A student was really stumped trying to understand the concept of debits and credits. He said...
A student was really stumped trying to understand the concept of debits and credits. He said to his professor, "I just don't understand why a cash account decreases when it is credited and a liability account increases when it is credited.”
Homework Answers
Cash is an asset. Assets are what the business owns. For assets, the rule is ' Debit what comes in, and Credit what goes out. ' Therefore, cash account getting credited means cash has gone out of the business or has decreased.
Liabilities are what the business owes to other entities. The rule is ' Debit the receiver, and Credit the giver. ' Therefore, when a liability account is credited, it means that an entity has given to the business on credit, and the business owes more to outsiders.
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