Question

1)What do the terms 'debit' and 'credit' mean from an accounting perspective? What are the two primary rules of debits and credits?2. ) How do these impact the various types of accounts (assets, liabilities, expenses, revenues, distributions to owners, and equity)? 3) How do they help ensure that an illogical journal entry cannot be made? 4)Provide at least one example of an illogical entry. Why would this be illogical?

Answer 1

1) Debit means it increases an expense account or an asset account or decreases a liability account or decreases an Equity account, and it is always on the left side of General Ledger Account.

Credit means it increases a liability account or increases an Equity account or Decreases an Expense account or Deceases an asset account and it is always on the right side of General Ledger Account.

2)

3) As per the doubt accounting system both Debit and Credit terms have an equal impact and due to that the amount involved in any transaction will be equal value in order to prepare a journal entry. It means always Debit equals to Credit and if a journal entry is prepared by stating more value on Debit side compare with Credit or vise versa then it can be understand that journal entry has no logic.

4)

Example of illogical journal entry:

Suppose, a company has purchased an asset costing $10,000 by paying $6,000 in cash and by issuing 6% note for remaining $4,000 on 5th of December, 2018.

For the above transaction, the illogical journal entry is -

As per the accounting rule (double accounting system), Debit and Credit should have an equal balance. In the above journal entry, the debit value of $10,000 is not equal to the total value of $6,000. Hence, it is illogical.

The correct journal entry is shown below which has a logic of both Debit and Credit have an equal balance: