In an accounting journal entry, debit and credit are opposite to each other. The accountants in an accounting firm in Johor Bahru would use them when they need to change the ending balances in a company’s general ledger accounts. When creating a journal entry using debits and credits, the rules that they should comply with are as follows:
1. In every transaction, the sum of debits and credits must be the same. If not, the accountants would say that the accounts are unbalanced. This will cause the financial statements that they create based on the transaction to be inaccurate inherently (Also see 4 Alerting Indications on Your Financial Statements). Thanks to the development of technology, the accounting software will help the accountants in flagging any unbalance journal entries. This prevents the accountants from entering the wrong numbers into the accounting system unless they have corrected the amount.
2. When the accountants add a debit entry into the accounts that usually have a debit balance, the amount of all of those accounts will increase. On the contrary, their amounts will decrease when a credit entry is added. This rule applies to the assets (Also see How Do Tangible and Intangible Asset Differ from Each Other?), expenses and dividends accounts.
3. When the accountants add a credit entry into the accounts that usually have a credit balance, the amount of all of those accounts will increase. On the contrary, their amounts will decrease when a debit entry is added. This rule applies to the liabilities, equity and revenue accounts.
4. Contra accounts will cause a decrease in the balances of accounts that they pair with. As an instance, the accountants will use a contra asset account to offset an asset account with a credit balance. If it is a liability account, then they will use a contra liability account to offset it by using a debit balance.
If you follow the rules or debit and credit above, you are most likely to make accounting entries in a way which is technically correct in your general ledger (Also see Accounting – General Ledger Reconciliation). This reduces the risk of generating an unbalanced trial balance. Yet, even though you have followed the rules, it doesn’t mean that all the entries will be accurate in substance. This is because you will need to know the right way of recording the transactions by complying with the applicable accounting frameworks. Hence, do not hesitate to seek help from accounting professionals if you are not familiar with accounting.