Double Entry Bookkeeping continued
Assets, liabilities, proprietor's equity, expense, and income are the five different categories into which accounting transaction can fall. So, for example, if you receive trust funds and deposit them in a financial institution, this transaction results in:
- an increase in the trust account (an asset), so it's a debit; and
- an increase in the amount you owe your client (a liability), so it's a credit.
Another example: if you receive a payment of $1,000 in fees from a client and deposit it in your general account, this transaction results in:
- an increase in your general cash account (an asset), so it's a debit; and
- a decrease in your accounts receivable (an asset), so it's an off-setting debit that has the effect of a credit.
Although an increase in an asset intuitively seems like it should be a credit, it is not. An increase in an asset is a debit. If this seems correct to you, then you are a natural accountant.
If this does not seem correct to you, think of it this way. The money you deposit into your bank account is a debit because the bank owes you the money. In other words, the balance in your bank account is a debit balance in your accounting records. If you can remember this as a starting premise, then all your other entries will begin to make sense to you.