Introduction to Accounting

.By Harold Averkamp (CPA).

Introduction to Debits and Credits

If the words "debits" and "credits" sound like a foreign language to you, you are more perceptive than you realize—"debits" and "credits" are words that have been traced back five hundred years to a document describing today's double-entry accounting system.

Under the double-entry system every business transaction is recorded in at least two accounts. One account will receive a "debit" entry, meaning the amount will be entered on the left side of that account. Another account will receive a "credit" entry, meaning the amount will be entered on the right side of that account. The initial challenge with double-entry is to know which account should be debited and which account should be credited.

Before we explain and illustrate the debits and credits in accounting and bookkeeping, we will discuss the accounts in which the debits and credits will be entered or posted.

What Is An Account?

To keep a company's financial data organized, accountants developed a system that sorts transactions into records called accounts. When a company's accounting system is set up, the accounts most likely to be affected by the company's transactions are identified and listed out. This list is referred to as the company's chart of accounts. Depending on the size of a company and the complexity of its business operations, the chart of accounts may list as few as thirty accounts or as many as thousands. A company has the flexibility of tailoring its chart of accounts to best meet its needs.

Within the chart of accounts the balance sheet accounts are listed first, followed by the income statement accounts. In other words, the accounts are organized in the chart of accounts as follows:

• Assets
• Liabilities
• Owner's (Stockholders') Equity
• Revenues or Income
• Expenses
• Gains
• Losses

Double-Entry Accounting

Because every business transaction affects at least two accounts, our accounting system is known as a double-entry system. (You can refer to the company's chart of accounts to select the proper accounts. Accounts may be added to the chart of accounts when an appropriate account cannot be found.)

For example, when a company borrows $1,000 from a bank, the transaction will affect the company's Cash account and the company's Notes Payable 

account. When the company repays the bank loan, the Cash account and the Notes Payable account are also involved.

If a company buys supplies for cash, its Supplies account and its Cash account will be affected. If the company buys supplies on credit, the accounts involved are Supplies and Accounts Payable.

If a company pays the rent for the current month, Rent Expense and Cash are the two accounts involved. If a company provides a service and gives the client 30 days in which to pay, the company's Service Revenues account and

Accounts Receivable are affected.

Although the system is referred to as double-entry, a transaction may involve more than two accounts. An example of a transaction that involves three accounts is a company's loan payment to its bank of $300. This transaction will involve the following accounts: Cash, Notes Payable, and Interest Expense.

(If you use accounting software you may not actually see that two or more accounts are being affected due to the user-friendly nature of the software. For example, let's say that you write a company check by means of your accounting software. Your software automatically reduces your Cash account and prompts you only for the other accounts affected.)

Debits and Credits

After you have identified the two or more accounts involved in a business transaction, you must debit at least one account and credit at least one account.

To debit an account means to enter an amount on the left side of the account. To credit an account means to enter an amount on the right side of an account.

Debit means left
Credit means right

Generally these types of accounts are increased with a debit:

     Dividends (Draws)
     Expenses
     Assets
     Losses

You might think of D – E – A – L when recalling the accounts that are increased with a debit.

Generally these types of accounts are increased with a credit:
     Gains
     Income
     Revenues
     Liabilities
     Stockholders' (Owner's) Equity

You might think of G – I – R – L – S when recalling the accounts that are increased with a credit.

To decrease an account you do the opposite of what was done to increase the account. For example, an asset account is increased with a debit. Therefore it is decreased with a credit.

The abbreviation for debit is dr. and the abbreviation for credit is cr.

T-accounts

Accountants and bookkeepers often use T-accounts as a visual aid for seeing the effect of the debit and credit on the two (or more) accounts. (Learn more about accountants and bookkeepers in our Accounting Careers area.) We will begin with two T-accounts: Cash and Notes Payable.

Cash (asset account)

Debit Increases an asset Received $				Credit Decreases an asset Paid $

Notes Payable (liability account)

Debit Decreases a liability Repaid loan				Credit Increases a liability Borrowed more

Let's demonstrate the use of these T-accounts with two transactions:

1. On June 1, 2010 a company borrows $5,000 from its bank. This causes the company's asset Cash to increase by $5,000 and its liability Notes Payable to also increase by $5,000. To increase the asset Cash the account needs to be debited. To increase the company's liability Notes Payable this account needs to be credited. After entering the debits and credits the T-accounts look like this:

Cash (asset account)

Debit Increases an asset Received $				Credit Decreases an asset Paid $
June 1, 2010 ENTRY	5,000

Notes Payable (liability account)

Debit Decreases a liability Repaid loan				Credit Increases a liability Borrowed more
				5,000		ENTRY June 1, 2010

2. On June 2, 2010 the company repaid $2,000 of the bank loan. This causes the company's asset Cash to decrease by $2,000 and its liability Notes Payable to also decrease by $2,000. To reduce the asset Cash the account will need to be credited for $2,000. To decrease the liability Notes Payable that account will need to be debited. The T-accounts now look like this:

Cash (asset account)

Debit Increases an asset Received $				Credit Decreases an asset Paid $
June 1, 2010 ENTRY	5,000
				2,000		ENTRY June 2, 2010
June 2, 2010 BALANCE	3,000

Notes Payable (liability account)

Debit Decreases a liability Repaid loan				Credit Increases a liability Borrowed more
				5,000		ENTRY June 1, 2010
June 2, 2010 ENTRY	2,000
				3,000		BALANCE June 2, 2010

Journal Entries

Another way to visualize business transactions is to write a general journal entry. Each general journal entry lists the date, the account title(s) to be debited and the corresponding amount(s) followed by the account title(s) to be credited and the corresponding amount(s). The accounts to be credited are indented. Let's illustrate the general journal entries for the two transactions that were shown in the T-accounts above.

Date	Account Name		Debit	Credit
June 1, 2010	Cash		5,000
		Notes Payable		5,000

Date	Account Name		Debit	Credit
June 2, 2010	Notes Payable		2,000
		Cash		2,000

When Cash Is Debited and Credited

Because cash is involved in many transactions, it is helpful to memorize the following:

• Whenever cash is received, debit Cash.
• Whenever cash is paid out, credit Cash.

With the knowledge of what happens to the Cash account, the journal entry to record the debits and credits is easier. Let's assume that a company receives $500 on June 3, 2010 from a customer who was given 30 days in which to pay. (In May the company recorded the sale and an accounts receivable.) On June 3 the company will debit Cash, because cash was received. The amount of the debit and the credit is $500. Entering this information in the general journal format, we have:

Date	Account Name		Debit	Credit
June 3, 2010	Cash		500
		???		500

All that remains to be entered is the name of the account to be credited. Since this was the collection of an account receivable, the credit should be Accounts Receivable. (Because the sale was already recorded in May, you cannot enter Sales again on June 3.)

On June 4 the company paid $300 to a supplier for merchandise the company received in May. (In May the company recorded the purchase and the accounts payable.) On June 4 the company will credit Cash, because cash was paid. The amount of the debit and credit is $300. Entering them in the general journal format, we have:

Date	Account Name		Debit	Credit
June 4, 2010	???		300
		Cash		300

All that remains to be entered is the name of the account to be debited. Since this was the payment on an account payable, the debit should be Accounts Payable. (Because the purchase was already recorded in May, you cannot enter Purchases or Inventory again on June 4.)

To help you become comfortable with the debits and credits in accounting, memorize the following tip:

Whenever cash is received, the Cash account is debited (and another account is credited).

Whenever cash is paid out, the Cash account is credited (and another account is debited).

Normal Balances

When looking at a T-account for each of the account classifications in the general ledger, here is the debit or credit balance you would normally find in the account:

Account Classification	Normal Balance
Assets	Debit
Contra asset	Credit
Liability	Credit
Contra liability	Debit
Owner's Equity	Credit
Stockholders' Equity	Credit
Owner's Drawing or Dividends Account	Debit
Revenues (or Income)	Credit
Expenses	Debit
Gains	Credit
Losses	Debit

Revenues and Gains Are Usually Credited

Revenues and gains are recorded in accounts such as Sales, Service Revenues, Interest Revenues (or Interest Income), and Gain on Sale of Assets. These accounts normally have credit balances that are increased with a credit entry.

The exceptions to this rule are the accounts Sales Returns, Sales Allowances, and Sales Discounts--these accounts have debit balances because they are reductions to sales. Accounts with balances that are the opposite of the normal balance are called contra accounts; hence contra revenue accounts will have debit balances.

Let's illustrate revenue accounts by assuming your company performed a service and was immediately paid the full amount of $50 for the service. The debits and credits are presented in the following general journal format:

	Account Name		Debit	Credit
	Cash		50
		Service Revenues		50

Whenever cash is received, the asset account Cash is debited and another account will need to be credited. Since the service was performed at the same time as the cash was received, the revenue account Service Revenues is credited, thus increasing its account balance.

Let's illustrate how revenues are recorded when a company performs a service on credit (i.e., the company allows the client to pay for the service at a later date, such as 30 days from the date of the invoice). At the time the service is performed the revenues are considered to have been earned and they are recorded in the revenue account Service Revenues with a credit. The other account involved, however, cannot be the asset Cash since cash was not received. The account to be debited is the asset account Accounts Receivable. Assuming the amount of the service performed is $400, the entry in general journal form is:

	Account Name		Debit	Credit
	Accounts Receivable		400
		Service Revenues		400

Accounts Receivable is an asset account and is increased with a debit; Service Revenues is increased with a credit.

Expenses and Losses are Usually Debited

Expenses normally have their account balances on the debit side (left side). A debit increases the balance in an expense account; a credit decreases the balance. Since expenses are usually increasing, think "debit" when expenses are incurred. (We credit expenses only to reduce them, adjust them, or to close the expense accounts.) Examples of expense accounts include Salaries Expense, Wages Expense,Rent Expense, Supplies Expense, and Interest Expense.

To illustrate an expense let's assume that on June 1 your company paid $800 to the landlord for the June rent. The debits and credits are shown in the following journal entry:

	Account Name		Debit	Credit
	Rent Expense		800
		Cash		800

Since cash was paid out, the asset account Cash is credited and another account needs to be debited. Because the rent payment will be used up in the current period (the month of June) it is considered to be an expense, and Rent Expense is debited. If the payment was made on June 1 for a future month (for example, July) the debit would go to the asset account Prepaid Rent.

As a second example of an expense, let's assume that your hourly paid employees work the last week in the year but will not be paid until the first week of the next year. At the end of the year, the company makes an entry to record the amount the employees earned but have not been paid. Assuming the employees earned $1,900 during the last week of the year, the entry in general journal form is:

	Account Name		Debit	Credit
	Wages Expense		1,900
		Wages Payable		1,900

As noted above, expenses are almost always debited, so we debit Wages Expense, increasing its account balance. Since your company did not yet pay its employees, the Cash account is not credited, instead, the credit is recorded in the liability account Wages Payable. A credit to a liability account increases its credit balance.

To help you get more comfortable with debits and credits in accounting and bookkeeping, memorize the following tip:

To increase an expense account, debit the account.

Permanent and Temporary Accounts

Asset, liability, and most owner/stockholder equity accounts are referred to as "permanent accounts" (or "real accounts"). Permanent accounts are not closed at the end of the accounting year; their balances are automatically carried forward to the next accounting year.

"Temporary accounts" (or "nominal accounts") include all of the revenue accounts, expense accounts, the owner drawing account, and the income summary account. Generally speaking, the balances in temporary accounts increase throughout the accounting year and are "zeroed out" and closed at the end of the accounting year.

Balances in the revenue and expense accounts are zeroed out by closing/transferring/clearing their balances to the Income Summary account. The net amount in Income Summary is then closed/transferred/cleared to an owner equity account, such as Mary Smith, Capital (or to Retained Earnings if the company is a corporation). The owner drawing account (such as Mary Smith, Drawing) is a temporary account and it is closed directly to the owner capital account (such as Mary Smith, Capital) without going through an income summary account.

Because the balances in the temporary accounts are transferred out of their respective accounts at the end of the accounting year, each temporary account will have a zero balance when the next accounting year begins. This means that the new accounting year starts with no revenue amounts, no expense amounts, and no amount in the drawing account.

By using many revenue accounts and a huge number of expense accounts, a company is certain to have easy access to detailed information on revenues and expenses throughout the year. This allows the management of the company to monitor the performance of all parts of the company. Once the accounting year has ended, the need to know the balances in these temporary accounts has also ended, so the accounts are closed out and reopened for the next accounting year with zero balances.

Bank's Debits and Credits

When you hear your banker say, "I'll credit your checking account," it means the transaction will increaseyour checking account balance. Conversely, if your bank debits your account (e.g., takes a monthly service charge from your account) your checking account balance decreases.

If you are new to the study of debits and credits in accounting, this may seem puzzling. After all, you learned that debiting the Cash account in the general ledger increases its balance, yet your bank says it iscrediting your checking account to increase its balance. Similarly, you learned that crediting the Cash account in the general ledger reduces its balance, yet your bank says it is debiting your checking account to reduce its balance.

Although the above may seem contradictory, we will illustrate below that a bank's treatment of debits and credits is indeed consistent with the basic accounting principles you learned. Let's look at three transactions and consider the resultant journal entries from both the bank's perspective and the company's perspective.

Transaction #1

Let's say that your company, Debris Disposal, receives $100 of currency from a customer as a down payment for a future site cleanup service. When the money is received your company makes the following entry:

(Debris Disposal's journal entry)

	Account Name		Debit	Credit
	Cash		100
		Unearned Revenues		100

Because it has received cash, Debris Disposal increases its Cash account with a debit of $100. The rules of double entry accounting require Debris Disposal to also enter a credit of $100 into another of its general ledger accounts. Since the company has not yet earned the $100, it cannot credit a revenue account. Instead, the liability account Unearned Revenues is credited because Debris Disposal has a liability to do the work or to return the $100. (An alternate title for the Unearned Revenues account is Customer Deposits.)

Now let's say you take that $100 to Trustworthy Bank and deposit it into Debris Disposal's checking account. Trustworthy Bank debits the bank's general ledger Cash account for $100, thereby increasing the bank's assets. The rules of double entry accounting require the bank to also enter a credit of $100 into another of bank's general ledger accounts. Because the bank has not earned the $100, it cannot credit a revenue account. Instead, the bank credits its liability account Deposits to reflect the bank's obligation/liability to return the $100 to Debris Disposal on demand. In general journal format the bank's entry is:

(Trustworthy Bank's journal entry)

	Account Name		Debit	Credit
	Cash		100
		Deposits (your statement)		100

As the entry shows, the bank's assets increase by the debit of $100 and the bank's liabilities increase by the credit of $100. The bank's detailed records show that Debris Disposal's checking account is the specific liability that increased.

Transaction #2

Let's say Trustworthy Bank receives a $1,000 wire transfer on your company's behalf from a person who owes money to Debris Disposal. Two things happen at the bank: (1) The bank receives $1,000, and (2) the bank records its obligation to give the money to Debris Disposal on demand. These two facts are entered into the bank's general ledger as follows:

(Trustworthy Bank's journal entry)

	Account Name		Debit	Credit
	Cash		1,000
		Deposits (your statement)		1,000

The debit increases the bank's assets by $1,000 and the credit increases the bank's liabilities by $1,000. The bank's detailed records show that Debris Disposal's checking account is the specific liability that increased.

At the same time the $1,000 wire transfer is received at the bank, Debris Disposal makes the following entry into its general ledger:

(Debris Disposal's journal entry)

	Account Name		Debit	Credit
	Cash		1,000
		Accounts Receivable		1,000

As a result of collecting $1,000 from one of its customers, Debris Disposal's Cash balance increases and its Accounts Receivable balance decreases.

Transaction #3

Many banks charge a monthly fee on checking accounts. If Trustworthy Bank decreases Debris Disposal's checking account balance by $13.00 to pay for the bank's monthly service charge, this might be itemized on Debris Disposal's bank statement as a "debit memo." The entry in the bank's records will show the bank's liability being reduced (because the bank owes Debris Disposal $13 less). It also shows that the bank earned revenues of $13 by servicing the checking account.

(Trustworthy Bank's general ledger)

	Account Name		Debit	Credit
	Deposits (your statement)		13
		Service Charge Revenues		13

On your company's records, the entry will look like this:

(Debris Disposal's general ledger)

	Account Name		Debit	Credit
	Bank Service Charges Expense		13
		Cash		13

Debris Disposal's cash is reduced with a credit of $13 and expenses are increased with a debit of $13. (If the amount of the bank's service charges is not significant a company may debit the charge to Miscellaneous Expense.)

Bank's Balance Sheet

Accounts such as Cash, Investment Securities, and Loans Receivable are reported as assets on the bank's balance sheet. Deposits are reported as liabilities and include the balances in its customers' checking and savings accounts as well as certificates of deposit. In effect, your bank statement is just one of thousands of subsidiary records that account for millions of dollars in Deposits that a bank owes to its customers.

Recap

Here are some of the highlights from this major topic:

• Debit means left.
• Credit means right.
• Every transaction affects two accounts or more.
• At least one account will be debited and at least one account will be credited.
• The total of the amount(s) entered as debits must equal the total of the amount(s) entered as credits.
• When cash is received, debit Cash.
• When cash is paid out, credit Cash.
• To increase an asset, debit the asset account.
• To increase a liability, credit the liability account.
• To increase owner's equity, credit an owner's equity account.
• To increase revenues, credit the revenues account
• To increase expenses, debit the expense accoun

Introduction to Chart of Accounts

A chart of accounts is a listing of the names of the accounts that a company has identified and made available for recording transactions in its general ledger. A company has the flexibility to tailor its chart of accounts to best suit its needs, including adding accounts as needed.

Within the chart of accounts you will find that the accounts are typically listed in the following order:

	Balance sheet accounts	Assets Liabilities Owner's (Stockholders') Equity
	Income statement accounts	Operating Revenues Operating Expenses Non-operating Revenues and Gains Non-operating Expenses and Losses

Within the categories of operating revenues and operating expenses, accounts might be further organized by business function (such as producing, selling, administrative, financing) and/or by company divisions, product lines, etc.

A company's organization chart can serve as the outline for its accounting chart of accounts. For example, if a company divides its business into ten departments (production, marketing, human resources, etc.), each department will likely be accountable for its own expenses (salaries, supplies, phone, etc.). Each department will have its own phone expense account, its own salaries expense, etc.

A chart of accounts will likely be as large and as complex as the company itself. An international corporation with several divisions may need thousands of accounts, whereas a small local retailer may need as few as one hundred accounts.

Sample Chart of Accounts For a Large Corporation

Each account in the chart of accounts is typically assigned a name and a unique number by which it can be identified. (Software for some small businesses may not require account numbers.) Account numbers are often five or more digits in length with each digit representing a division of the company, the department, the type of account, etc.

As you will see, the first digit might signify if the account is an asset, liability, etc. For example, if the first digit is a "1" it is an asset. If the first digit is a "5" it is an operating expense.

A gap between account numbers allows for adding accounts in the future. The following is a partial listing of a sample chart of accounts.

Current Assets (account numbers 10000 - 16999)

10100   Cash - Regular Checking
10200   Cash - Payroll Checking
10600   Petty Cash Fund
12100   Accounts Receivable
12500   Allowance for Doubtful Accounts
13100   Inventory
14100   Supplies
15300   Prepaid Insurance

Property, Plant, and Equipment (account numbers 17000 - 18999)

17000   Land
17100   Buildings
17300   Equipment
17800   Vehicles
18100   Accumulated Depreciation - Buildings
18300   Accumulated Depreciation - Equipment
18800   Accumulated Depreciation - Vehicles

Current Liabilities (account numbers 20000 - 24999)

20100   Notes Payable - Credit Line #1
20200   Notes Payable - Credit Line #2
21000   Accounts Payable
22100   Wages Payable
23100   Interest Payable
24500   Unearned Revenues

Long-term Liabilities (account numbers 25000 - 26999)

25100   Mortgage Loan Payable
25600   Bonds Payable
25650   Discount on Bonds Payable

Stockholders' Equity (account numbers 27000 - 29999)

27100 Common Stock, No Par
27500 Retained Earnings
29500 Treasury Stock

Operating Revenues (account numbers 30000 - 39999)

31010   Sales - Division #1, Product Line 010
31022   Sales - Division #1, Product Line 022
32015   Sales - Division #2, Product Line 015
33110   Sales - Division #3, Product Line 110

Cost of Goods Sold (account numbers 40000 - 49999)

41010   COGS - Division #1, Product Line 010
41022   COGS - Division #1, Product Line 022
42015   COGS - Division #2, Product Line 015
43110   COGS - Division #3, Product Line 110

Marketing Expenses (account numbers 50000 - 50999)

50100   Marketing Dept. Salaries
50150   Marketing Dept. Payroll Taxes
50200   Marketing Dept. Supplies
50600   Marketing Dept. Telephone

Payroll Dept. Expenses (account numbers 59000 - 59999)

59100   Payroll Dept. Salaries
59150   Payroll Dept. Payroll Taxes
59200   Payroll Dept. Supplies
59600   Payroll Dept. Telephone

Other (account numbers 90000 - 99999)

91800   Gain on Sale of Assets
96100   Loss on Sale of Assets

Sample Chart of Accounts for a Small Company

This is a partial listing of another sample chart of accounts. Note that each account is assigned a three-digit number followed by the account name. The first digit of the number signifies if it is an asset, liability, etc. For example, if the first digit is a "1" it is an asset, if the first digit is a "3" it is a revenue account, etc. The company decided to include a column to indicate whether a debit or credit will increase the amount in the account. This sample chart of accounts also includes a column containing a description of each account in order to assist in the selection of the most appropriate account.

 Asset Accounts

No.	Account Title	To Increase	Description/Explanation of Account
101	Cash	Debit	Checking account balance (as shown in company records), currency, coins, checks received from customers but not yet deposited.
120	Accounts Receivable	Debit	Amounts owed to the company for services performed or products sold but not yet paid for.
140	Merchandise Inventory	Debit	Cost of merchandise purchased but has not yet been sold.
150	Supplies	Debit	Cost of supplies that have not yet been used. Supplies that have been used are recorded in Supplies Expense.
160	Prepaid Insurance	Debit	Cost of insurance that is paid in advance and includes a future accounting period.
170	Land	Debit	Cost to acquire and prepare land for use by the company.
175	Buildings	Debit	Cost to purchase or construct buildings for use by the company.
178	Accumulated Depreciation - Buildings	Credit	Amount of the buildings' cost that has been allocated to Depreciation Expense since the time the building was acquired.
180	Equipment	Debit	Cost to acquire and prepare equipment for use by the company.
188	Accumulated Depreciation - Equipment	Credit	Amount of equipment's cost that has been allocated to Depreciation Expense since the time the equipment was acquired.

 Liability Accounts

No.	Account Title	To Increase	Description/Explanation of Account
210	Notes Payable	Credit	The amount of principal due on a formal written promise to pay. Loans from banks are included in this account.
215	Accounts Payable	Credit	Amount owed to suppliers who provided goods and services to the company but did not require immediate payment in cash.
220	Wages Payable	Credit	Amount owed to employees for hours worked but not yet paid.
230	Interest Payable	Credit	Amount owed for interest on Notes Payable up until the date of the balance sheet. This is computed by multiplying the amount of the note times theeffective interest rate times the time period.
240	Unearned Revenues	Credit	Amounts received in advance of delivering goods or providing services. When the goods are delivered or services are provided, this liability amount decreases.
250	Mortgage Loan Payable	Credit	A formal loan that involves a lien on real estate until the loan is repaid.

 Owner's Equity Accounts

No.	Account Title	To Increase	Description/Explanation of Account
290	Mary Smith, Capital	Credit	Amount the owner invested in the company (through cash or other assets) plus earnings of the company not withdrawn by the owner.
295	Mary Smith, Drawing	Debit	Amount that the owner of the sole proprietorship has withdrawn for personal use during the current accounting year. At the end of the year, the amount in this account will be transferred into Mary Smith, Capital (account 290).

 Operating Revenue Accounts

No.	Account Title	To Increase	Description/Explanation of Account
310	Service Revenues	Credit	Amounts earned from providing services to clients, either for cash or on credit. When a service is provided on credit, both this account and Accounts Receivable will increase. When a service is provided for immediate cash, both this account and Cash will increase.

 Operating Expense Accounts

No.	Account Title	To Increase	Description/Explanation of Account
500	Salaries Expense	Debit	Expenses incurred for the work performed by salaried employees during the accounting period. These employees normally receive a fixed amount on a weekly, monthly, or annual basis.
510	Wages Expense	Debit	Expenses incurred for the work performed by non-salaried employees during the accounting period. These employees receive an hourly rate of pay.
540	Supplies Expense	Debit	Cost of supplies used up during the accounting period.
560	Rent Expense	Debit	Cost of occupying rented facilities during the accounting period.
570	Utilities Expense	Debit	Costs for electricity, heat, water, and sewer that were used during the accounting period.
576	Telephone Expense	Debit	Cost of telephone used during the current accounting period.
610	Advertising Expense	Debit	Costs incurred by the company during the accounting period for ads, promotions, and other selling and expenses (other than salaries).
750	Depreciation Expense	Debit	Cost of long-term assets allocated to expense during the current accounting period.

 Non-Operating Revenues and Expenses, Gains, and Losses

No.	Account Title	To Increase	Description/Explanation of Account
810	Interest Revenues	Credit	Interest and dividends earned on bank accounts, investments or notes receivable. This account is increased when the interest is earned and either Cash or Interest Receivable is also increased.
910	Gain on Sale of Assets	Credit	Occurs when the company sells one of its assets (other than inventory) for more than the asset's book value.
960	Loss on Sale of Assets	Debit	Occurs when the company sells one of its assets (other than inventory) for less than the asset's book value.

Accounting software frequently includes sample charts of accounts for various types of businesses. It is expected that a company will expand and/or modify these sample charts of accounts so that the specific needs of the company are met. Once a business is up and running and transactions are routinely being recorded, the company may add more accounts or delete accounts that are never used.

At Least Two Accounts for Every Transaction

The chart of accounts lists the accounts that are available for recording transactions. In keeping with thedouble-entry system of accounting, a minimum of two accounts is needed for every transaction—at least one account is debited and at least one account is credited.

When a transaction is entered into a company's accounting software, it is common for the software to prompt for only one account name—this is because the software is programmed to automatically assign one of the accounts. For example, when using accounting software to write a check, the software automatically reduces the asset account Cash and prompts you to designate the other account(s) such as Rent Expense, Advertising Expense, etc..

Some general rules about debiting and crediting the accounts are:

• Expense accounts are debited and have debit balances
• Revenue accounts are credited and have credit balances
• Asset accounts normally have debit balances
• To increase an asset account, debit the account
• To decrease an asset account, credit the account
• Liability accounts normally have credit balances
• To increase a liability account, credit the account
• To decrease a liability account, debit the account