Effect on values in the debit or credit columns
If a value is placed into the credit column of the assets account, it will decrease the total value of that account.
If a value is placed into the debit column of the expenses account the total of that account will increase...
...you get the idea!
Let’s use a simple business transaction to see this in action:
On 4 April Mr Jones bought a box of copy paper for the office costing $15.00 using a business check/cheque.
Following the double entry rules, two bookkeeping ledger accounts will be affected:-
- the bank account - in the books we want to show that money has gone out of the bank account thus decreasing the bank balance.
- the stationery account - the money has been used to buy a stationery item thus increasing the expenses balance.
t ledger example
Can you see the T!
From this illustration you will observe that
the $15.00 has been placed on the left side of the stationery ledger
account and on the right side of the bank ledger account.
t ledger Opening Balances
All asset, liability and equity accounts will have an opening balance
at the beginning of a new financial year.
These balances are the
closing balances brought forward from the previous financial year.
The balances in the asset accounts are usually debits.
The liabilities and equity balances are usually credits.
the above ledger illustration, the bank ledger has an opening balance
This means that at the end of the previous financial year
this business had that much money in their bank account.
revenue and expenses accounts are always cleared at the end of a
financial year so they start the new year with a zero balance.
Now, say if Mr Jones used the same check/cheque to buy several different items such as:
- $15.00 for paper
- $200.00 for a printer and
- $28.00 for a book for personal use
What would the debits and credits look like? See below.
t ledger example for Expense purchases
- The stationery ledger is being increased with a debit which adds to the overall total of business expenses.
- The office equipment ledger is being increased with a debit which adds to the value of the assets.
- The drawings ledger is being increased with a debit which adds to the amount of personal money the owner takes/spends.
- The bank account is being decreased because, obviously, the money has been spent!
that the debits of the first three ledgers add up to the total credit
in the bank ledger.
There is no need to split the credits out.
Go here to learn more about bookkeeping ledgers.