DEBIT the Value Received and CREDIT the Value Parted With

Remember, that in accrual model of accounting, there's the debit and credit sides in a business transaction or events.  It is crucial that in recording we know what and when to debit or to credit the items or values in business transactions or events.

Following are the rules for recording journal entries (which are alternatively known as debit and credit rules) :

Rule 1
When the value received is a thing of value, an asset is increased.
Therefore, debit the asset account title of that thing of value with the amount of increase.


Rule 2
When the value parted with is a thing of value, an asset is decreased.
Therefore, credit the asset account title of that thing of value with the amount of decrease.


Rule 3
When the value received is an oral promise to pay from a debtor, an asset is increased.
Therefore, debit the debtor's account / asset account title with the amount of increase.


Rule 4
When the value parted with is the cancellation of debtor's promise to pay, an asset is decreased.
Therefore, credit the debtor's account / asset account title with the amount of decrease.


Rule 5
When the value parted with is an oral promise to pay a creditor, a liability is increased.
Therefore, credit the creditor's account / liability account title with the amount of increase.


Rule 6
When the value received is the cancellation of oral promise to pay a creditor, a liability is decreased.
Therefore, debit the creditor's account / liability account title with the amount of decrease.


Rule 7
When the value parted with is the implied promise to safeguard the owner's interest, the capital or proprietorship account is increased.
Therefore, debit the capital / proprietorship account with the amount of increase


Rule 8
When the value received is the implied reduction of responsibility to safeguard the owner's interest, the capital / proprietorship account is decreased.
Therefore, debit the capital / proprietorship account with the amount of decrease.


Rule 9
When the value parted with is the use, or hire, of (our) property or services, the capital / proprietorship account is increased.
Therefore, credit the income account title with the amount of increase.
Note that income and expenses are implicit components of an equity account. That the net income or loss forms part of equity and to get the net income or loss, deduct expenses from revenue or income.


Rule 10
When the value received is the use, or hire, of others property or services, the capital / proprietorship account is decreased.
Therefore, debit the expense account title with the amount of decrease.
Note that income and expenses are implicit components of an equity account. That the net income or loss forms part of equity and to get the net income or loss, deduct expenses from revenue or income.

Always remember:

 Basic guiding principle in recording JEs : 

DEBIT the Value Received and 

CREDIT the Value Parted With

See illustrative matrix / chart

Journalizing and Journal Entries

Just like a diary writing where we tell and write the story of what happened to us during the day, in bookkeeping, bookkeepers also tells and writes what transpired during the day. The bookkeeper record the daily transactions and events in the books of the company in the order of its occurrence or chronological order.  In accounting, the writing of transactions and events, and the record keeping is referred to as "Bookkeeping."

And, in accounting, we call the book where we write or record the transactions and events with monetary values as the "Books of Accounts."

Books of Accounts has two classifications, the Books of Original Entry and the Books of Final Entry.

The book where we first enter the transactions and events with monetary values is the Book of Original Entry otherwise known as "Journals".

The act of recording the transactions and events with monetary values in the Books of Original Entry is JOURNALIZING.

Below is an illustrative example of a General Journal

In other words, Journalizing is the manner of recording in debit and credit forms the business transactions and events.

The entry in debit and credit forms is called JOURNAL ENTRY (which is JE in short). In recording the entry, enter the date, then, when recording the debit entry, the item is written from the leftmost side of the line item in the particulars column, and its amount is entered in the debit amount column.  While, the credit entry is entered in the next line below the debit entry and with a few spaces indented, and the amount is entered in the credit amount column. Then, the brief and clear explanation is entered indented in the next line below the credit entry.

A Journal Entry may be recorded in simple journal entry or in a compound journal entry.

A simple journal entry is an entry with one debit item and credit item with corresponding monetary amounts.

Illustrative Example:

While, a compound journal entry is an entry with at least one debit item and two or more credit items; or two or more debit items and at least one credit item; or more than one item on both debit and credit sides.

Illustrative Example:

Click here to read discussions on DEBIT and CREDIT sides

Account and Account Titles

What is an "ACCOUNT"?

When we hear the word "account" in accounting, it refers to a device being used in referring or representing a summarized group of similar values (whether received or parted with) of relatively one item only.

Meaning, say when we received or parted with a coin, paper money, bank draft, checks, money orders, or similar items, we refer them as one item only.  We group and summarize the amounts of these similar values and we represent them by one account name or account title -- cash (or cash and cash equivalents). 

What is an "ACCOUNT TITLE"?

To reiterate, an account title is the name we assign to a group of similar values of relatively one item only. In other words, we use the account title in grouping and summarizing the amounts of relatively similar values.  

However, it is important to note that the account title is unique to a business.  That we don't just give a name to an account title but we look at the chart of accounts of the entity and find the account title the business assigned to groups of similar values.  And, such naming, assigning or identification of accounts are normally explained or enumerated in the accounting manuals or policies and procedures manuals of the company.

Giving or Naming an ACCOUNT TITLE to group of relatively similar values.

The Account Title should appropriately and briefly describe the items within that account. 

The following are illustrative examples of assigning an account title to group of similar values of relatively one item only:

• Money like coins, paper money, checks, money orders, bank drafts are described as CASH.
• Chairs, tables, display counters, etc are referred to as FURNITURES & FIXTURES.
• Computers, laptops, adding machines, copiers, etc. may be called as OFFICE EQUIPMENT
• Cars, Vans, SUVs and similar items are represented as SERVICE VEHICLE.
• Amounts collectible from various customers are called ACCOUNTS RECEIVABLE
• Amounts payable to creditors are referred as ACCOUNTS PAYABLE
• Proprietor's contributions whether initial or additional, are the CAPITAL 

Once we assigned an account title to the group of similar values of relatively one item only, such account name is its identified account title forever.  Meaning, in the next transactions relating to cash, we always call them as cash regardless if we received or parted a paper money or checks (or any items belonging to cash account).

Hence, it is important to acquire the skill of recognizing each and every item belonging to an account title. Because it is important that the items inside the account are the items belonging to it.  So a bookkeeper must always refer to the entity's chart of accounts.

Click here to see discussions on CHART OF ACCOUNTS. 

Related topics:

T-Account

Account Form of a General Ledger

Reduction of its responsibility to safeguard the proprietary interest in consideration for money or property parted with

Reduction of its responsibility to safeguard the proprietary interest in consideration for money or property parted with

Illustrative example for money parted with:

On June 27, 20x2, AAA Company gave P3,000.00 to Alec A. Agustin, the proprietor, for his personal use.

Analysis and Explanation:

Note: when analyzing a business transaction, the bookkeeper or analyst must look at the side or perspective of the company.   

Analysis:

• The value received by the company: reduction of the company's responsibility to safeguard the proprietary interest

• The value parted with by the company:  money

Explanation:

The value received by AAA Company is the reduction of its responsibility to safeguard the proprietary interest.  In exchange, AAA Co. valued parted with is the money.

Therefore, in this transaction, the value received is the reduction of the company's responsibility to safeguard the proprietary interest and the value parted with is the money.


Click here to see the recording and accounting of the above transaction


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Illustrative example for property parted with:

On June 18, 20x2, Alec A. Agustin, the proprietor of AAA Trucking Services Company, took home a laptop worth P35,000.00 for personal his use.

Analysis and Explanation:

Note: when analyzing a business transaction, the bookkeeper or analyst must look at the side or perspective of the company.   

Analysis:

• The value received by the company:  reduction of the company's responsibility to safeguard the proprietary interest

• The value parted with by the company:  property (laptop)

Explanation:

The value received by AAA Company is the reduction of its responsibility to safeguard the proprietary interest.  In exchange, AAA Co. valued parted with is its laptop.

Therefore, in this transaction, the value received is the reduction of the company's responsibility to safeguard the proprietary interest and the value parted with is the money.


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Implied promise to safeguard the proprietary interest in consideration for money or property received

Implied promise to safeguard the proprietary interest in consideration for money or property received

Illustrative example for money received:

On June 22, 20x2, AAA Company received cash from Alec A. Agustin, the proprietor, P100,000.00 as additional capital of the business.  

Analysis and Explanation:

Note: when analyzing a business transaction, the bookkeeper or analyst must look at the side or perspective of the company.   

Analysis:

• The value received by the company: money

• The value parted with by the company: implied promise to safeguard the proprietary interest. 

Explanation:

The value received by AAA Company is the money.  In exchange, AAA Co. the value parted with is the implied promise to safeguard the proprietary interest.

Therefore, in this transaction, the value received is the money and the value parted with is the implied promise to safeguard the capital of the proprietor.


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Illustrative example for property received:

On June 13, 20x2, AAA Company received a second hand elf truck worth P400,000.00 from Alec A. Agustin, the proprietor, for use in the business.

Analysis and Explanation:

Note: when analyzing a business transaction, the bookkeeper or analyst must look at the side or perspective of the company.   

Analysis:

• The value received by the company: car

• The value parted with by the company: implied promise to safeguard the proprietary interest 

Explanation:

The value received by AAA Company is a form of property - the car. In exchange, AAA Co. value parted with is the implied promise to safeguard the proprietary interest.  The car increases the capital because it represents a capital contribution.

Therefore, in this transaction, the value received is the car and the value parted with is the implied promise to safeguard the proprietary interest.


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Cancellation of oral promise to pay is the value parted with in consideration for the money received

Cancellation of oral promise to pay is the value parted with in consideration for the money received

Illustrative example:

On June 19, 20x2, AAA Trucking Services Company received P15,000.00 cash from KES Engineering Services, as full payment of their account with AAA. 

Analysis and Explanation:

Note: when analyzing a business transaction, the bookkeeper or analyst must look at the side or perspective of the company.   

Analysis:

• The value received by the company: money

• The value parted with by the company: cancellation of oral promise to pay

Explanation:

The value received by AAA Company is the money.  In exchange, AAA Co. parted with is the cancellation or deletion of debt (oral promise to pay) of KES.

Therefore, in this transaction, the value received is the money and the value parted with is the cancellation of oral promise to pay.


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Cancellation of oral promise to pay is the value received in consideration for the money parted with

Cancellation of oral promise to pay is the value received in consideration for the money parted with

Illustrative example:

On June 29, 20x2, AAA Trucking Services Company paid cash, P15,000.00 to BS Accounting Firm in full payment of AAA account with BS.

Analysis and Explanation:

Note: when analyzing a business transaction, the bookkeeper or analyst must look at the side or perspective of the company.   

Analysis:

• The value received by the company: cancellation of oral promise to pay

• The value parted with by the company: money

Explanation:

The value received by AAA Company is the cancellation of oral promise to pay BS.  In exchange, AAA Co. parted with is money.

Therefore, in this transaction, the value received is the cancellation of oral promise to pay and the value parted with is the money.


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An oral promise (by an individual or entity) to pay is the value parted with in exchange for the hire (or use) of the property

An oral promise (by an individual or entity) to pay is the value parted with in exchange for the hire (or use) of the property of another

Illustrative example:

On June 20 20x2, AAA Trucking Services Company received a bill, P12,000.00, of Tenzai Real Estate & Development Company, owner of the big-sized lot which AAA. uses to park its delivery trucks, covering the rental for the month, which AAA promises to pay at the end of the month.  

Analysis and Explanation:

Note: when analyzing a business transaction, the bookkeeper or analyst must look at the side or perspective of the company.   

Analysis:

• The value received by the company: hire or use of the property

• The value parted with by the company: oral promise to pay  

Explanation:

The value received by AAA Company is the use of big-sized lot of Tenzai.  In exchange, AAA Co. parted with its oral promise to pay.

Therefore, in this transaction, the value received is the use of the property of another entity and the value parted with is the oral promise to pay by the company.


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An oral promise (from an individual or entity) to pay is the value received in exchange for the hire (or use) of the property

An oral promise (from an individual or entity) to pay is the value received in exchange for the hire (or use) of the property

Illustrative example:

On June, 8, 20x2, AAA Trucking Services Company sent a bill, P15,000.00, to KES Engineering Services for the hire of delivery truck which they promised to pay on 20th of the month.

Analysis and Explanation:

Note: when analyzing a business transaction, the bookkeeper or analyst must look at the side or perspective of the company.   

Analysis:

• The value received by the company: oral promise to pay from an entity

• The value parted with by the company: hire of the company property  

Explanation:

The value received by AAA Company is the oral promise to pay from KES in exchange for the hire or use of delivery truck.

Therefore, in this transaction, the value received is the oral promise to pay from an entity and the value parted with is the hire of the company property.


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