side must equal the right side: Left = Right.

In accounting terms, the debits and credits must balance . The debits must equal the credits: Debits = Credits.

The key to remembering the rules for using debits and credits lies in the accounting equation and the need to remain in balance:

Assets = Liabilities + Owner’s Equity

Left = Right

Debits = Credits

Assets are on the left side of the accounting equation; increases to assets will be recorded on the left and called debits. Liabilities and owner’s equity are on the right side of the accounting equation; increases to liabilities and owner’s equity will be recorded on the right and called credits. Since debits and credits are opposites, decreases to assets (on the left side of the accounting equation) will be made on the right and called credits. Decreases to liabilities and owner’s equity (on the right side of the accounting equation) will be made on the left and called debits.

T&R,

BK

[Former Member]

I know this is an old post but I found a good site that explains the concept of debit and credit pretty well:

The Accounting Equation

http://www.guru99.com/the-accounting-equation.html

[Former Member]

In JE we have CREDIT and DEBIT. These are representing the flow of transaction.The money credited means the money is going out from user account. If the cash debited means the cash coming to your account.

In Credit and Debit has a one relation if the cash is debit from one account then defiantly it should be credited from one account.

here the cash flow from 101010 account to 102010.

[Former Member]

Dear Nagarajan,

In general, the source account for the transaction is credited and the destination account is debited. Is this you asked for?

Thanks,

Gordon

[kothandaraman_nagarajan]

Dear Gordon,

Thanks for reply.

How to identify the source and destination account?

For example:

Delivery:

Raw materials --->Is this source account?

COGS  --> Is this destination account?

Thanks for your time.

Thanks & Regards,

Nagarajan

[Former Member]

For all auto created JE, system has embedded mapping rule already. That is why you need to fill up G/L determination. You just need to check what system mapped accounts to understand. Source/destination criteria is for manual JE.

[nicet123]

Hi Naga Rajan,

These are accounting terminologies,  in simple  terms it means increase or decrease the value of a certain GL account.  But it depends on the characteristics or type of accounts. GL accounts  type like Assets (Cash in bank and in hand, Accounts receivable, prepayments, fixed assets) and expenses when use Debit it will increase the value but when use credit for these accounts it will decrease. Accounts type like Liabilities ( Accounts payable, Accruals), Equities, Retained Earnings and Revenues when used Debit it will decrease the value and when used credit it will increase.

Hope this will give you an idea how debit and credit works in ERP system.

Regards,

Nick