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Why are assets and expenses increased with a debit?

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Why are assets and expenses increased with a debit?
posted Jun 29, 2017 by Prajwal C.m.

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Let's use two transactions to illustrate why assets and expenses are increased with a debit: 1) A company pays $25,000 for a new delivery van, and 2) A company pays $800 for the current month's rent.

In both of the transactions the company pays cash at the time of the transaction. In each of the transactions the Cash account is credited. Therefore, each transaction will require a debit to another account. (Recall that double-entry bookkeeping requires at least one debit and one credit when recording a transaction.)

In the first transaction, the debit will be to a long term asset account such as Delivery Vehicles. In this transaction the asset Delivery Vehicles was increased with a debit and the asset Cash was decreased with a credit. The accounting equation (A=L+OE) remains in balance because one asset increased by $25,000 and one asset decreased by $25,000.

In the second transaction, the debit will be to Rent Expense since the amount will be used up in the current accounting period. (If the amount was a prepayment of a future period's rent, the amount would have been debited to the asset account Prepaid Rent.) Since Rent Expense reduces net income, it also reduces owner's or stockholders' equity, which normally have credit balances. The accounting equation will show assets decreasing by the reduction in cash and owner's or stockholders' equity decreasing because of the expense.

The asset Delivery Vehicle is an asset, but will become Depreciation Expense over the life of the vehicle. The rent is an immediate expense because there is no future accounting period benefiting from the current month's rent.

answer Jun 30, 2017 by Abu Anam
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