The mechanics of the system must be memorized.

Review all the Normal Balances standard listed within the document to gain pertinent knowledge of accounting at IU.Debits and credits form the foundation of the accounting system.

This allows organizations to identify errors, mistakes and pitfalls which can be remedied quickly and prevent larger issues in the future. While not required, the best practices outlined below allows users to gain a better picture of the entityвЂ™s financial health and help identify potential issues on a more frequent basis. This section outlines requirements and best practices related to Accounting Fundamentals вЂ“ Normal Balances. When the account balances are summed, the debits equal the credits, ensuring that the Academic Support RC has accounted for this transaction correctly. Contrarily, purchasing postage is an expense, and therefore will be debited, which will increase the expense balance by $12.70. Because postage was purchased for $12.70, cash, an asset account, will be credited, which will decrease the cash balance by $12.70. Note, for this example, an automatic off-set entry will be posted to cash and IU users are not able to post directly to any of the cash object codes. This transaction will require a journal entry that includes an expense account and a cash account. This general ledger example shows a journal entry being made for the payment (cash) of postage (expense) within the Academic Support responsibility center (RC). Employees who are responsible for their entityвЂ™s accounting activities will see a file such as the one below on more of a day-to-day basis.

To show how the debit and credit process works within IUвЂ™s general ledger, the following image was pulled from the IUIE database. When we sum the account balances we find that the debits equal the credits, ensuring that we have accounted for them correctly.

Because both accounts are asset accounts, debiting the cash account $15,000 is going to increase the cash balance and crediting the accounts receivable account is going to decrease the account balance. This general ledger example shows a journal entry being made for the collection of an account receivable. These accounts, like debits and credits, increase and decrease revenue, expense, asset, liability, and net asset accounts.Д«elow is a basic example of a debit and credit journal entry within a general ledger. Within IUвЂ™s KFS, debits and credits can sometimes be referred to as вЂњtoвЂќ and вЂњfromвЂќ accounts. On the contrary, when an amount is accounted for on the opposite side of its normal balance, it decreases that amount. When an amount is accounted for on its normal balance side, it increases that account. Included below are the main financial statement line items presented as T-accounts, showing their normal balances.ДЄ normal balance is the side of the T-account where the balance is normally found. Debits are presented on the left-hand side of the T-account, whereas credits are presented on the right. To better visualize debits and credits in various financial statement line items, T-Accounts are commonly used. Breaking down the above example of depositing a $100 check from both perspectives - banking and accounting, users can see, that while it appears as a вЂњcreditвЂќ to the user depositing the check, it is really just the bankвЂ™s off-set to the receipt of the check. While the two might seem opposite, they are quite similar. But for accounting purposes, this would be considered a debit.

For example, when making a transaction at a bank, a user depositing a $100 check would be crediting, or increasing, the balance in the account. AccountДebits and credits differ in accounting in comparison to what bank users most commonly see. The following chart shows the direction of debits and credits in various accounts as well as each accountвЂ™s normal balance. Debits and credits either increase or decrease the following accounts: asset, liability, fund balance, revenue, and expense. When accounting for these transactions, two entries must be made: a debit and a corresponding credit.Дebits and credits are what make up journal entries in a general ledger. Introduction to Normal Balances What are Debits and Credits?Д®ntities make financial transactions on a day-to-day basis in order to continue running business operations. Information presented below walks through specific accounting terminology, debit and credit, as well as what are considered normal balances for IU. This section discusses fundamental concepts as they relate to recordkeeping for accounting and how transactions are recorded internally within Indiana University.

Accounting Fundamentals вЂ“ Accounting Principles Section.

Accounting Fundamentals вЂ“ Accounting Terminology Section.

Prior to reading the standard Normal Balances, it is beneficial to review the below sections to gain foundational information:

T account debit credit