G'day it's Justin Hogg from Right Source we're just taking you through some
accounting basics for those of you in business who want to understand what it
is your accountant does or just wants to have a better understanding of the
financial side of how things work in terms of the records and your accounting
records in your business so today what I wanted to talk you through is explain
what a debit and a credit is now this is the building block of all accounting so
every transaction we do in accounting has a debit and credit so what I want to
do today was try and understand for those who wanted to understand that I
suppose the conceptual idea of what they mean and how they're used so the way I like
to explain debits and credits, debits is when you get something, credits are when you
give something away that's simplistically how you look at it so a
debit is when you, I like this, for example if you went and bought a muffin
from the shop that muffin is a cost of the business you get that muffin so it's
a debit, similarly if you were to give someone a muffin that is a credit so
it's recorded in your accounts as a credit now that's really conceptual what
might make help this make a little bit more sense if we talk about assets
and expenses and revenue and liability okay so when you get something it's a
debit now debit can either be normally an expense or an asset now an expense is
when you use something straight away so if say you got that muffin you ate it
straight away well you've consumed that muffin it's an
expense to the business so that's a debit, if for example rather than buying
a muffin you want it to make your own muffin so you bought an oven
well that oven would still be, if you got that oven, so you receive something that
oven would still be a debit to the business but because you can use that
oven later to make muffins it's an asset so an expense is something you get but
you use now, an asset is something you get that use later and they're both
debits because you get them, credits are what you give away so if you were
selling muffins and you gave someone a muffin that's a
credit and that's revenue so when you're looking in your business's revenue is
credit and that's when you give something away or in fact you're selling
something, you're giving something away so that giving is the credit, if you
promise to give someone a muffin later you haven't given anything away yet you
promising to give it away in the future so still giving something away so that's
a liability and it's a credit so that's a really quick way of looking at debits
and credits now the other thing too that's important with debits and credits
in accounting is that accounting is all about balance so for if you look at it
from a scientific point of view for every action there's an opposite and
equal reaction the same principle for every debit there's a credit they have
to equal because it's always a balance and each transaction have there's always
two sides so there's always something you give and always something you get
and every every transaction that happens in your business there's always two
sides to that transaction once you understand the give and the get you can
work out the debit and credit and then from working out the debit and credit
you can work out whether it's an expense or an asset, revenue or a liability that is
what the entire world of accounting is built on that debit and credit and that
concept so whether you're a student going through university trying to get a
handle on debits and credits or whether you're a business owner who just wants
to understand what their accountant does and how they've compiled the financial
statements that's what it's all based on so hopefully that gives you a little bit
of an insight into one of the peculiarities of accounting if there's
any, if you want to look at some more videos we've got some more about
accounting basics we're doing recently but we've also got some budgeting tips
check out the YouTube channel, subscribe below otherwise I'll look
forward to catching you guys next time it's Justin Hogg from Right Source