Debit and Credit Rules

Debit and credit rules are best learned through practice. In order to grasp the use of debits and credits,

how should the needed practice begin?

Answer: When faced with debits and credits, everyone has to practice at first. That is normal and to be expected.

These rules can be learned quickly but only by investing a bit of effort. Earlier in this chapter, a number

of transactions were analyzed to determine their impact on account balances. Assume now that these same

transactions are to be recorded as journal entries. To provide a bit more information for this illustration, the

reporting company will be a small farm supply store known as the Lawndale Company that is located in a rural

area. For convenience, assume that the company incurs these transactions during the final few days of Year One,

just prior to preparing financial statements.

Assume further that this company already has the account balances presented in Figure 4.3 “Balances Taken From

T-accounts in Ledger” in its T-accounts before making this last group of journal entries. Note that the total of all

the debit and credit balances do agree ($54,300) and that every account shows a positive balance. In other words,

the figure being reported is either a debit or credit based on what makes that particular type of account increase.